The digital advertising ecosystem is, rather simply, the buying and selling of advertisements across media properties. The act of media buying can be broken down into two sides: Supply Side and Demand Side
What exactly are we buying & selling?
Impressions. An Impression occurs when an ad is shown to someone.
The ‘currency’ of the industry is CPM, or Cost Per Mille -i.e. Cost Per 1000 Impressions.
The real-time bidding (RTB) aspect that has come to dominate the space in the past few years is much like a stock exchange:
‘Buyers’ input demand (bids) to access ‘Sellers’ supply (inventory), and winning bidders are awarded impressions in real-time, having their ads instantaneously shown to people browsing the Publisher’s site. This is called an ad exchange, or auction.
Supply Side: A new ad product or placement release can add a surplus of inventory into market, leaving some time for demand to catch up.
Publishers play a very important role, as they possess the ad inventory that can be bought.
Many Publishers offer ‘free’ access to anybody, and generate revenue by monetizing their site, which is the act of selling advertising inventory. Inventory can be expressed as People x Ad Space x Frequency x Time.
For example, if a Publisher has 10 site visitors each day, has 3 physical spaces on their site in which they can show advertisements at a potential frequency of 3, they have 90 impressions up for sale in a given day.
If they have no visitors, they have no inventory. They are incentivized to sell all inventory at the highest possible price.
Advertisers play an equally important role. Advertisers are the entities who buy the inventory on behalf of their clients, displaying advertisements to people in real time.
Advertisers are looking to scoop up inventory at the lowest possible price. An example of an ‘Advertiser’ is Lambos Digital. Here on the Media Team, we buy ad inventory on behalf of our clients.
If you are interest in learning more about buying media for your business get our free growth plan.
The result of the Supply/Demand intersection is a market-priced CPM. Depending on a long list of factors, CPMs can range from ~$1 to ~$30. (We’ll get into this more later).
Platforms (or publishers) are ultimately looking to monetize the attention that users are giving to the platform, as a cause of the fundamental service, product, or information they are providing to the end consumer.
As a general rule, users are not coming to the platform or publisher for the purpose of being advertised to, so the ads being served are detracting from the desired experience.
A platform or publisher will maximize its revenue when it has the highest output:
(active users) x (time spent) x (ad load/frequency)
When you think of media buying and platforms there are two core differences.
Open web includes display & video 360 and encompasses over thousands of publishers. This inventory is bought through DSPs (digital service providers).
When we think of marketing on Facebook, Google, Twitter, and other top social media platforms we consider these marketplaces specific to inventory on that platform.
Each platform has their own auctions and dynamics that influence the metrics and performance associated with that particular user experience.
First price auctions work exactly how we intuitively expect an auction to work. One or more potential buyers make a bid, the highest wins and they pay the price that they bid.
The change in auction dynamics has been driven by emerging practices inside the digital ad space, which have led to an unfair playing field.
Second price auctions are designed to give buyers confidence to bid their best price without overpaying. If we re-run the above auction using a second price approach then the outcome is slightly different. Bidder B still wins, which makes sense as they submitted the highest bid.
However, their price is set by the next highest bidder. The winner pays one penny more than the next highest bid. In this case Bidder B wins and pays $2.51.
It's important to understand media buying and its fundamentals in order to successfully manage your marketing funnel.
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