Not that long ago, trading advertising space meant late-night haggling by agencies and media owners, months in advance of an ad getting in front of a consumer.

Now, technology enables businesses to bid in a fraction of a second for individual slots based on who’s about to see them. For advertisers, agencies and consumers, this is transformational, if not a little controversial.

Real-time bidding for advertising space is already happening online. Ad impressions – display ads on a website – are traded and delivered in the time it takes a user to load a page on their screen. Deals are done based on a complex array of data about individual users, so advertisers can decide precisely the kind of person they want to target and how much they’re willing to spend to reach them, then let super-fast software do the rest when that person logs on.

Turn Inc, a US technology company that is at the forefront of this change (and has just opened an office in London), says click-through rates on space bought in this way are up to 135% better than the norm, with conversion rates up 150%. Forrester Consulting, predicting huge growth in this way of trading, found one insurance firm had halved its online cost per lead using real-time bidding (RTB).

“It’s not really mainstream yet… but it will happen in the next six to 12 months,” says Ciaran O’Kane, editor of advertising trading website ExchangeWire.com.

This is buying ad space by audience and intent, and going to whichever available sites those people are on, rather than assessing which sites they’re likely to visit and hoping they’ll drop by when your ad is showing. It’s already being used in tandem with re-targeting services – so when a consumer visits a site but doesn’t buy, cookies ‘remember’ what they’ve looked at and how many times. The closer it seems they are to buying means they’re probably worth more ad dollars, so a car dealer will pay more for an ad going to the person who’s looked six times as the same model in different colours than for the same ad shown to someone who’s simply searched for ‘family car’ once or twice.

The potential of such precision targeting is big business, and will get bigger. Forrester estimated that by the end of 2010, 30% of ad dollars spent online in the US would trade through RTB, or ‘dynamic media buying optimisation’. In a year, it’s gone from accounting for around 1% of display ads being traded worldwide to 20%, according to Admeld, one of the biggest technology platforms working in this space. The US is thought to be six to 12 months ahead of Europe; technology platforms working with websites to sell their ad space inventory this way have sprung up across Europe in the past year, focusing on the UK (where RTB accounted for about 3% of online display ad trading in late 2010), France, Germany, the Netherlands and Spain.

“RTB is growing at a breakneck pace. In just the past four months we’ve seen massive budget shifts,” says Jay Stevens, general manager international of The Rubicon Project, which operates real-time bidding platforms. “Trial campaigns of £30,000 to £50,000 are now becoming £200,000 to £250,000 per month for the larger clients,” he says. Rubicon’s own headcount has gone from 90 staff a year ago to 150 now, though not all work on RTB. The company is projecting revenues for 2011 of more than $100m (€72m).

Worldwide, there’s been a flurry of investment. Google, which has its own powerful platform for real-time ad trading, acquired another, Invite Media, for $70m in June, and in October, RTB outfit AppNexus raised $50m (€36m) in a funding round that attracted multiple corporate giants, including Microsoft.

Why is there such excitement, when online is still only a fraction of total advertising investment? Because the same rules will soon apply to TV, very soon.

TV over the internet has been around for a while, but the new story is internet over TV in your living room. Google TV (see page 45) describes itself as follows: “TV, apps, search and the web, together at last. Your TV just got smarter.” And so did advertisers. With TV and internet combined, there’s combined data about what you watch on the box (and when) with what you search for online and the sites you visit. This provides a richness of data on individual consumers’ habits and preferences on a scale never seen before.

This year Google took a stake in start- up Invidi Technologies, which raised $23m; the firm specialises in ‘addressable ads’ for cable and satellite TV viewers. NBC was already offering similarly targetable ads via a deal with Microsoft.

Having digested all this data, advertisers will, as in the online RTB system, know whether it’s worth sending a household an ad for a luxury getaway or quality school shoes, for example, and how much they want to spend getting that ad to those people. Michael Steckler, British managing director of online retargeting company Criteo, says within a couple of years, two neighbours could be watching the same film on TV, but be shown different ads in the break. “Longer term, the ads may be so bespoke, you might well be the only person in the country seeing that ad at that time,” he says.

As well as cutting wastage by no longer advertising to people who’ll never buy the product, advertisers will have a better understanding of what Steckler calls “the consumer journey” and tailor communications accordingly. Sequential marketing will be smarter, starting perhaps with TV sponsorship, then detail about products online, then a price offer via mobile. It will also allow marketers to ensure that they’re not bombarding individuals with the same message 10 times a day. The hope is that consumers will appreciate relevant communication from brands; they don’t necessarily hate ads, just ones that don’t interest them.

Janneke Niessen, co-founder of Improve Digital, says what’s doable because of the technology isn’t necessarily sensible. “Normal marketing rules apply,” she says. If someone has been researching a disease that they suffer from, they probably don’t want ads about it when they put their feet up. Also, tailoring too tightly can become uneconomical. “If you get very close and you’re, say, Disneyland, you can reach the one person you’re 100% sure will book a trip to Disneyland and you might say they’re worth spending €8

[per ad], but if you can only reach 100 of those people, it’s not very scalable.”

Not even the most enthusiastic RTB fan thinks the whole ad market will one day be traded this way, but they do expect it to become a significant part of the ad ecosystem. The agencies seem to be hedging. WPP Group’s GroupM was alongside Google in investing in Invidi, and the global media agencies have developed their own technology to trade in real time. GroupM has B3, Havas has Adnetik, Publicis has VivaKi and Omnicom has OPera.

The Rubicon Project’s Stevens says it won’t necessarily put traditional TV buying and media planning teams out of a job. “It will make them more efficient and will increase the amount of spend that agencies are able to better manage,” he says. “Also, you can’t trade a homepage takeover or integrated sponsorship in this fashion, and that’s obviously where a lot of the value for brands is.”

Dominic Proctor, CEO of leading media agency MindShare, believes RTB is a good way to use remnant ad inventory, but that it has its limits. “We don’t have our head in the sand, … but when we lose the human touch, we lose a lot,” he says.

“Obviously unless we’re careful, it would just further commoditise a business which is partly a commodity business and partly an added-value one. It’s difficult to see the technology that can replace the value judgements. Our business has always been a combination of art and science and that balance changes from country to country and medium to medium, but there’s always a balance.”

O’Kane from ExchangeWire. com says that agencies will still be important, despite automation. “The reason people will click on an ad is because the creative is good.

It will expose inefficiency in the system, but the stuff doing well will get more money.”

People know there’s a lot of information on them out there, but the idea of so much in one place raises questions about privacy and ethics. As Niessen says: “Some people will find it a bit creepy, and annoying if you see the same ad too often.”

In most countries, the law says that when web users set their browser security settings, they have a choice of whether to accept cookies so that they have sufficient control over their privacy. They can always opt out. But a controversial EU directive would mean the opt-out would become an opt-in, which would need to be done for every cookie-dropping site every time a user visits. The online industry insists this would be unworkable, causing constant interruption to web users. How this will be resolved is uncertain.

Criteo’s Steckler claims that consumers don’t mind sharing data as long as it is done in a transparent way and they see they’re getting some value in it. Just look at what people reveal when they’re signing up to iPhone apps, he says.

Stevens says that it’s not a question of privacy: “They either have to pay with their eyeballs or their wallets. There’s no free lunch.” Quality web content must be financed somehow, he shrugs, and sites need to be able to sell relevant ads. If they’re not able to do so, the business model collapses.

“Obviously privacy is a huge concern,” he adds, “but often people fail to recognise that there’s no personally identifiable information behind a cookie; if it’s anonymous, what does it matter?”