Real-time bidding (RTB) is an automated auction process for the purchase of individual ad impressions on websites and other online venues such as apps and games.
RTB is an integral component of programmatic advertising, which automates the processes and transactions involved in buying and placing ads. Real-time bidding algortithms are designed to optimize transactions so that publishers receive the best payment per impression and advertisers can get their ads in front of the most relevant audience. Bids for ad impressions are established based on criteria including the size and placement of an ad as well as details about the site and audience.
Here's how RTB works: When someone clicks a link to a website or enters the site's name or URL into the browser address bar, the browser creates a connection to the publisher's content server. When the server returns the code for the page from the site publisher's content server, at least one line of the code includes the option to display an ad, along with the URL for retrieval of content from an ad server.
The ad server checks its stored data for relevant information -- if the ad space is reserved or would work for a premium inventory buyer, for example, or if there is any data about the viewer that would make the spot more valuable to some advertiser for a targeted ad. Depending on what data it detects, the ad server may make the opportunity available to the open ad market where it will be auctioned off. If that decision is made, the publisher's server connects to a supply-side platform (SSP), the software that publishers use to make their inventory available to ad exchanges and demand-side platforms (DSP), the advertiser's counterpart system.
The SSP determines whether the requester of the web page is known and may connect to a data exchange to access more information about that user. The SSP then sends the request and user data to an ad exchange, which is connected to ad networks, other demand-side platforms and possibly additional ad exchanges. All of these systems include data about what advertisers will bid for ads based on various criteria, such as the user's age, gender, geographic location and interests. If there are no pre-cached bids, the exchange requests bids from the demand-side systems based on those criteria. The winning bid is selected in 10 milliseconds and the ad is displayed to the user, all while the requested page is loading.
The Internet Advertising Bureau (IAB) explains the back-end processes involved in RTB: