Programmatic Advertising Explained: An Expert Introduction

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What is programmatic advertising? Put simply, it’s the use of automated software to buy digital advertising space in real-time. 

Programmatic ad buying uses complex algorithms to bid for and show ads to the right people, at the right time, and for the right price. This approach to digital advertising is in contrast to traditional digital ad buying, which can often be time-consuming, labour-intensive, and expensive. 

In this short guide, we explain the ins and outs of programmatic advertising, covering the different types, how it works, and the benefits of automating ad buying. 

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Programmatic advertising 101: everything you need to know

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What’s the difference between traditional and programmatic advertising?

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The traditional method of online ad buying harks back to the days of the Madison Avenue media-buying departments. You’ve still got proposals, quotes, and negotiations, contracts and manual insertion orders, only now it’s for website banners and pop-ups instead of billboards and magazine spreads. 

Programmatic advertising, meanwhile, takes all of this manual work and human intervention and automates it, meaning you can buy ad space  – across millions of websites – in real-time.  

This all happens in ad exchanges; digital auctions where advertisers (who want to buy ad space online) and publishers (who own websites and want to sell ad space) come together. 

Why does programmatic advertising matter?

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In the past, advertisers had to make some assumptions about their audience when placing ads on websites. Want to reach football fans? Then buy ad space on fan forums. Want to sell all-inclusive holidays? Target travel blogs. All very logical but narrow in scope. 

Programmatic advertising has turned this approach on its head. Instead of targeting certain websites, you can now target ads to specific users as they browse the web.

What are the different types of programmatic advertising?

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Programmatic ad buying can be split into three main categories:

1. Real-time bidding (RTB): This is when advertising inventory (in other words, the amount of ad space or the number of ads) is bought and sold through real-time online auctions. These auctions take place in the time it takes for a webpage to load, filling the ad space with the winning bid.
   
   
2. Private Marketplace (PMP): This is similar to an RTB auction; only it’s private and invite-only. In a PMP, publishers make their inventory available to only select advertisers. PMPs are growing in popularity as they offer brands more control over ad placements. Because these marketplaces are invitation-only, it minimises the risk of ads appearing on violent, extremist, or inappropriate websites.
   
   
3. Programmatic Direct: This is when a publisher invites an advertiser to purchase their ad inventory at a fixed cost per impression (CPM). It allows both advertiser and publisher to bypass the auction, giving the publisher complete control over the ads they show on their site. It also provides the advertiser with quality impressions from relevant web pages.

How does programmatic ad buying work?

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Whether the auctions are open (RTB) or closed (PMP), the programmatic ad buying process looks like this: 

• First, a user clicks on a website.
  

• In the time it takes for the webpage to load, the ad impression is put up for auction through the site owner’s Sell-Side Platform (SSP). The SSP is software that allows publishers to sell ad impressions in real-time to an ad exchange.
  

• At the same time, advertisers automatically bid for the impression through their Demand-Side Platform (DSP) – software that allows them to purchase ad inventory from an ad exchange. 
  

• Just like any other auction, the highest bid wins.
  

• The ad is then shown to the user once the page has loaded.

The right ad for the right person, in the blink of an eye

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The above process happens in milliseconds, with bids calculated by algorithms to determine the winner. But there’s more to winning than simply having the biggest budget. 

While the ad impression loads in the user’s web browser, info about the page it’s on and who’s viewing it (such as age range, demographics, and past browsing history, if available) is sent to the ad exchange as part of the auction.

The advertiser’s DSP then quickly decides, based on that information, if the ad impression is worth bidding on – and how much to spend.

For example, let’s say you were browsing desks on IKEA’s website, without buying. Then, later, you click on your favourite blog. As that page loads, IKEA’s programmatic ad buying platform might place a higher bid than, say, Amazon for the ad impression because it knows you recently visited the IKEA site. 

In the eyes of the DSP, your recent visit makes you more likely to click on the ad and potentially convert, making the higher bid a safer bet for a return on ad spend (ROAS).

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What are the benefits of programmatic display advertising? 

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If you want to introduce programmatic advertising  to your business – or you need to justify hiring a programmatic ad buying expert –  it’s worth noting these benefits: 

• It’s fast and efficient: Traditional ad-buying involves time-consuming (and often expensive) negotiations between a marketer and a salesperson. On the other hand, programmatic ad buying relies on algorithms to collect and evaluate user data, placing ads in real-time with little human intervention.
  
  
• It’s more affordable: Manual ad buying is based on an upfront cost negotiated between the advertiser and the publisher. This could lead to overpaying for bulk ad placements if your ads don’t receive enough impressions in the time they’re set to run.
  
  With programmatic real-time bidding, each ad’s price is determined by supply and demand, reducing the risk of overpayment.
  
  
• It’s transparent: Because you can clearly monitor the ad inventory you’re buying and the audience you’re targeting, you can draw a straight line between ad spend and performance.
  
  
• It’s easily optimised: With traditional online advertising, you’d usually review and tweak campaigns only once they’ve finished. Programmatic advertising lets you optimise as you go, using real-time insights to continually improve and refine your campaign. 

Wrapping up our intro to programmatic advertising

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Programmatic advertising offers a fast, efficient, and transparent alternative to the slow and expensive traditional ad buying experience. But it’s the ability to target individual users with highly relevant advertising in real-time that could benefit your business now and in the future. 

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