Real-time bidding for mobile ads: promising in the short term, questionable in the long term

Mobile advertising revenues have long failed to live up to expectations, but industry types are hoping real-time bidding (RTB) can make it rain. Jay Stevens of the Rubicon Project wrote in the Guardian last week that RTB can save the mobile ad market, Mike Downey of OpenX has said it is the next mobile ad breakthrough, and M&C Saatchi Mobile predicted last month that 2013 “will be the year when real-time ad bidding and serving properly takes hold in mobile.” And eMarketer threw a little gas on the fire last month when it raised its forecast for the overall RTB market, citing (among other things) the emergence of real-time bidding for mobile advertising.

So what is RTB, exactly?

While RTB has been around for a few years on the fixed-line web, it has only recently gained real traction in mobile. The model comprises demand-side platforms and supply-side platforms to enable programmatic buying, which uses sophisticated algorithms that enable advertisers to purchase ad inventory in real time. So a user’s click on a mobile website triggers a bid request that can include a wide variety of valuable data, including the user’s demographic information, browsing history, location, and the page being loaded. The request goes from the publisher to an ad exchange, which submits it and the accompanying data to multiple advertisers who submit automatic bids in real time to place their ads.

RTB is an especially good fit in mobile for several important reasons: Publishers are awash in inventory due to the explosion in mobile apps and websites, and RTB helps them unload that potential advertising space. It addresses inefficiencies in a mobile ad ecosystem that is still only beginning to evolve, and can provide another level of transparency for advertisers. The RTB model has the ability to scale, handling millions of requests or more instantly. And while mobile advertisers usually don’t have the luxury of using cookies to track users’ activities on the mobile web, RTB can leverage an enormous amount of data that can be used to deliver highly targeted, and therefore very valuable, mobile marketing campaigns.

Those factors have helped spur the uptake of RTB dramatically over the last year. The mobile ad-buying platform Adfonic claims that RTB ads accounted for 64 percent of all mobile ad requests its network saw in the fourth quarter of 2012, up from just 8 percent in the first quarter. Adfonic also reports that RTB ads produce nearly twice as many click-throughs as other mobile ads, and are especially effective in certain vertical markets or when coupled with rich media ad formats. RTB’s effectiveness in rich media campaigns may help explain why tablets account for a disproportionately large number of mobile RTB ads, as Accordant Media recently reported.

RTB: Realize the bounds

As promising as RTB is, though, its growth will be hindered by some important shortcomings. Like some other mobile ad models, advertisers have limited control over the kind of context in which their ads are displayed, and marketers hoping to reach a highly targeted segment of consumers may have difficulty executing large campaigns. Targeted RTB advertising will surely be slowed by ever-increasing concerns regarding consumer privacy issues such as location data. And some publishers of high-quality apps and web-based content may be unwilling to release that inventory for real-time bidding ads, relegating RTB to a lesser tier of the mobile advertising world.

The biggest question surrounding mobile RTB is the long-term effectiveness of banner ads in mobile. Banners accounted for the overwhelming majority of mobile display ad dollars spent in 2010, as my former colleague Ryan Kim reported last year, but that dominance will wane as rich media and video ads claim a larger share of those revenues. And revenues from banner ads will continue to shrink as a piece of the overall mobile advertising pie as more lucrative models like search ads and interactive marketing campaigns gain ground. The RTB model is well positioned to drive substantial display ad revenues over the next few years as the overall mobile ad market continues to evolve. Whether it will remain relevant as the mobile ad market evolves over the next decade, though, is far from certain.