What is Programmatic Advertising?
An AdTeach Programmatic Essentials Series

Written by Ben Morrisroe

21 Aug, 2020

What is programmatic advertising?

 Programmatic advertising is the process of automatically buying and selling digital advertising space. Before programmatic advertising, ordering, setting up, and reporting on ads all had to be carried out manually.

 The process is streamlined through programmatic advertising, making it more effective and efficient. Any formats and channels can be accessed programmatically, thanks to programmatic platforms that have built up their ad inventory and database. For a quick overview of all that jargon, check out our ultimate programmatic advertising glossary for publishers.

Why Choose Programmatic Advertising?

We can expect programmatic advertising to continue to grow. In the US, 85% of digital display advertising spending was transacted through programmatic technology in 2020. According to eMarketer, programmatic spending is forecast to grow to 86.5% of all digital display advertising spend in 2021 despite a downturn due to the pandemic.

Programmatic advertising offers a smarter, faster alternative to manual digital advertising. Both publishers and advertisers may find themselves struggling with the management of ad space and manually negotiating the sale and purchase of ads is a time-consuming process.

How Programmatic Advertising Works

 Programmatic advertising helps to connect publishers - those who have websites with ad space (ad inventory) to sell - and advertisers - those who want to buy that ad space to promote their brand.

  1. When an advertiser wants to launch a digital campaign to promote their product or service, they contact their programmatic ad agency or trading desk. The agency uses a demand-side platform (DSP) to automate the process of buying ad impressions to meet the goal of the campaign.
  2. A DSP allows advertisers and their agencies to purchase ad inventory from multiple publishers. The DSP ensures the ads are aimed at the right audience through the use of a data management platform (DMP), which manages audience data. This data is used to target the right audience, taking a variety of factors into account, such as location, demographics, user behaviour, and online activity.
  3. When a person who falls within the target audience of the advertiser lands on a publisher's website, the website will send an ad request to the supply-side platform (SSP). An SSP is used by a publisher to sell ads, with the aim of maximising the value the publisher receives from an impression. The SSP runs an auction among its buyers, and the DSP is connected in. 
  4. The DSP uses the data that it receives to evaluate the ad and match it with their data and target parameters. This is used to decide a bidding price for the first impression. Held within the SSP or ad exchange in real-time, the process is often referred to as Real-time Bidding. Although this sounds like a long process, it takes just 100 milliseconds to complete the bidding. After the impression has been sold, it is sent to the publisher's website to be displayed. The process repeats whenever a user lands on the website or refreshes.

Programmatic Platforms and Auctions

Programmatic platforms are platforms like Publift that help with programmatic advertising. There are various platforms available for publishers to find the right services and get access to the right advertisers that match their needs.

Programmatic advertising platforms form a part of the complete system required for the programmatic advertising process. Each part of the system works together to serve both publishers and advertisers and ensure they both benefit. Some of the types of platforms are named above, including Demand Side Platform (DSP) and Supply Side Platform (SSP), Data Management Platform (DMP), and Ad Exchange.

Let's take a look at each type of programmatic platform to get a better idea of what each one does, and who it's for. 

  

Supply Side Platform (SSP)

An SSP holds the publisher's inventory. The publisher submits a webpage as a source for an advertisement, and after all is agreed on the Ad Exchange, they will put a pixel code on their page to track visitor behaviour. The code delivers anonymous data about visitors and the actions that they take. The SSP is programmed to maximise the value that publishers receive from an impression of an ad (an impression being an instance of the ad being shown to someone).

An SSP allows publishers to filter ads by the advertiser and other criteria, as well as set different rates for ad spaces to define the cost. 

Demand Side Platform (DSP)

A DSP is a type of programmatic platform for the advertiser side of the process. Advertisers make their bids to a DSP, and the platform makes the decisions for them. A DSP stores user-profiles and third party data and combines with information with bids from advertisers. The DSP makes the decision about which ad to serve where when visitors land on webpages. It must consider the bid made, with the highest bidder winning, the content of the ad, and the cost to the advertiser.

The pixel that publishers include on their website provides data so that audience segments can be created, sending the information to the DSP. The DSP has advertisers ready to make their bids automatically so that the best ad can be shown to the correct audience. Advertisers benefit from accurate placement of the ad, while publishers benefit from the highest bidder winning.

When the DSP and Ad Exchange have made a decision about which ad to match to which webpage, this is communicated to the SSP.

Data Management Platform (DMP)

Having the right data is vital in programmatic marketing. A DMP is an independent platform that collects. Manages, analyses, and activates data. The platform provides comprehensive user profiles to advertisers so that the data can be used in a programmatic algorithm to match the most visitor most likely to convert to the best ad.  

Ad Exchange

The ad exchange is where the DSP and SSP come together for ads to be bought and sold. Some ad exchange systems combine DSP, SSP, and DMP in one so that everything is provided for both publishers and advertisers. However, it is worth noting that some combination platforms might not offer the functionality that singular platforms offer. They may offer a range of basic functions but won't necessarily allow advanced settings and control.             

Auction and Buy/Sell Types

Let's take a look at the different auction types available for programmatic advertising. Each offers various advantages to publishers. In addition to auction methods, direct methods of sale and purchase are also available, which can allow for even more control over the process.

