The Evolution of Ad Technology Explained
As a publisher or platform you know the importance of ad technologies and how they help your business. You know that the way ads are bought and sold online matters and that technology can make or break your company. You also know that there is always a new tech on the horizon that you need to adjust your business to continue to monetize.
Today, I want to talk about how ad technology has evolved over time and the reasons why there needed to be the next evolution.
The Old Way – Direct Buying and Waterfalling
Before ads were bought and sold programmatically, there were two primary ways advertisers bought ad space from publishers: direct buying and waterfalling.
How did it work? Direct buying is how ads were initially bought and sold online (and still are on some websites) and is very similar to how ads are bought and sold in the traditional offline newspaper space.
Essentially, advertisers buy impressions on websites via human ad buyers and salespeople. So, for example, a sports shoe company may approach ESPN’s sales team and ask to buy fifty thousand impressions for one month. ESPN would then send a cost per-impression and the sports shoe company would decide if it was worth the price.
What led to waterfalling? Waterfalling, also known as “daisy chaining,” was a way for publishers to maximize prices and increase sales of their ad inventory, especially unsold ad inventory.
How does it work? In waterfalling, publishers work with multiple ad exchanges and ad networks at once, rather than working with one advertiser at a time. The technology allows publishers to initially offer their ad inventory to the ad networks willing to pay the highest rates. If an ad network passes on an offer for impressions, it goes to the next highest bidder. This process continues until ideally, every impression is sold.
What are the flaws? While a big step ahead of direct buying, the primary issues with waterfalling is that it’s time consuming and is an inefficient way to maximize prices for publishers.
Waterfalling involves manually placing advertisers (the bidders) in the best possible bidding order to maximize prices. This process is conducted on a daily basis and can take considerable time and effort to implement properly. In addition to the time spent, it can be difficult to ensure that you’re giving the first-look to the highest possible bidder. A publisher may not have access to the platforms willing pay the most. Finally, because waterfalling is done manually, there is a significant risk of human error.
That’s where programmatic comes in. Programmatic is all about taking the human element out of the ad buying and selling process and using sophisticated algorithms to ensure publishers maximize prices and advertisers buy the most relevant possible traffic on websites.
The Next Evolution – Programmatic Ad Buying / RTB
Why was RTB developed? RTB or real-time bidding is a type of programmatic ad buying and involves an instantaneous auction. So, as soon as a user enters a website, the impression is automatically sent out to a variety of ad exchanges, where multiple advertisers can bid on impressions at the same time.
Well, what makes RTB any better than say direct buying? From the advertiser’s perspective, RTB allows them to purchase an impression in real-time, at the exact moment they need the impression. So, instead of buying bulk impressions on one site, advertisers can buy impressions on a variety of sites at once, while only investing in impressions that are far more focused on reaching their target audiences. Simply put, advertisers are getting more bang for their buck.
From a publisher’s perspective, RTB means multiple advertisers are competing for their ad inventory at the same time. The result? More competition means publishers can sell their impressions for higher prices, i.e. higher RPMs. In other words, multiple advertisers competing for ad impressions at the same time, means more money in publishers’ pockets.
What are the flaws? RTB seems like the perfect technology, right? Wrong. While a big step ahead of waterfalling and direct buying, it has its flaws. For example, many publishers have said that they’ve actually seen less money in their pockets after implementing RTB.
While the most desireable impressions may be sold for higher prices, publishers complain that RTB leaves them with more unsold inventory than previous ad technologies. Some have also said that RTB can even result in lower overall prices on impressions, if proper price floors aren’t set.
The Next Evolution – Header Bidding
Why was header bidding developed? Header bidding, like RTB, is a type of programmatic advertising and both were developed around the same time and for many of the same reasons. Like RTB, the header bidding process sends impressions to multiple advertisers at once, allowing each to bid at the same time. The winning bidder gets their ad displayed.
So, what’s the difference between RTB and header bidding? In RTB, publishers isolate the sale of RTB impressions and direct buys. So, either, an impression is sold via RTB or an impression is sold via direct buying. Header bidding, on the other hand, allows advertisers to compete for direct buys as well. The result? Revenue uplifts for publishers.
What are the flaws? The primary issue with both header bidding (and RTB) is that it can cause site latency. The more demand partners that are included in a wrapper tag, the higher chance of latency issues.
So, what’s the big deal? If header bidding means higher prices for publishers, what do they care if it slows down their site a little bit? While latency may not have been a big deal a few years back, today, user experience is everything. If sites load too slowly, users will simply download ad blockers. The long term result? Decreased ad revenues in the long term. Scary stuff for publishers. That’s where server-to-server comes in.
The Next Evolution – Server-to-Server
Why was server-to-server developed? Server-to-server is the next phase of header bidding. Instead of the bidding process happening over publishers’ browsers, it happens on the server of the ad tech vendor facilitating the deal.
So, how does that speed up loading times? Ad tech vendors have the infrastructure and bandwidth to ensure that more demand partners don’t slow down publishers’ sites. In other words, publishers don’t need to invest in the technology needed to prevent latency because ad tech vendors already have. Their technology has the ability to do the heavy lifting.
What are the flaws? The same as any in ad technologies. Publishers still need to do their due-diligence to make sure they’re not getting the short end of the stick. They still need to demand transparency from ad tech vendors and make sure they’re partnering with the right ones and also with the best possible demand sources.
So what’s the next evolution?
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