George Odysseos is EU Director of Publisher Services at Tribal Fusion. Here he discusses instances when RTB can help publishers secure higher prices - and why it should not be used on all classes of inventory.

In 2011, real-time bidding (RTB) was the trend that – at the coalface of online display advertising – I have most come across. As what the market understands as an ad network, Tribal Fusion is in the thick of it when it comes to addressing this trend, particularly with our publisher partners, and now is the time for me to offer a view.

There’s no question that RTB as a mechanism for setting the price for display inventory has its place. Like all auction models it seems on the surface to offer the best way to guarantee the seller the highest possible price for a product or service and, mysteriously, the lowest possible price for the buyer. But, like all auction models – not least because both those things cannot possibly be true at the same time - it doesn’t work that way.

For some inventory - mainly the highly sought-after impressions from users suitable for retargeting - RTB secures a very high price. But, for all else, far from raising prices to their highest possible level, it commoditises inventory such that impressions that could be packaged up and sold for a justifiable premium, go for an absolute song. This is bad in the short, medium and long-term for publishers and advertisers. Here’s why that’s my view:

The shortcomings of an auction model

There are very few markets where an auction model favours the buyer and the seller at the same time. It favours the seller only when scarcity and competitive demand combine. And it favours the buyer whenever either of those things does not exist. Consider the antiques and arts world. Those lots that reach astronomical prices do so not just because of the scarcity of the object, but because there are one or more buyers competing for that very object at the very same time. On these occasions the selling price is usually far in excess of the justifiable value of the object sold. Great for seller, bad for buyer.

Then, wherever a lot is either quite common or there’s only one able and willing buyer, the lot price rarely reaches the same level as its justifiable value. It is by buying these very lots that antiques dealers – of which there are thousands - survive.

Now, let’s think what an antique owner might achieve were he or she instead to market the product via traditional techniques, that is, package the product up, advertise it to seek willing buyers and agree a price that works for both buyer and seller. Assuming they are matched for negotiation skills, both leave happy.

The price of RTB

We see the same occurring in the auction market for online display advertising. Inventory that one or more buyers want at the same time secures CPMs far in excess of their actual value. These impressions are almost exclusively where a user is suitable for retargeting by more than one retailer or more than one agency buying on behalf of a single retailer or even one agency bidding through more than one buying point. Great for seller, bad for buyer.
Meanwhile, for all other impressions, prices fall below what might be achieved were they packaged up and sold to advertisers as part of a campaign, whether directly through the publisher team or part of a content or audience-targeted network buy. Great for buyer, bad for seller.

The critical question

Given we know that, for some inventory, RTB will secure prices far in excess of their justifiable value and for others, far below, the only real question for publishers is whether the former will outweigh the latter.

The answer to this question depends almost entirely on the nature of the publisher and its inventory. What we see evolving is an ecosystem where in-house sales teams account for top, premium inventory, RTB platforms for the commoditised impressions – previously the domain of the ad networks – at the bottom of the funnel, and networks for the middle ground; inventory that the publisher finds hard to sell but that work well as part of a content or audience package.
We operate in an environment where publishers face an increasing number of choices in how to monetise their hard-earned inventory. I fully appreciate that there is a place for exchanges and RTB but do I think all ad inventory should or will be traded this way? Unequivocally no.