      • Header Bidding - a technique where publishers offer inventory to multiple ad exchanges simultaneously before going to ad servers. Using this technique, publishers can increase their income by increasing the competition.
      • Exchange Bidding - a server-side process involving a unified auction where exchange networks and SSP's bid on ad inventory. This is often regarded as Google's answer to header bidding.
      • First Price Auction - advertisers bid for an impression with the highest big winning and paying the publisher. The highest bidder determines the price of the impression.
      • Second Price Auction - the runner-up sets the price of an impression in a second price auction. The bidder with the highest bid still wins, but only pays a cent more than the runner-up advertiser bids.
      • Open Auction - Ad Exchange matches buyers and sellers on this public marketplace, seeking the highest bid
      • Private Marketplace - or Non-guaranteed PMP deals is an invite-only model, allowing publishers to limit their ad inventory to a select pool of advertisers. It works in the same way as real-time bidding, but publishers have more control over who they want to advertise on their website. Publishers get to decide which advertisers they invite to advertise on their websites. They have the chance to bid in a small auction before the inventory is released to the open auction. A negotiated minimum price is set, but buyers can bid on as many impressions as they want.
      • Real-Time Bidding (RTB) - real-time auctions that take just milliseconds to complete, often carried out by supply side platforms or ad exchanges.
      • Programmatic Guaranteed/Direct - the direct sale of reserved ad inventory where automation replaces the manual insertion order process and involves the advertiser or advertising agency negotiating directly with the publisher. There is no bidding involved in this type of programmatic advertising, and it helps to prevent fraudulent ad spaces. The publisher can regulate the price of inventory, and buyers can directly buy premium inventory in a transparent process.
      • Preferred Deal - bypasses auctions to provide advertisers exclusive access to inventory.

Why Programmatic Advertising Is Important for Advertisers

Before programmatic advertising, it was difficult for advertisers to access ad inventory. This meant that 60% of publisher ad space went unsold. Automation helped to solve the problem by making it much easier to understand and buy ad inventory.

For advertisers, the benefits of programmatic advertising include:

  • Ability to scale - allows advertisers to reach a large audience by purchasing ad space from any ad inventory available, rather than being limited as they might have been before.
  • Real-time flexibility - advertisers can make real-time adjustments to ads based on their impressions, and they can take advantage of a broad range of targeting criteria.
  • Targeting capabilities - With superior targeting, an advertiser's budget can be put to better use and spent more efficiently.
  • Efficiency. The process is more streamlined, and more relevant ads are served through targeting. Access to a large pool of publishers means advertisers can get a better return on their investment, while publishers can maximise their revenue too.

Why Programmatic Advertising is Important for Publishers

With the right tools, programmatic advertising protects publishers, can keep their readers in mind and host ads that are relevant to them. They can also access deals that bring them higher revenues and maximise revenue through different types of bidding, such as header bidding and exchange bidding.

For publishers, the benefits of programmatic advertising include:

  • Simplicity - programmatic advertising makes it so much simpler to sell advertising space. Publishers are able to optimise their ad sales with automation tools that reduce the time investment required to find advertisers.
  • Communication - publishers can communicate and collaborate with advertisers with ease, ensuring both the publisher and the advertiser benefit.
  • Relevancy - when visitors come to a publisher's site, they will be served with ads that are relevant to them because they are part of the target audience of the advertiser. Programmatic advertising gives you demand to access to a range of publishers, removing the need for back-and-forth phone calls, emails, or other slow forms of negotiation.
  • Efficiency - it can lower costs and raise margins for publishers, helping them to earn more from their available ad space.

Digital Advertising vs Programmatic Advertising

While digital advertising hopes to have a wide reach and find the correct audience, programmatic advertising uses precise targeting tactics to segment the audience with real data.

Programmatic advertising combines the best elements of tech advancements and human knowledge and expertise to make it easier to buy, place, and optimise ads.

Publift's case studies show you some excellent examples of programmatic advertising, plus you can see our broad range of clients too. Take a look at how clients such as Envato and OzBargain have benefited from using programmatic advertising, allowing the publishers to control what appears on their site and optimise their revenue from ads.

Programmatic Advertising Trends

What's next for programmatic advertising?

Technologies such as machine learning and artificial intelligence are having an impact on everything, and programmatic marketing is no different. As well as technology, trends in programmatic advertising are influenced by best practices, changing attitudes, and trends in other areas.

  • Artificial Intelligence (AI) - artificial intelligence and machine learning can be used to find patterns and predict results better in real-time along multiple data points, improving speed, scalability and effective ad placements.
  • Personalisation - customisation makes it possible for advertisers to offer highly relevant and personalised ads to their targeted groups, which is also beneficial for publishers, through dynamic ad experiences with dynamic creative optimisation. is one option for customising advertising.
  • Preventing Ad Fraud - Digital ad fraud is a problem that the marketing industry is battling against. Estimates for the amount of money lost to ad fraud range from US$6.5 billion to US$19 billion, according to eMarketer. There are several solutions being used in programmatic advertising to help prevent fraud, including blockchain and an initiative called ads.txt.

 

 

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