Real-time bidding (RTB for short) is all the rage in modern media buying. Sophisticated technology companies like TellApart and DataXu claim (and probably actually can) analyze an available impression on an ad exchange like RightMedia in under 120 microseconds and determine whether it is worth bidding on. The data these systems look at include the placement, time of day, geographic, ad unit and many, many more. Indeed, DataXu claims that they can instantly process more than 100 data points, as seen by the graph here:

For data geeks like me, the idea of being able to evaluate each search query instantly and make a precise bid based on reams of data is sort of the Holy Grail. PPC systems, however, don’t come close to this level of granularity. The vast majority (if not all) campaign management software packages optimize bids once a day. Geo-targeting and day-parting are available, but they are pre-set, not real-time evaluations of data.

You might think that creating a system that literally bids for each query individually and in real-time would be impossible. In actuality, it already exists. It’s called the Google Conversion Optimizer. Indeed, when you read the description of the Conversion Optimizer it sounds an awful lot like what you might read in a ‘How it Works’ section from a demand-side platform (DSP) like TellApart, which, in the case of TellApart, was build by ex-AdWords product managers and engineers:

So why not make this data and RTB functionality available to SEMs? Surely campaign management companies like Marin Software would love to build algorithms to handle RTB; indeed, I suspect that RTB algorithms would create tremendous bidding efficiencies (and enterprise value) for campaign management software.

One answer may be bandwidth. The number of players in media buying is infinitely smaller than the millions of PPC advertisers. To participate on an ad exchange like RightMedia or the DoubleClick Ad Exchange, you generally need to buy a “seat” much in the same way that brokerages buy seats on stock exchanges. These seats can be expensive and serve to reduce the number of active bidders on the exchange. Imagine if every search agency, campaign management software company, and large and savvy advertiser wanted to participate in RTB on AdWords. Instead of one or two API calls a day via the AdWords API, each advertiser might make tens of thousands of calls. That’s a lot of servers, or HADOOP, or something (trying to sound smart here).

Another answer may be demand. It may be the case that no one in the SEM industry has bothered to ask about RTB. This may be due to ignorance (not knowing it is available) or simply that the current “bid once a day and set your geo’s” system is ‘good enough’ for most advertisers. Perhaps as display and search converge, more advertisers will see what is going on in display and say ‘hey I want that for PPC too.’

A final reason may be that Google is just unwilling to provide the data. There’s a real financial incentive to provide more data granularity in display; simply put, without RTB and deep data, display media will be forever the domain of big, inefficient brands. Providing better data enables Google and other publishers to attract performance marketers with deep pockets, assuming the CPAs work out for them. It also enables publishers to create a bidding environment for inventory that would have previously been sold at below-remnant prices to middlemen ad networks. So RTB results in more buyers and more bidders and more money for publishers (at least quality publishers).

RTB for PPC may not have the same positive revenue impact. You could argue that providing some but not all available data gives PPC advertisers a sense of control and granularity but still preserves some healthy inefficiency (and therefore margin) for Google. Why provide more data that may or may not benefit Google?

I don’t know the answer, and probably anyone who does doesn’t read this blog.  Online marketing is about data and really SEM was much faster to embrace data than display. It’s ironic that the tables have turned so quickly.

4 Comments

  1. Josh McFarland March 8th, 2011

    Hi David — Josh from TellApart here. As a longtime fmr. Google Product Manager, and as half of the founding duo of the AdWords API (TellApart’s cofounder/CTO, Mark is the other half), I can give a fairly clear answer to the question of why Google doesn’t… and likely will never… have Real-Time Bidding for search: market dominance.

    With search, Google can take more and more bidding/targeting control under its own wing — perfectly designing a black box of optimal performance — provided advertisers are willing to surrender all of their data. It can do this because it has such market power in search advertising and most advertisers have to play by its rules.

    In display, however, the market is so fragmented… and Google was so late to the game… that it had to innovate its way into becoming a market leader. Enter Real-Time Bidding, a massive and awesome game-changer that, in the right hands, can make display ads perform as well as search — or better, on a cost-adjusted basis. And with RTB’s introduction, the display ads market has started consolidating under Google faster than anyone thought possible. So this opening gambit was well-played and has been unmatched by any competitor.

    Back to whether to offer RTB for search, the question for Google is, “Why?” And from their perspective, there’s not a compelling reason. Given they can, it’s better to keep control within their own products and algorithms.

  2. davidzhawk March 8th, 2011

    Thanks Josh, that confirms one of my theories. Perhaps Facebook will push the envelope and offer RTB in FB and this will result in AdWords offering RTB as well. Help me Obi-Wan-KeFacebook, you’re my only hope!

  3. Terry Whalen March 11th, 2011

    Guys, I’m lost. Would love some further explanation!

    First, doesn’t RTB rely on a bunch of data gathered by 3rd parties like BlueKai? And don’t you think Google will allow users at some point to inform bids based on the same variables used by conversion optimizer, given that each year google does seem to offer more and data transparency and control to advertisers? The compelling reason is that Google does best when its advertisers do best, in aggregate (this is the non-skeptical way to look at it, at least). I’ll bet someday Google will offer a version of advertiser-side RTB (the data to make the real-time decisions, and the controls to change bids (I suppose via APIs and possibly the web interface). No? But I imagine it is a problem of scalability (nice one on the HADOOP mention, btw, David). It does seem that in keyword land, possibly less data is needed to do RTB since keywords are already a great indicator of user intent.

    One thing I don’t understand is that when Josh says display was fragmented and google was late to the game, and had to innovate to become a market leader (and I guess this included opening up APIs and control to the demand-side folks), this has resulted in the consolidation of the display ads market – under Google. So, maybe they are not forced to do this as fast on the search side – but I think they will, and that will bring them good things, just as it has on the doubleclick/adsense side.

    Thoughts?

    And yes, FB definitely needs to open things up, including to the RTB folks, because FB couldn’t make a self-service advertising interface to save their butt.

  4. davidzhawk March 13th, 2011

    Terry, you don’t need BlueKai for RTB. Basically, Google could simply provide all the data that they have about a query – IP address, time of day, raw query, device, etc and that would be enough for advertisers to determine how much to bid on that specific query.

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David Rodnitzky
David Rodnitzky is founder and CEO of 3Q Digital (formerly PPC Associates), a position he has held since the Company's inception in 2008. Prior to 3Q Digital, he held senior marketing roles at several Internet companies, including Rentals.com (2000-2001), FindLaw (2001-2004), Adteractive (2004-2006), and Mercantila (2007-2008). David currently serves on advisory boards for several companies, including Marin Software, MediaBoost, Mediacause, and a stealth travel start-up. David is a regular speaker at major digital marketing conferences and has contributed to numerous influential publications, including Venture Capital Journal, CNN Radio, Newsweek, Advertising Age, and NPR's Marketplace. David has a B.A. with honors from the University of Chicago and a J.D. with honors from the University of Iowa. In his spare time, David enjoys salmon fishing, hiking, spending time with his family, and watching the Iowa Hawkeyes, not necessarily in that order.