The Rise of 'Real-Time' Ad Spending
Posted: 11/15/2013  |  By: Rob Tornoe
Every newspaper editor in America understands the main financial issue threatening journalism in the 21st century—digital ad dimes are replacing display ad dollars. As Digital First Media’s Editor-in-Chief Jim Brady is fond of noting, in order for online journalism to be financially viable, media companies need to learn how to stack those digital dimes.

What if I told you those dimes could be turning into digital pennies?

A new technology known as real-time ad bidding (RTB) threatens to undermine the online business many media companies have built their online strategy around—placing displays ads sold in-house next to content and racking up ad impressions.

Here’s how RTB works. Say you’re shopping for sneakers at Amazon, and you add a pair of shoes into your shopping cart, but don’t pull the trigger to  purchase them. A cookie is stored with that activity, and when you go to the next website, a process is triggered in real-time through a series of calculations and algorithms too complicated for me to explain.

The cookie basically says, “Hey, Bob’s on the New York Times website right now. Do you want to purchase an individual ad to show him while he’s there?” Amazon says yes, and when Bob’s page finishes loading, viola! There’s an ad for the very sneaker he almost purchased just minutes earlier.

This happens all within a fraction of a second.

So, why is this a threat? RTB allows companies to target individual users and deliver hyper-relevant ads, increasing click-through rates and conversions. And while your remnant inventory has already driven cpms down below $1 per thousand impressions by analytically targeting demographics across multiple media properties, RTB allows advertisers to drill their targeting down to an individual ad buy, increasing the effectiveness and lowering the cost for advertisers.

Advertisers love this new approach, as well as the simplicity of dealing with one dashboard to manage their campaign, as opposed to have to work with individual reps at various media properties. In 2013, 19 percent of all display ads purchased in the U.S. (totaling $3.34 billion) will go towards RTB, an increase of 74 percent over last year. With a high adoption rate and satisfied advertisers, you can expect those numbers to continue to grow exponentially.

For publishers, it means more and more ad dollars will end up in the hands of tech middlemen developing and maintaining the technology, leaving less left over for publishers. While this is great news for the ad tech industry, it could possibly make things tougher for publishers in need of revenue to pay their content creators. 

“Most publishers are not thinking about taking advantage of RTB, they’re focused on how to mitigate the losses,” says Craig Frederickson, Vice President of eMarketer, a digital marketing research firm. “The reason is that the growth of programmatic advertising, particularly on ad networks, has meant a dramatic shift in ad pricing and ultimately caused ad prices to drop relatively dramatically in the display space.”

So, how can publishers respond to this latest shift in online ad sales? Many, like the New York Times and the Wall Street Journal, are turning to more sponsorships and custom ad executions as a way to provide the most premium ad placements possible. Others, such as Buzzfeed and Mashable, are beginning to offer ads that are completely customized and unique, often utilizing a specialized format that make an advertiser feel and look special, leading to stronger brand recognition at a premium cost.

Even publishers who refused to sell online display ads through programmatic channels earlier in the year, like ESPN and USA Today, have changed their tune. The New York Times went so far as to hire a programmatic advertising director, Matt Prohaska, after recognizing they were falling behind in the market. Barry Lowenthal, the President of Media Kitchen, thinks most publishers will realize in the next 12 months that avoiding programmatic sales all together will severely impede their ability to compete.

In a sense, the advent of RTB could be an opportunity for mid-sized publications, as it offers small businesses that might not be able to afford to pay display ad rates an opportunity to promote themselves. The downside is the technology to develop an in-house RTB network is complex and expensive, and only being utilized so far by larger properties, like the New York Times. Also, smaller publications have a smaller audience, meaning a portion of the impressions a local small business would want to buy might end up on another publisher’s website in order to total the number of impressions needed to turn some level of profit. 

The growth in RTB and programmatic ad sales comes on the heels of an unexpected surge in mobile spending, which has grown to an estimated $6.2 billion annually. Media companies have felt a pinch from mobile, where single column content display means less content on a page, and less room for the premium advertising spots they’ve built their desktop business on, despite their investments in mobile platforms.

“Publishers have invested more, but at the same time, the money they’re making from mobile is much lower simply because of the amount of inventory a publisher needs to fill,” said Frederickson. “The audience size on a publisher’s mobile site is also variable and fragmented from an advertiser’s perspective, which is why platforms like Facebook and Twitter are demanding so much attention.”

It all comes down to approach. While most publishers focus on premium display ads to generate the bulk of their revenue on their desktop site, their mobile sites are filled with small, horizontal ads that don’t move the needle. Flipboard has developed an interesting interface on mobile that online publishers might look to for inspiration. As readers flip through a story, Flipboard offers up full-screen display ads in an unobtrusive way, allowing more lucrative branding campaigns to help fill their mobile coffers.

The one positive sign for publishers is that, like RTB, mobile ad sales still represent only a fraction of the total ad spending. Whether publishers like it or not, programmatic ad buying and RTB have reached a point of no return, and their share of the online advertising pie will only continue to grow. As Jack Marshall at Digiday noted, at the end of the day, publishers will be forced to sell how buyers want to buy. It’s up to them to figure out how to make it profitable.

Rob Tornoe is a cartoonist and reporter for
Editor & Publisher, and can be reached at robtornoe@gmail.com.