How RTB Works:

Source: https://www.quora.com/How-do-ad-exchanges-and-real-time-bidding-platforms-work

Jimmy is from New York. He loves cats. Yeah, he’s that guy who frequently visits cat forums. By the way, he once created an account on a dating website and indicated there his gender, age and location. This way the system knows Jimmy is 30-ty, he’s fond of cats and he lives in NY. The next day, our imagined character checks to see who won the soccer last night and he notices an ad from the site about cats he was on last night. Strange things happen? The system knows some things about Jimmy by analyzing what he did before on the web. It also knows which device Jimmy is using, his language and much more. All this information is stored inthe cookies.

Some definitions I would recommend to get acquainted with for a good understanding.

  • Cookie – is just a tool to contain the information about a user and his preferences. For example, you’ve just chosen to view some website in Spanish (default language is English). Next time, with the help of cookies, you’ll see it in Spanish by default. Advertisers use cookies to collect anonymous information about a website’s visitors, as I’ve already mentioned. They then use this information to create profiles containing specific details about a user and to display the relevant ads.
  • Publisher – someone who owns a website. Publishers sell the advertising spaces without participating in tedious negotiations with advertisers directly.
  • SSP (Supply-side Platform) – is a technology platform with which publishers can do three big things: open up their inventory to a larger range of potential buyers through real-time bidding, say which advertisers can or can’t purchase their inventory and set the minimum prices for which their inventory can be sold to certain buyers.
  • DSP (Demand-side Platform) – it’s a tool which advertisers use to manage ad exchange and set different preferences.
  • DMP (Data Management Platform) – from there DSP gets information about customers to create hyper-targeted ads, which result in higher conversion rates.

Historically, if advertisers wanted to reach sports fans, they would buy ads on a sports-related site, for example. The advent ofReal-time Bidding Platformshas enabled them to target their ads to specific users instead. In theory it’s just deliveringthe right ad to the right person at the right time.
So let’s get closer to the question and take a look at what ad-exchange platform is and how does it work.
Anad exchangeis a digital marketplace (like a trading platform) that enables advertisers and publishers to buy and sell advertising space. Such platforms are intended to connect ad networks, agencies and third-party demand-side platforms with a vast global inventory in real time. So we’ve got a whole ecosystem!SSPacts as a technical interface between the publisher, advertiser, and ad exchange.DSPstands for demand-side platform. This system permits digital advertising buyers management of various ad exchange and data exchange accounts through one central interface. Most ad exchanges have built Real-time bidding capabilities for ad buyers. How does RTB work? Let’s try to instantiate that.
There are three sellers (advertisers):car dealer,a private dental officeandsome store with expensive designer clothes. The first advertiser needs those who are interested in cars. The second one are interested in those people who have recently been looking for where to have teeth attended to. The third one is looking for people who spend on clothing at least $1000 per month (according to statistics others just don't buy such expensive fronts).
Advertisers make bets how much they are willing to offer for their target visitor. For example, an auto dealer did a bet of $0.5, dentist didn't pinch pennies and put $1, and clothes store owner offered $2.
For example, a site for car enthusiasts visits a man who was wondering where he could find a good dentist in his area two days ago. He earns well and spends a lot on clothes. While the page is being loaded, DSP is analyzing. Of course, the clothes store wins, since the owner put the highest bid. In fact, he will only pay a minimum rate of competitors - $0.5 to show his banner for site user.

One part of the question is about atargeting data, so let’s clarify that as well. Here we can discuss where DSP gets information about website visitor.
DSP has three sources of data about the target client:

  • part of the data DSP receives from the store (registered users, history of visits and purchases);
  • another part - from previous advertising campaigns (clicks, views).
  • the last part is bought from the "third party" (DMP - as we already know it's a Data Management Platform) - this is actually the most valuable data about the customers: the history of purchases on other sites, the history of search queries, the range of their interests, current geolocation, gender, age, foot size, even the color of the eyes - the most detailed data, which allow you to customize any number of exact targeting. All this data is stored in the cookies of each user's browser.

