What is programmatic advertising - A complete guide

The ever-evolving ecosystem of programmatic advertising needs advertisers and publishers to stay on their toes and stay updated constantly. Along the same lines, this blog post covers all the information about programmatic advertising.

• What is programmatic advertising?
• History of programmatic advertising
• Types of programmatic deals
  • Programmatic direct
  • Private marketplaces (PMP) or private auction
  • Real-time bidding or open auction
• Benefits of programmatic advertising
• Ad exchanges and programmatic advertising
• Header bidding and programmatic advertising

What is programmatic advertising ?

Programmatic advertising is an Artificial Intelligence (AI) and Machine Learning (ML)-based approach to enable advertisers and publishers to buy and sell advertising space in real-time. The process is automated and streamlined to completely eliminate the need for human intervention to negotiate deals.

History of programmatic advertising

Back in 1994, buying and selling ad slots on a website was a manual process of salespeople negotiating deals with individual advertisers and publishers. When an ad space was sold to a buyer, they could advertise their product or service on it. But the major disadvantage of this setup was that the advertisement was not targeted toward a specific audience. Instead, it was shown to everybody.

The first ad server was introduced in 1995 by FocalLink Media Services, enabling advertisers to buy ad space from multiple websites. But soon, publishers outnumbered advertisers, leaving more ad space than ads, resulting in unsold inventory. As a solution to this problem, ad networks were created.

Ad networks are a pool of publishers selling ad space and advertisers willing to buy it. The major challenge with ad networks was targeting - advertisers could not target their ads to specific audiences based on their business preferences. As a resolution, Real-Time Bidding was introduced Real-time bidding is a form of programmatic advertising. Let’s look at it in detail, along with other types of programmatic deals.

Types of programmatic deals

Note: This section also answers the question ‘How does programmatic advertising work?’.

1. Programmatic direct

Programmatic direct happens through a one-to-one agreement between a publisher and an advertiser. Unlike real-time bidding, no auctions are involved, and there is a guarantee that the ad space is bought. There are two approaches to programmatic direct advertising.

a. Programmatic guaranteed

In a programmatic guaranteed system, select advertisers can buy a fixed number of impressions from the publisher at a fixed price, timeline, and other terms, implying that a sale is guaranteed. Both the parties accomplish their goals, so it’s a win-win.

b. Preferred deal or non-guaranteed

In a preferred deal system, an advertiser can optionally buy ad space at the negotiated price.The inventory is not reserved for a specific advertiser, even though publishers prefer them to bid on it. Hence, it is also called non-guaranteed.

2. Private marketplaces (PMP) or private auction

In contrast to open auctions, private marketplaces work on an invitation-only basis with floor pricing. Publishers can invite advertisers to participate in the auction, giving them priority over the others to bid on the inventory.

Publishers can also restrict specific advertisers from participating in auctions. This exclusive media purchasing is usually used by premium publishers such as the New York Times or Forbes to have more control over the kinds of ads they want to show.

3. Real-time bidding or open auction

With real-time bidding or RTB, ad spaces can be bought and sold through real-time auctions. Transactions are made when an app/web page is loading, the time taken for which is approximately 200ms.

Let's dive deeper into how it is done.

When a user enters an app/web page that incorporates a programmatic advertising setup, an auction starts for interested advertisers to bid for ad space. This bidding is also called an ad impression auction because the advertisers indirectly bid on the user’s impression.

An advertiser enters an auction when a user landing on an app page falls under their target market. Many similar advertisers compete for the ad space as well as the user’s impression, and the advertiser with the highest bid wins the auction. As a result, their ad appears in the ad space. The winner is determined while the page loads for the user, owing to a thoroughly automated auction that takes place only in a few milliseconds.

Now, let’s summarize the programmatic deal types.

Moving on to the benefits of programmatic advertising.

Benefits of programmatic advertising

• Increased transparency and control: One of the significant advantages of programmatic advertising is transparency and better control. Advertisers can know where their ads are displayed, information about the users are seeing them, and the costs involved with the ads in real-time. This makes optimization and changes easier.
• Real-time measurement: Programmatic advertising allows one to measure how creative a campaign is or how the overall targeting is performing as soon as the campaign is launched. This enables advertisers to make adjustments and optimizations as required and, in turn, increases efficiency.
• Better targeting capabilities: With programmatic technology's increased flexibility, advertisers can directly reach their target consumers. Initially, only two percent of consumers convert on the first visit, but with retargeting, advertisers can continue reaching out to the remaining 98 percent and work toward converting them.
• Improved reach: On average, there are 5 billion people on the internet at any given time, which is the potential reach, depending on targeting parameters.
• Time for strategy development: As programmatic advertising automation eliminates the necessity for manual RFPs and long-drawn negotiations, buying and selling ads become less time-consuming and streamlined. This, in turn, gives the marketing and sales teams more time to develop and test their strategies and sales programs for their biggest assets.

Ad exchanges and programmatic advertising

How are they related? Let’s find out.

Ad exchanges use a programmatic approach to help advertisers and publishers buy and sell ad spaces. There is a demand-side platform (DSP) on the advertiser end and a supply-side platform (SSP) on the publisher end. DSPs and SSPs enable advertisers and publishers to connect and transact through an ad exchange using real-time bidding. Read our blog post to learn more about how ad exchanges work.

Header bidding and programmatic advertising

Header bidding is yet another popular approach to programmatic advertising through which publishers can auction their ad space to multiple ad networks, ad exchanges, and SSPs. It works by embedding a piece of code into the header section of the publisher’s website. The app variant of header bedding is called in-app header bidding, where an SDK must be integrated with the app to start the implementation.

Read our blog post to learn more about how header bidding works.

To conclude, the programmatic environment has more scope for advancement in the future. Stay updated to stay on top of the game.