What Is Programmatic Advertising?

The digital advertising landscape has changed significantly over the past one or two decades. Technology that used to be considered innovative and even futuristic is now standard practice. Programmatic advertising is one of those technologies – and we’re here to explain how it works, who uses it, and how they benefit from it.

The definition

Programmatic advertising means buying and selling digital advertising in real-time through the use of automation. Back in the day, what was carried out by people and involved things like proposals and negotiations, is now done by machines.

Through the use of complex algorithms, Artificial Intelligence, machine learning, etc., the process forgoes manual labor (or most of it). Thus, it is quicker, more efficient, and fault-proof.

Who uses it?

It is used by both sides of the digital advertising ecosystem: the sell-side (publisher) and the buy-side (advertiser).

What makes programmatic advertising tick?

When the media buy happens programmatically, it takes into account predefined characteristics. For example, the publisher sets their desired price or price floor. The advertiser sets the price they’re willing to pay, their target audience, etc.

What types of programmatic are there?

Programmatic technology is used in several different ways, such as:

Real-time bidding (RTB) – These are real-time auctions that happen as the page is loading. An ad impression is put up for sale by a publisher (the seller). The advertisers (the buyers) place their bids. The bidding happens in a cascading manner (called a ‘waterfall’) where advertisers bid one after the other. The process is facilitated by an ad server. If the first bid doesn’t meet the desired price floor set by the publisher, the next advertiser down the chain is ‘called’ to bid. The ad impression is sold to whoever in the chain meets the price floor first. The process then stops and the advertisers that are further down the chain are disregarded, despite the fact that they may be willing to pay a higher price.

Header Bidding – This is considered a more advanced type of programmatic ad buying. It’s meant to tackle the challenges of the ‘waterfall’ described above. Header bidding allows publishers to receive higher rates and gives advertisers access to premium inventory. In header bidding, advertisers get the first look at the publisher’s inventory. This happens through a piece of code in the page header called a header bidding wrapper. Bids are placed simultaneously (as opposed to consecutively) and the ad impression goes to the highest bidder. All this happens before the ad call reaches the ad server.

Private Marketplace (PMP) – It again uses RTB technology, but access to this marketplace is limited. A publisher offers their inventory to select advertisers only, by extending invitations.

Programmatic Direct – These are automated deals done between the publisher and advertiser in accordance with predetermined criteria (volume, price, frequency cap). Such deals include Preferred Deals, Programmatic Guaranteed, and Private Auctions.

What are programmatic platforms?

With programmatic, a lot of media buys are not done directly by the publishers and advertisers themselves. There are many actors in between, bringing in their expertise and helping the two sides connect. These include:

  • Demand Side Platform (DSP) – allows advertisers and ad agencies to buy ad inventory for their online advertising needs
  • Supply Side Platform (SSP) – allows publishers to sell their ad space, giving them more control over their inventory, CPM rates, etc.
  • Ad Exchange – This is where DPSs and SSPs ‘meet’. The SSPs provide the ad impressions, while DSPs plug in to purchase them.
  • Data Management Platform (DMP) – collects, analyzes, and activates data. It provides advertisers with data on audience segmentation, etc, and publishers with data on website visitors, behavior, etc. It enhances the bidding process by ensuring effective ad targeting.

Why does it matter to advertisers?

The advantages of programmatic for advertisers include:

  • Better targeting and reach of potential customers
  • Greater efficiency of ad spend and higher ROI
  • Real-time reporting and adjustments to budget, ad creatives, etc.
  • Access to more ad inventory

Why does it matter to publishers?

The benefits of programmatic advertising for publishers include:

  • Ability to maximize revenue through better publisher margins
  • Ads are more relevant to the users
  • Transparency and reporting that allows publishers to improve their monetization strategy
  • Access to a greater advertising demand pool and better fill rates

What does the future hold?

Programmatic advertising is an indispensable part of the digital advertising world. It delivers significant benefits to both publishers and advertisers in terms of efficiency, speed, and financial resources involved. While there are challenges (such as ad fraud, the focus on privacy and ban on third-party cookies, etc.), the industry has been striving to combat them and introduce greater transparency for all parties involved. With such continuous improvements, the programmatic future is bright.