It’s the hottest topic in online advertising—automated real-time auctions of advertising space and website inventory—known as real-time bidding (RTB) for short. In Switzerland, this is often referred to as Real-Time Advertising (RTA). In the U.S., revenue from display advertising via RTA already stood at around two billion dollars in 2012. Market researchers at IDC are even forecasting nine billion for 2016. Switzerland and Germany are lagging far behind. Here, website operators and their marketers—especially those in the premium segment—tend to be rather cautious when it comes to RTA.
Low-quality display inventory via RTA
In Switzerland, it is currently nearly impossible to transparently purchase «top-of-the-fold» display inventory on premium websites through RTA. The reason: There are hardly any offers. As long as not all publishers participate, making their inventory available for RTA would cannibalize their traditional premium business overnight. Under the current conditions of RTA in Switzerland, the few participants on the advertiser side could cherry-pick the best spots from the inventory pie for very little advertising spend. And this despite the fact that the pie would be baked with more data and more targeting than before. Publishers therefore fear that real-time trading will drive prices down. They assume that ad spaces would yield less than they would earn by marketing them themselves. From their perspective, satisfactorily monetizing website inventory through RTA would thus become considerably more difficult. Unless, that is, they worked with minimum price thresholds. However, this would then render the goal of automated and fair pricing between advertising media on the one hand and inventory and user contacts on the other via real-time trading completely meaningless.
No automated real-time trading without transparency
Transparency is important to advertisers. They want to know on which websites and in which contexts their ads are being served. They want certainty—especially when it comes to CPM or CPC billing—regarding the actual advertising performance delivered. Time and again in the past, ads have been served on websites or in contexts where advertisers did not want their products or services to appear. For many advertisers, this makes RTA unattractive today. What exactly are they supposed to bid on? It’s a chicken-and-egg problem that needs to be solved. After all, the advantages of RTA are obvious: significantly reduced transaction costs and the ability to display the right ad to the right user at the right time in the right place. It is a fallacy to assume that RTA prioritizes price over quality. The opposite is true: when properly implemented, RTA can improve quality and thereby justify higher prices. All market participants could benefit from this.
The Solution: The Image-Text Display
Bidding—that’s real-time performance in its purest form. Consequently, the solution to the chicken-and-egg problem could lie in an ad format that is already performance-oriented and, above all, traded transparently: the image-text ad. If publishers, in clear distinction from their display inventory, approve only image-text ads for transparent real-time advertising, the risk of a price decline in their premium business no longer exists. The ad format would be positioned well below the fold and clearly distinct from branding-oriented budgets. Within the image-text ad ecosystem, corresponding demand from advertisers could quickly build up. Furthermore, this approach would allow both sides—publishers and advertisers—to gain experience in the RTA business, take their first steps together, and learn how to navigate the new business model.
Once image-text ads have reached a critical mass of advertisers using RTA, competition can drive prices to realistic levels. In the next step, additional inventory could then be made available for RTA that would otherwise be marketed directly by publishers. The major advantage of this step-by-step approach is that the new system would be well-established and sufficient volume would be available. The path would be clear for real-time auctioned display inventory, as the obstacles for publishers—cannibalization of premium inventory and cherry-picking by a small number of advertisers—would thus be eliminated. In the process, website operators and marketers could even generate more revenue: Because RTA delivers ads in a smarter, more performance-oriented way—thanks to the availability of more data and the system’s transparency—advertisers will be more than happy to spend their money. This also makes a shift in budgets from text-only ads to image-text formats based on RTA likely. This, in turn, would benefit marketers.
The image-text format would once again prove to be a driver of an innovative business model, just as it has been—in clear distinction from branding—in the cases of CPC and performance advertising as a whole. This ad format is effective because it is integrated into the internet user’s reading flow without being disruptive. The basis for ad exchange via RTA would be the creation of a uniform standard for image-text ads. However, since all Swiss players offering these ads—including Facebook—differ only very slightly from one another, this should not pose an obstacle to simple and rapid integration into the IAB standard or the Open RTB 2.0 image-text standard.
Conclusion:
If publishers made their display inventory available transparently via RTA, the currently low demand on the advertiser side would undermine fair pricing. When it comes to RTA, Switzerland is a black box. RTA currently operates exclusively through display inventory on non-premium and, above all, cross-border platforms. For advertisers, there is a lack of transparency and any incentive to rely on RTA. Real-time trading is purely performance-oriented. Therefore, a sensible first step would be to agree to introduce RTA for image-text ads. These are already traded in a purely performance-oriented and transparent manner. This would allow the new technology to be adopted for the benefit of all market participants and help build sufficient demand-side volume. In a subsequent step, it would be possible to expand RTA to display inventory, as the barriers to meaningful competition would have been removed. In this way, image-text ads could become a real catalyst for RTA in Switzerland.
Alexander Beyer
Contributed by Henning Lange, CEO of Adcloud