One of the most common questions that marketers face in buying display advertising is whether to contact a publisher or ad network directly to purchase inventory (called a Direct Buy), or through indirect channels using real-time bidding (RTB) systems.
To those with experience in the RTB realm, it’s well understood by now that there is an element of unpredictability and fluctuation in the availability and consistency of volume from specific publishers or sources of ad inventory. This can often lead to frustration, especially when trying to optimize and automate your campaigns.
To appreciate why this happens, it helps to understand how ad inventory becomes available in the RTB ecosystem, how direct sales orders (aka insertion orders) affect the amount of inventory available, and the interplay between the two sales channels for website publishers.
The Publisher’s Dilemma
Website publishers are in a tough position. They have a strong desire to increase their advertising revenue with as little headache as possible. For publishers needing a quick revenue solution, outsourcing the whole process to Google AdSense has typically been the easiest way to go. The problems with AdSense, however, are that it’s restricted to buyers on the AdWords platform, the revenue model lacks transparency, and the revenue yield to the publisher is low.
More savvy publishers — often with larger amounts of traffic and higher revenue goals — either turn to selling their inventory directly to advertisers through direct ad sales, or by outsourcing it to an ad network that handles it on their behalf. Direct ad sales typically yield the highest RPM (Revenue Per Mille — or revenue per thousand pageviews) for publishers, especially if their inventory is highly sought-after. Direct sales usually require more technology, like an ad server, as well as people to handle ad operations (like setting up campaigns, updating creatives and managing clients).
The downside to this process is that it’s very inefficient for both publishers and advertisers: it requires numerous manual tasks, such as negotiating and transmitting contracts, trafficking campaigns, billing, and so on. Despite these challenges, publishers continue to prefer direct ad sales for the simple fact that this yields the highest revenues.
Yet, most publishers are unable to sell off their inventory directly. So, what to do with this unsold (or, in industry-parlance, remnant) inventory? The answer, traditionally, was Google AdSense (which makes this unsold inventory available to AdWords advertisers). But, now it is possible for publishers to expose their unsold inventory to the RTB ecosystem to auction it off indirectly to the highest bidder, getting the highest RPM possible.
Revisiting Session Depth
In my last article, which discussed the mechanics of real-time bidding, I touched on the subject of session depth and how the first impressions seen by the RTB channel are merely the first impressions after direct sales orders have been fulfilled.
As we can see in the illustration above, the lowest possible session depths are always served through direct ad sales along with the true first impressions. Moreover, in the fictional example above, if the average visitor accounts for less than 10 pageviews, then the chance of them being available to the RTB auction becomes very low. In practice, it is entirely dependent on the order sizes and campaign rules of direct buy advertisers.
Flux In The RTB Ecosystem
This natural dynamic between direct and indirect (RTB) ad sales creates an inevitable fluctuation in inventory volume for the RTB ecosystem.
For example, during peak advertising seasons like Christmas, the influx of advertising dollars, especially in the direct sales channels, creates lower volumes of inventory in the RTB channel. In some cases, publishers effectively “disappear” from the RTB ecosystem completely if their entire inventory gets pre-sold from direct deals. After all, display ad space is a finite and ephemeral commodity online.
During the last holiday season, there was a drastic spike in the cost of RTB inventory following Black Friday. In that case, the increase of advertising dollars went beyond the direct sales channel and spilled over into RTB, causing the increase of eCPMs across the board.
That combination of lower inventory volumes with higher inventory prices forced marketers to drastically increase their bids in order to compete for what was available, making it challenging for many performance-based marketers to maintain their volumes and ROI.
Continuing The Discussion
I hope this provides some clarity as to the relationship between these two different sales channels, and the economic motivation that drives publishers to segment their inventory in such ways. In my next article, I will continue to discuss the differences between these two approaches to display advertising and how these differences impact marketing strategies.
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