Programmatic Advertising

What Is Programmatic Advertising and How Does It Work?

Programmatic advertising revolutionizes the buying and selling of digital advertising space by automating the entire process. Prior to its advent, ordering, setup, and reporting of ads were laboriously done manually. However, programmatic advertising streamlines these tasks, enhancing their effectiveness and efficiency. This powerful approach enables access to a wide range of formats and channels programmatically, facilitated by dedicated platforms that have amassed vast ad inventories and databases.

Who Uses Programmatic Advertising?

Programmatic advertising offers businesses and enterprises a dynamic solution to advertise on digital screens. In the past, purchasing and selling digital ads required manual intervention, resulting in exorbitant costs and unreliable outcomes.

However, the realm of programmatic advertising has experienced significant growth, propelled by publishers integrating native ads into their websites. Publishers are increasingly adopting programmatic native advertising due to its resilience to ad blockers, setting it apart from other ad formats and platforms.

Furthermore, programmatic advertising empowers marketers with additional time to optimize and enhance their ads using advanced techniques, thereby maximizing the potential for campaign success.

Why Choose Programmatic Advertising?

The growth trajectory of programmatic advertising shows no signs of slowing down. In the United States, programmatic technology is anticipated to command a significant 86.5% share of digital display advertising spending in 2021, as per an eMarketer study.

Programmatic display advertising presents a smarter and faster alternative to traditional manual digital advertising practices. Pre-programmatic era, the laborious tasks of ordering, setup, and reporting of ads demanded manual effort. Publishers and advertisers alike often grappled with the challenges of ad space management, while the manual negotiation of ad sales and purchases proved to be a time-intensive endeavor.

How Does Programmatic Advertising Work?

How programmatic advertising works

How programmatic advertising works:

Programmatic advertising facilitates the connection between publishers, who possess ad space (known as ad inventory) on their websites, and advertisers seeking to purchase that ad space to promote their brand.

When an advertiser intends to launch a digital campaign to promote their product or service, they typically engage their programmatic ad agency or trading desk. These agencies utilize a demand-side platform (DSP) to automate the process of buying ad impressions in alignment with the campaign's objectives.

A DSP enables advertisers and their agencies to procure ad inventory from multiple publishers. The DSP ensures that the ads reach the intended audience by leveraging a data management platform (DMP), which oversees audience data. This data is utilized to target the right audience based on various factors such as location, demographics, user behavior, and online activity.

When a person within the target audience visits a publisher's website, the website sends an ad request to the supply-side platform (SSP). Publishers employ SSPs to sell ads and maximize the value they receive from each impression. The SSP conducts an auction among its buyers, with the DSP participating.

The DSP employs the data it has received to assess the ad and align it with its own data and target parameters. This information is used to determine a bidding price for the initial impression. This entire real-time process, often referred to as real-time bidding, is completed within a mere 100 milliseconds.

Once the impression has been successfully sold, it is transmitted to the publisher's website for display. This process repeats each time a user lands on the website or refreshes the page.

What are Programmatic Platforms? 

Programmatic platforms, such as Publift, play a crucial role in facilitating programmatic advertising. They offer a range of services to publishers, helping them find suitable advertisers that align with their specific requirements.

Programmatic advertising platforms are integral components of the comprehensive system necessary for executing programmatic advertising campaigns. Each platform serves a distinct purpose, working in tandem to benefit both publishers and advertisers. Notable platform types include the Demand-Side Platform (DSP), Supply-Side Platform (SSP), Data Management Platform (DMP), and Ad Exchange.

What is a Supply-Side Platform (SSP)?

An SSP (Supply-Side Platform) plays a pivotal role in managing the inventory of publishers. Publishers submit their webpages as sources for advertisements, and once the terms are agreed upon through the Ad Exchange, a pixel code is embedded on their pages to track visitor behavior.

This code gathers anonymous data regarding visitors and their interactions. The SSP is designed to optimize the value that publishers derive from each ad impression (an impression representing an instance of the ad being displayed to someone).

Through an SSP, publishers gain the ability to filter ads based on criteria such as the advertiser and other relevant factors. Additionally, they can establish different rates for ad spaces to determine the pricing structure.

What is a Demand-Side Platform (DSP)?

A DSP (Demand-Side Platform) is a crucial programmatic platform that operates on the advertiser side of the process. Advertisers submit their bids to a DSP, which then takes charge of the decision-making process.

