What is Programmatic Advertising?

An AdTeach Programmatic Essentials Series

Written by Ben Morrisroe

23 Sep, 2020

What is programmatic advertising?

Programmatic advertising is the process of automatically buying and selling digital advertising space (while the definition of programmatic is simply that ad processes are now automated). 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 glossary for publishers. 

Why Use 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.

Before programmatic advertising, ordering, setting up, and reporting on ads all had to be carried out manually. 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. Programmatic digital advertising offers a smarter, faster alternative to manual digital advertising.

How Does Programmatic Advertising Work?

  1.  Connects publishers – those who have websites with ad space to sell – and advertisers – those who want to buy that ad space to promote their brand. When an advertiser wants to launch a digital campaign to promote their product/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 programmatic 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, consierding a variety of factors including 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 programmatic ads, with the aim of maximizing 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 programmatic 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

5. Although this sounds like a long process, it takes just 100 milliseconds to complete the bidding. After the impression has been sold, it’s sent to the publisher’s website to be displayed. The process repeats whenever a user lands on the website or refreshes.

What is a Programmatic Advertising Platform?

Programmatic platforms are platforms like Publift that help with programmatic ads. Programmatic advertising platforms form a part of the complete system required for the programmatic advertising process. There are various platforms available for publishers depending on the advertisers that match their needs.

Each part of the system works together to serve both publishers and advertisers, ensuring they both benefit. These platfrom types include DSPs, SSPs, DMPs and Ad Exchanges. 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: 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 behavior. The code delivers anonymous data about visitors and the actions that they take. The SSP is programmed to maximize the value that publishers receive from ad impressions (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: 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: A DMP is an independent platform that collects, manages, analyzes, 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 programmatic ads to be bought and sold. Some ad exchange systems combine DSP, SSP, and DMP in one so that everything’s provided for both publishers and advertisers. However, it’s 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.   

Buying and Selling. 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 greater 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 bid 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 and decide which advertisers they invite to do so. 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 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 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 ad impressions, and 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 maximize their revenue too.

Why Programmatic Advertising is Important for Publishers

With the right tools, programmatic advertising protects publishers, keeps their readers in mind and hosts ads relevant to them. They can also access deals that bring them higher revenues and maximize revenue through different bidding types including header bidding and exchange bidding. For publishers, the benefits of programmatic advertising include:

  • Simplicity – makes it simpler to sell advertising space. Publishers are able to optimize 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 relevant to them because they’re part of the advertiser’s target audience. Programmatic advertising gives you 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 publisher margins, helping them earn more from their available ad space.

What is Programmatic Digital Advertising?

While digital advertising hopes to have a wide reach and find the correct audience, programmatic digital advertising uses precise targeting tactics to segment the audience with real data. It combines the best elements of tech advancements and human knowledge and expertise to make it easier to buy, place, and optimize 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 optimize their revenue from ads.

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