There are two primary types of online media buying: Managed and RTB (Real-time bidding). Not all buying strategies use optimization to determine a bid amount. It is therefore critical that you understand which buying strategy the ad platform or ad network you are working with is using.
Managed buying refers to a situation where an ad platform or ad network is buying inventory from a publisher with which they have a direct financial relationship. This is also known as Buying Direct Inventory, which involves pre-brokered agreements between an advertiser and publisher to deliver a certain amount of specific inventory for a preset cost. Managed bids are always based on booked revenue. Only one Managed bidding strategy utilizes optimization:
- CPC or CPA booked revenue - We use the CPC or CPA value specified as the performance goal in our algorithm to determine what an impression is worth in terms of a CPM value.
RTB buying refers to a situation where an ad platform or ad network is buying inventory from publishers with whom they do not have a direct financial relationship and they are bidding on inventory in real-time. This is most commonly done on a pay-per-impression basis (called CPM payout). This is also known as Buying Third-Party Inventory. RTB bids are always based on the cost of serving impressions.
A real-time bid is often dynamically generated based on past performance of creatives, inventory, user groups, and other parameters. Note that real-time bidding may differ from real-time buying, which can mean allocating inventory in real-time through prioritization rather than a monetary bid. Real-time bidding also implies multiple bidding systems or exchanges making calls to each other in real time. In real-time advertising, an auction happens when a publisher ad tag is loaded from a webpage. Advertisers compete for that particular impression based on their individual valuation of the user's worth at that time on that site from that IP address. These valuations are submitted at the time of the auction, rather then far in advance of the auction.
There are two main bidding strategies available for buying third party inventory that utilize optimization:
- Optimize to a predicted CPC or CPA goal - This strategy applies the specified goal (CPC/CPA) to the optimization algorithm to calculate a CPM bid. The optimization algorithm determines a bid based on the assumed value of a click or conversion and based on past click-through rates or conversion rates.
- Pay on a Per-click (CPC) basis or Pay on a Per-conversion (CPA) basis - When choosing a Cross Net CPC/CPA bidding strategy, the user must specify what they are willing to pay per conversion (CPA) and/or per click (CPC). The optimization algorithm then uses this value to calculate a CPM bid. This payment type is only accepted by ExactDrive inventory sources who choose to accept this payment method, so selecting this buying strategy exclusively (buying CPC or CPA inventory only) limits the inventory available for a campaign.