Within a DSP, user profiles and third-party data are stored and combined with bids from advertisers. When visitors land on web pages, the DSP determines which ad to serve based on multiple factors. These include the bid amount (with the highest bidder prevailing), the ad content itself, and the cost to the advertiser.

The pixel embedded on publishers' websites collects data, enabling the creation of audience segments that are communicated to the DSP. The DSP automates the bidding process for advertisers, ensuring that the most suitable ad is presented to the right audience.

Advertisers benefit from the precise ad placement, while publishers benefit from the winning bid. Once the DSP and Ad Exchange have determined the ideal ad-webpage pairing, this information is conveyed to the SSP (Supply-Side Platform).

What is the difference between an SSP and a DSP?

In simple terms, a DSP (Demand-Side Platform) and an SSP (Supply-Side Platform) serve distinct functions within the programmatic ecosystem.

A DSP is a tool employed by advertisers to facilitate the management and organization of ad-buying activities. It enables advertisers to effectively target and purchase ad inventory that aligns with their campaign objectives.

On the other hand, an SSP is utilized by publishers to connect their available ad inventory to ad exchanges. Publishers leverage SSPs to optimize the monetization of their ad space, ensuring it reaches the right advertisers and generates maximum value.

The difference between a demand-side platform (DSP) and supply-side platform (SSP)

What Is a 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 visitors most likely to convert to the best ad.  

What Is the Google Ad Exchange (AdX)?

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.    

Buying and Selling: Auction Types for Programmatic Advertising

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.

The different auction types available for programmatic advertising:

• Header Bidding - a technique where publishers offer inventory to multiple ad exchanges simultaneously before going to ad servers. By using header bidding, publishers can increase their income by increasing the competition.

• Exchange Bidding - a server-side process involving a unified auction where exchange networks and SSPs bid on ad inventory. Exchange bidding 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. In a first-price auction, 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. A private marketplace works in the same way as real-time bidding, but publishers have more control over who they want to advertise on their websites. 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. Programmatic advertising 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 programmatic 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.

How much does programmatic advertising cost?

The cost of programmatic advertising can vary, because it is priced using a CPM (cost per mille) model. CPM is a term used in online advertising that means costs per 1,000 ad impressions.

If publishers/advertisers want more specific targeting, the cost increases. The prices vary according to the following factors:

• Type of industry 
• Targeted device
• Ad format
• Ad placement on the page

On average, programmatic CPMs tend to be a cheaper option than social media advertising methods and significantly better value than traditional offline approaches. 

This means that small businesses with limited marketing budgets can also use programmatic ads as part of their digital marketing strategy. 

Why Programmatic Advertising is Important for Publishers

With the right tools, programmatic advertising protects publishers and can keep their readers in mind, hosting ads that are relevant to them. They can also access deals that bring them higher revenues and maximize 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 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 that are relevant to them because they are part of the target audience of the advertiser. Programmatic advertising enables advertisers to access a range of publishers, removing the need for back-and-forth phone calls, emails, or other slow forms of negotiation.‍

• Efficiency. Programmatic advertising 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 optimize ads. 

Programmatic Advertising Trends

Just like anything else, programmatic advertising is evolving and changing. Different trends emerge as the field develops, so it's definitely worth paying attention to what's happening with programmatic.

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 in real-time along multiple data points. As AI continues to develop, it will be able to combine the mapping of ad viewing metrics with user data so that ads can be placed more accurately, resulting in lower costs.

Increased personalization

Programmatic ad tech can now be used to optimize ads and measure in real-time. Combined with the power of artificial intelligence, which provides the necessary data and insights to deliver more precise messaging to the right users, dynamic creative optimization (DCO) makes it possible for advertisers to offer highly relevant and personalized ads to their targeted groups, which is also beneficial for publishers. DCO understands who the viewer is and chooses the best creative combination to deliver the right message for each user, ensuring that publishers show their site’s users only the most relevant ads.

Preventing Ad Fraud

Digital ad fraud is a problem that the marketing industry is battling against. Advertisers lost more than $23 billion globally to ad fraud in 2019, and it’s predicted that ad fraud will cost the industry $32 billion by 2022. There are several solutions being used in programmatic advertising to help prevent fraud, including blockchain and an initiative called ads.txt.