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To better understand how this type of transaction between the publisher and advertiser advertiser (buyer) and publisher (seller) occurs, you'll need to know about the different ways in which inventory is bought for display advertising, and each of the various pricing models that exist.

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There are three different ways through which sellers and buyers meet to transact on media: real-time bidding (RTB) auction, deals/packages, and direct.

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Real-time bidding is an open marketplace programmatic auction where ad inventory is sold and bought on a per impression basis through a bidding system that occurs in during the milliseconds before that a web page is loaded by a user. 

Demand-Side Platforms (DSPs): DSPs or demand-side platforms may can be used on behalf of advertisers (buyers) to automate the purchasing of online advertising. A DSP helps set the buying parameters of the advertiser's campaign and monitors its performance. 

Supply-Side Platforms (SSPs: SSPs or supply-side platforms may ): SSPs can be used to help better manage and sell publishers' (sellers') inventory.

Ad Exchange: The ad exchange is the platform that connects publishers and advertisers.

An RTB auction is more effective for an advertiser than a static auction because unlike having to pay a fixed rate for each impression in that bucket, the advertiser can value each opportunity to buy an ad impression in real-time, allowing for accepting or rejecting each ad impression in the campaign.

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In a direct marketplace, advertisers are buying impressions in bulk at a fixed CPM rate instead of going through a real-time bidding auction. This model provides the advertiser with a guarantee, or a reservation, on the ad inventory. Advertisers and agencies will often pay premium prices to access this type of inventory, as it  allows them to target specific audiences based on geography, browser, etc., and the advertiser gets certainty of campaign volumes. Direct buying works well for advertisers who want better control over the placements placement of their ads, and also gives them the flexibility to have rich media formats such as page takeovers on a homepage, where no other ad is shown.

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Note

RTB operates on a second price auction model. This means that the highest bidder wins the auction but pays $0.01 more than the second-highest bid. Second price auctions allow a more accurate valuation of the item up for auction.

CPM

CPM or (cost per mille) is when the price is based on where the advertiser pays a flat amount per 1000 impressions. This is good for publishers as they will still get paid for every impression and risk nothing on ad performance. 

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Note

vCPM or viewable cost per 1000 impressions means that an advertiser only pays when an ad is shown on screen for one second or longer for display ads, and two seconds or longer for video adsa certain period of time (typically based off IAB [International Advertising Bureau] standards).

CPC 

CPC or (cost per click) is the average amount that is charged for a a performance-based model, with the advertiser paying a flat amount per click on an ad. It's based on performance. This means that a publisher only gets paid once only when a user clicks on an ad, regardless of how many impressions were served before the click actually occurred. 

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Dynamic CPM

This model allows for optimization to an average CPM goal. 

CPA 

CPA or (cost per action/acquisition is best for an advertiser as they only pay the publisher when it ) is a model where the advertiser pays the publisher only when a click on the impression results in a sale, or a conversion against their campaign goal.

  • If $100 is spent on a campaign, and as a result gets 10 acquisitions, this would mean a CPA of $10.

Sponsorship

Sponsorship is when the publisher accepts a lump sum from the advertiser in exchange for displaying their ad for a specified amount of time. 

  • The ads are purchased on a CPD or cost per day basis, and the cost would be for a percentage of all the views over the duration of a campaign. There isn't any additional charge for "clicks", and there's no limit to how many "impressions" the ad receives over that time frame.

Further Reading