Since that’s an automated process and companies are working on its optimization as well as using new technologies, everything happens in less than one-third of a second. Whoosh and user is about to click an ad (possibly) without knowing how many things are done to make it more relevant to him.

First we should understand some basic concepts:

Cookies and their domain specificity

Cookie is a piece of information stored in a user's browser, and is tied to a domain name. If a browser makes a HTTP request to www.google.com, www.google.com can place a cookie in the user's browser, denoting, for example, that the google user id of the user is g1234. In a later session, when the browser makes another HTTP request to www.google.com, www.google.com can read the cookie and determine that the google id of the user is g1234.

Important fact about cookies is that they are domain specfic: abcd.com cannot read a cookie which is set by google.com

Cookie Syncing

In internet advertising, various entities store information about the user using browser cookies. Due to domain specificity of cookies, they cannot read each other's information. Each of them have their own identity for the user: a DSP may label the user dsp1234 (and store this info in its cookie) and a DMP may label the user as dmp1234. The data provider, from time to time (nightly/hourly), may update DSP regarding the latest information it has about dmp1234.

To make use of this information about dmp1234's data provided by DMP, DSP needs to map dmp1234 to dsp1234. The process to achieve this is know as cookie syncing. It works like this: when the user's browser hits a page associated with DSP, DSP redirects to a page like this:

<img src="www.mydmp.net/cookiematching" width=1 height=1>

When the user's browser hits the above page, the DMP reads the user id from the cookie (it is dmp1234) and redirects to a page from dsp:

<img src="www.mydsp.net/cookiematching?uid=dmp1234" width=1 height=1>

On receiving this request, DSP reads the browser's cookies, figure out that user id is dsp1234, and stores the mapping dmp1234 -> dsp1234 in its servers, presumably in an in-memory data store.

Above cookie syncing mechanism is a general mechanism of sharing user identity between any two different domains.

How Real Time Bidding happens

First, a cookie sync needs to happen between SSP and DSP. Due to this, the DSP knows that a user whose id is ssp1234 for the SSP is known by id dsp1234 by the DSP. This happens when the user visits a website associated with DSP (i.e. a website which fires DSP's pixels)

Actual process for bidding then happens as following:

  1. User visits a website: say abcd.com.

  2. Within abcd.com there is a HTTP request to SSP, to fill an ad slot.

  3. On receiving the request for showing the ads, the SSP conducts a real time auction. To each of the DSPs whose have expressed interest in this user (some SSPs may be willing to show ads to users from a specific geo, some may be willing to show ads on a certain website, a retargeting DSP may be willing to show ads to a predefined set of users etc.) the SSP sends a bid request. The bid request looks like this:

```

[ "auction_id": 1234abcd, "geo": "Bangalore, India", "ad_width": 728, "ad_height": 90, "website": "abcd.com","id": ssp1234]

```

On receiving the bid request, each DSP needs to send a bid response. DSPs typically calculate bid response based on the parameters in bid request (geo, banner size, etc) and the user profile that DSP has stored for user id dsp1234 (Remeber that ssp1234 was mapped to dsp1234 in cookie mapping stage, and data provided by DMPs is stored against the key dsp1234)

Bid response looks like this:

```

["auction_id": 1234abcd, "bid_value": 12.34 "adTag": "<script type='text/javascript'> document.write (\"<script type='text/javascript' src='dsp.com/showad'\");document.write (\"<\/script>\");</script>"]

  1. The SSP compares the bid response of each of the DSPs, and awards the impression to the highest bidder. These auctions are usually second price auctions: the highest bidder wins and cost to highest bidder is second highest bid in the auction.

  2. The SSP redirects user browser to the ad tag provided in the bid response, which renders the ad to the user's browser.

Latency requirements

SSPs are usually required to respond back within 100ms. This means that the servers of SSPs should be close to the servers of DSP.

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