What is Programmatic Advertising

Published: January 2, 2020

, What is Programmatic Advertising, Torn Marketing - Project and Real Estate Marketing

If you have been using digital platforms to advertise your business, you have probably heard of programmatic advertising. Some marketers have coined this technique as the future of digital advertising, and for a good reason. In 2018 alone, programmatic advertising comprised 80% of digital display marketing in the US.

A lot of people rave about it, but not everyone understands it. Many marketers want to embrace this change, but lack of knowledge and reluctance to give up previous advertising means are the factors standing in the way.

In this article, we will break down what programmatic advertising means, how it works, and how you can use it for your business.

What is Programmatic Advertising

In simple terms, programmatic advertising is the automation of buying ads in the digital space using software. To understand this concept better, let’s go a few years back and look at a brief history of digital marketing.

During the early years of digital marketing, ads were bought similar to how one would by an ad space in a magazine. Brands would send representatives to bid, negotiate, and reach agreements with advertisers to place a banner ad on a website for a specified period of time.

This means that if your business bought a banner ad space for one month, your ad will be shown to every website visitor throughout that duration. In this scenario, there is no regard for target marketing. You spend ad money on people who are not even your target customers.

To solve this problem, Real-Time Bidding (RTB) was born. RTB was the first form of programmatic advertising. It allowed a real-time auction of ads – meaning buying and selling happens as the webpage is loading. That’s around 100 millisecond per transaction.

With RTB, brands were able to select the target of their ads better and buy ads on a per-case basis. This means their ad money is only spent to relevant web page visitors,

Though 90% of programmatic ad buying uses RTB, there are also other types of programmatic advertising, namely:

  • Private Exchange buying (PMP) – an invitation-only ad platform where selected advertisers and buyers can only participate in the auction
  • Programmatic Direct – is a way to buy a guaranteed number of impressions specific web pages. Transactions here also involve fixed amounts instead of auctions

Programmatic Advertising was once considered very expensive, such that only bigger brands can avail of it. But with the rise of self-service tools in recent years, smaller brands were given the capacity to also avail of programmatic advertising.

What are the Components of Programmatic Advertising and How they Work

Before we go deeper and discuss the process, let’s discuss the components of programmatic advertising, which are also the terms most commonly used in discussions about the topic.

1. Ad Exchange

An ad exchange is the platform where the buying and selling of ads takes place. It works like the trading floor of a stock exchange, but for digital ads display. In the programmatic ecosystem, the one sitting in the middle is the ad exchange. It is connected to the Demand-Side Platform (DSP) on one end, and to the Supply-Side Platform (SSP) at the end. These two other components will be further discussed later.

2. Ad Network

Most people are usually confused between an ad network and an ad exchange. An ad network is a platform connected to several websites and tells advertisers which of these websites have ad spaces available for sale. These ad networks are then connected to the ad exchange. 

3. Demand-Side Platform (DSP)

A demand-side platform is a software or tool that makes it possible for advertisers to automatically buy ads. If you want to use programmatic advertising for your business, you have to first sign-up for a DSP. The DSP, in turn, is connected to the ad exchange. 

For example, a user visits a website connected to an ad exchange (remember that this website is connected to the ad exchange through an ad network). The ad exchange alerts the DSP that there is an ad space available for auction that may fit your placements. If it does, the DSP signals the ad exchange to include you in the bidding, among other competing advertisers. The winning advertiser gets to place an ad in the website.

4. Supply-Side Platform (SSP)

As DSP is for advertisers, Supply-Side Platform (SSP) is for publishers (those who sell ad spaces from their websites). Managing display space used to be a manual process for publishers. There were sales people who reached out and sold ads to advertisers. This process has been automated through an SSP.

An SSP is connected to an ad exchange and tells the inventory of ad spaces available. And through Real-Time Bidding (RTB), these available inventory are auctioned off to the highest bidder.

In summary, a DSP’s job is to buy a desirable ad space at the cheapest price possible, while an SSP’s job is to sell an ad space for the highest price possible. An SSP can be connected to several ad exchanges to maximise its exposure to potential bidders.

How to Start with Programmatic Advertising

Here are five tips to follow before you dive into programmatic advertising for your business: 

1. Know the basics

Just like starting with a new venture, it is important to educate yourself with the know-hows of programmatic advertising. This article is a good start to familiarise yourself with relevant terms and give you an overall idea of how the system works. However, as you will be faced with new ideas and concepts, you must take time to continue learning.

2. Set your goals

As with anything in marketing or business in general, you have to start with crystal clear goals. Look into your existing data and determine the type and level of advertising awareness you need so you can set a fitting strategy. From there, identify your short- and long-term goals.

Don’t just jump into the wagon and do programmatic advertising unless you are sure that you know why you are doing it. 

3. Retain the human touch

Despite using software and algorithms, you will still need human investment to run a programmatic advertising campaign successfully. In fact, programmatic advertising is there to free up most of the marketers’ time doing negotiation and bidding so they can focus on strategizing and optimizing campaigns.

4. Protect your brand

One challenge of programmatic is that your ads can appear in the wrong place because the system heavily relies on algorithms.

Make sure that you constantly update and monitor your demand-side blacklist to include inappropriate sites. There are platforms that allow exclusion of entire categories, which can be very helpful in optimising your ad spend.

Another option is to use a whitelist. This is important if your product is sensitive. Instead of coming up with sites to deny, you build and maintain a list of approved sites.

5. Be careful of fraud

Programmatic ads have an industry-wide standard of 16% fraud. This is significantly lower than other digital display ads. Despite that, Mediative still estimates that bot fraud will cost $6.5 billion this year so it is important to stay vigilant.

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