Ad Tech Jargon Explained: Programmatic vs. RTB vs. Header Bidding

Header bidding, RTB, programmatic — these terms are often used interchangeably by people both inside and outside of the ad tech industry. And often, this is valid, as in the context they are used the terms are indeed interchangeable. Often, but not always. In this article, we will try to drill into the differences between these terms and see where and how it is appropriate to use them.

Programmatic

Let's begin with programmatic advertising. ’Programmatic’ alludes to a method of delivering advertising automatically, as opposed to the more traditional manual approaches. Essentially, whenever there's any form of automation in online ad delivery, we use this term.

One common approach in programmatic ad buying is the waterfall method. This method was initially designed to achieve two main goals - maximize the Cost Per Mille (CPMs) for advertisers, and boost revenue for publishers by strategically organizing ad sources.

Waterfalls work by having pre-assigned priority to specific bidders. That being said, the decision about what ad will be shown is still happening on the page and in real time. So how exactly does it work?

Say you have three advertisers, Advertiser 1 being your favorite and Advertiser 3 — least favorite. In Waterfall, if you receive two bets, one from Advertiser 1 for $1 and one from Advertiser 3 for $3, Advertiser 1 will win.

Advertiser 1 did not have the highest bid but was higher up in the waterfall, and that is why he became a winner. This approach is not completely rudimentary to this day and is present in most ad servers where priorities are assigned via line items and deal types.

Now let's go back to programmatic ad buying. It is important to say here that as it gave life to a whole industry, there came a need for different players, such as SSPs - supply-side platforms, and DSPs - demand-side platforms.

We will briefly explain what these terms mean — an SSP is a technology used by publishers to automate the selling of display, video, and native ad space on websites and apps based on impressions. DSP is akin to an SSP, but specifically tailored for advertisers, it is software that enables them to purchase advertising through automated processes.

To finalize, programmatic is technology, ideology, and a new industry, all in one. The innovation behind this idea remains easily understandable, as most people viewing daily ads on their laptops are unaware that these ads are programmatically served to them.

Real-Time Bidding (RTB)

Now we'll shift our focus to Real-Time Bidding (RTB). The name is quite self-explanatory - whenever a system is set up in such a way that the decision about an ad in a specific ad slot is made in real-time, we can call it real-time bidding.

RTB is a technology used in programmatic ad buying. It’s important to understand that in classic, or early RTB, the auction happened in an ad exchange. The ad exchange sits between SSPs and DSPs. It filters impression opportunities and catches invalid traffic (IVT). Additionally, it uses machine learning (ML) to determine which DSPs might be interested in the given impression opportunity.

In the Real-Time Bidding (RTB) process, the publisher initiates the sequence by sending a request to the Supply-Side Platform (SSP). Upon receiving this request, the SSP collaborates with an ad exchange, forwarding the request to it. Subsequently, the ad exchange disperses the request to various Demand-Side Platforms (DSPs).

The DSPs, upon receipt of the request, individually assess the opportunity and respond with real-time bids for the advertising space. Within the ad exchange, a dynamic auction unfolds where DSPs compete, and the highest bid prevails.

Following the real-time auction, the ad exchange communicates the winning bid back to the SSP. The SSP, having received this information, relays the successful bid back to the publisher. Finally, the winning advertisement is rendered on the publisher's webpage, completing the Real-Time Bidding cycle.

Header Bidding

A while after standard RTB appeared, a new branch of it started being more popular, which is called header bidding. The idea behind it is to still have real-time auctions. So, with certainty, we can say that header bidding is a subset of RTB. However, in this set up the auction is happening way closer to the publisher. Interestingly this is the trend we see to this day - the publisher becomes more and more important in the whole programmatic chain and tends to make more decisions. In a nutshell, header bidding is just a standard RTB technology, but with multiple exchanges. The trick is that there is no water falling through the demand sources, but actually, all auctions are being completed simultaneously.

To say the least, this was huge. Now the SSP, to which the publisher was sending the requests, could connect to multiple exchanges. And more importantly, one publisher could connect to multiple SSPs, because the final auction would still be run on the publisher’s page. So the flow in header bidding would look like this - the publisher would send requests to all the SSPs it is working with, each SSP would send the requests to multiple ad exchanges, and each of those would play an auction and send the winning bid back to their corresponding SSP. After that, each SSP would play its own auction, and then send the winning bid back to the publisher. Finally, the winning bids from all SSPs would be sent to the pub’s ad server, where the final auction is played and the decision is returned to the page, where all the potential ads are stored and the chosen one is then rendered.

In simpler terms, the advantage of using technical algorithms was that it led to increased auction activity. This, in turn, brought in more intermediaries, involving a greater number of parties and making more demand available in the process. It also meant that the competition focused on getting the best bids rather than following preset priorities. While many ad servers still allow prioritization, the original idea was to have a more dynamic and competitive process.

Conclusion

With the explanations above, it becomes evident that header bidding is a part of RTB, and RTB, in turn, is a part of programmatic ad buying. So, when discussing header bidding, it's common to refer to RTB or programmatic, although it's not precise enough. Understanding the distinctions among these three and knowing the evolution of programmatic technology greatly aids in grasping the key concepts of the ad tech industry.