What Is Real-Time Bidding (RTB) in Advertising? How Auctions Work

What is real-time bidding?

Real-time bidding (RTB) is the auction that decides which ad appears in a given ad slot, held at the moment the slot becomes available. Every time someone opens a page, app or video that carries programmatic ads, the impression is offered to buyers, they bid, and the winner's ad is shown before the page finishes loading.

What sets it apart is that each impression is priced on its own. Instead of paying a fixed sum for "a week on a news site's sports section", you bid on individual impressions according to who is likely to see them and where. A reader who matches your audience might be worth ₹150 CPM to you. One who does not is worth nothing, so you do not bid. CPM is cost per mille, the price of 1,000 impressions, and bids are quoted that way even though each auction is for one impression.

RTB powers the open auction and private marketplaces. It is one part of programmatic advertising, not another name for it. If you want the wider picture first, read what programmatic advertising is.

How does an RTB auction work?

Each auction runs through five steps.

1. An impression becomes available. A person loads a page, app or video that has an ad slot.
2. The exchange sends a bid request. The supply-side platform (SSP) or exchange describes the impression to connected buyers, usually in the OpenRTB format maintained by the IAB Tech Lab. The request covers the site or app, slot size, device, approximate location, any consented identifiers, any deal ID and the floor price.
3. DSPs decide whether and how much to bid. Each demand-side platform checks the request against its advertisers' campaigns and returns a bid or passes.
4. The exchange picks a winner. Bids below the floor are discarded and the highest remaining bid wins.
5. The ad is served and logged. The winning creative loads, and the impression, its cost and any later click or conversion are recorded.

The deadline is tight. Google's Authorized Buyers real-time bidding guide says Google waits 80 to 1,000 milliseconds for a bidder to respond, depending on the format and auction type, and excludes responses that arrive late. For a fuller walk through every system involved, see how programmatic advertising works, step by step.

What is the difference between first-price and second-price auctions?

In a second-price auction, the winner pays just above the second-highest bid. In a first-price auction, the winner pays what it bid. Most exchanges switched from second-price to first-price in the late 2010s, and Google moved Google Ad Manager to a unified first-price auction in 2019.

Take an illustrative example. Three DSPs bid on the same impression, and the publisher's floor is ₹80 CPM.

• Second-price rules: DSP A wins and pays about ₹150, plus a small increment.
• First-price rules: DSP A wins and pays ₹180.

That ₹30 gap is why first-price auctions changed how buyers bid. A DSP that always bids its full maximum overpays. So DSPs use bid shading, which means estimating the lowest bid likely to win and bidding close to it rather than at the ceiling.

In DV360, fixed CPM bids come with a setting called "Optimized fixed bidding". It is on by default, and Google says it aims to win impressions for the lowest price possible instead of always bidding your full amount. Google also notes that the bid covers media cost only, so other fees do not change your line item's bid.

What is a floor price?

A floor price is the lowest CPM a publisher will accept for an impression. Any bid below it loses, whatever else happens in the auction. Publishers often set higher floors on premium sections, valuable audiences and busy periods such as festive weeks or big cricket matches.

Floors affect you in two ways. If your bid is often below the floor, your line item barely spends. In a private marketplace, the deal floor is the agreed starting point, so a bid below it will never win. When a line item under-delivers, low bids against floors are one of the first things to check, along with targeting that is too narrow.

How is RTB different from programmatic direct?

Not every programmatic buy is an auction. Deals where price, and sometimes volume, are agreed in advance are often called programmatic direct.

Open auction and private marketplaces run on RTB. Preferred deals and Programmatic Guaranteed (PG) use the same technical pipes, but the terms are agreed directly with the publisher. Our guide to Programmatic Guaranteed vs PMP vs open auction explains when to choose each.

How does header bidding relate to RTB?

Header bidding is how many publishers bring more buyers into the auction. Instead of offering an impression to one exchange after another, the publisher's page or server asks several SSPs for bids at the same time, before its ad server makes the final decision. Prebid, an open-source project, is widely used for this on websites, and Google Ad Manager has its own server-side version called Open Bidding.

For buyers, header bidding means the same impression can reach your DSP through more than one SSP. That is one reason to prefer direct, authorised paths to a publisher. Publishers declare their authorised sellers in a public ads.txt file, an IAB Tech Lab standard, and buying only from those sellers cuts out a lot of resold and spoofed supply.

How do you bid in RTB as an advertiser?

You do not bid on impressions one at a time. You set rules, and the DSP applies them to each bid request. In DV360 there are two main approaches.

• Fixed CPM bid. You set a maximum CPM on the line item, and optimised fixed bidding tries to win for less where it can. This suits deals and tightly controlled reach buys.
• Automated bidding. You choose a goal, such as conversions, clicks or viewable impressions, and DV360 sets a bid for each impression, with an optional cap on the average CPM. Google says the algorithm can take up to four weeks to learn and calibrate.

Automated bidding usually suits performance goals once conversion tracking is in place. We look at how these models make their decisions in how AI optimises programmatic advertising.

What are the pros and cons of RTB?

RTB is the most flexible way to buy, and also the one that needs the most care.

Pros

• Wide reach across thousands of sites and apps at market prices.
• You pay only for the impressions you choose to buy.
• Easy to start, pause and shift budget.
• Strong for retargeting and audience-led campaigns.

Cons

• Less control over exact placement than deals.
• More exposure to low-quality inventory and invalid traffic.
• Prices can climb in busy periods such as Diwali, when many advertisers chase the same audiences.
• Results depend heavily on the settings and the person running them.

How do you get better results from RTB?

1. Start from quality supply. Use inclusion lists for key publishers, exclusion lists for poor ones, and buy only from authorised sellers.
2. Cap frequency. Pick a cap that fits the goal, such as a few ads per person per week for awareness, then adjust from the data.
3. Check delivery against bids. If a line item barely spends, your bid may be below floors or your targeting too narrow.
4. Watch effective cost, not CPM. Divide spend by viewable impressions or by results, not by served impressions.
5. Separate prospecting and retargeting. They justify very different bids and should not share a line item.
6. Review placements weekly. Remove apps and sites with poor viewability or click rates that look too good to be real.

For more ways to bring prices down without losing quality, see how to reduce CPM in programmatic advertising.

Next step

If you want RTB working alongside premium deals in one plan, ask for a free media plan that mixes open auction reach with OTT and publisher deals. For a single burst run by our team, look at our Campaign-Based Engagement.