What Is Programmatic Advertising? The Least Painful Guide for Ad Tech Newbies

In 2023, programmatic advertising is no longer a new shiny thing everyone’s curious about. If you haven’t spent the last several years in a cave, you’ve probably heard of programmatic ads, real-time bidding, and demand-side platforms.

However, despite the annual increase in ad spend, the search term “what is programmatic advertising” has recently hit a record high interest on Google Trends over the past 5 years.

When you dig deep enough, programmatic almost comes close to rocket science in complexity, so it’s no wonder why people still get confused about it.

Today, we resurrect our blog classics to explain the hell out of programmatic.

What Does Programmatic Advertising Mean?

Google search is overwhelmed with “wtf is programmatic” questions, and it’s our sacred duty to shed light on its basics.

What Is Programmatic Advertising?

IAB defines programmatic as the technology that automates media buying. The entire process of buying and selling ad inventory is done in real-time via automated bidding, also called the RTB process.

Advertisers place their bids on a specific audience simultaneously, and the highest bidder among them wins the impression. The whole action takes less than 100 milliseconds.

Too complicated? If you’re an advertiser, think of programmatic as your representative, John, on an auction that you’re too busy to attend.

You tell John that you want an authentic Chinese vase (ad placement), and you’re willing to pay $1000 USD (usually a lot less) for it.

John attends the auction with other colleagues looking for the same vase, ready to pay. He bids your $1000 USD; if that’s the highest bid, you get the desired vase (placement).

If you’re a publisher, programmatic is your manager, Bill, at the same auction. You tell Bill that you want to sell an authentic Chinese vase, and you want at least $900 USD for it. Your manager finds the highest bidder at an auction and sells him the vase.

Now, for a more detailed view, the main pillars of programmatic are:

• Advertisers and publishers don’t need to negotiate the buying/selling price by themselves. The RTB algorithm (later on that) does the job; that's why it’s “automated.”
• The focus is on the audience's characteristics rather than the ad itself. In programmatic, advertisers and publishers have little control over where the ad will be shown, so they negotiate about the number and characteristics (age, geo, etc.) of the users who’ll see it.

What Are the Auction Models in Programmatic Advertising?

The heart of “vanilla” programmatic advertising is real-time bidding.

Real-time bidding or open auction is a protocol responsible for automatically selling and buying programmatic inventory. The principle is simple: the publisher sets a bid floor to sell ad inventory, advertisers bid on the latter in real-time, and the higher bidder wins.

How does the protocol do it? RTB groups data by types for convenient use by other platforms and has a set of rules to secure this data. There are different variations of RTB protocol, but the hood classic is OpenRTB by IAB.

The explanations don’t end here, but before we move on, it’s important to note that programmatic media buying is possible without RTB. Real-time bidding describes how the auction happens, while programmatic is the term for the entire automatic media buying & selling.

In basic terms, RTB is more like a blockchain, while programmatic is the crypto-trading itself.

Now, where were we? Open auctions aren’t the only way to buy traffic programmatically. These “other” auctions also happen inside the programmatic ecosystem. But they happen completely differently.

• Fixed-price programmatic/programmatic guaranteed – there is no auction; publishers and advertisers negotiate a fixed price one-on-one for a guaranteed number of impressions.

  These are bought through an API, but publishers reserve traffic exclusively for certain advertisers.

• Preferred deals/programmatic non-guaranteed – the auction is closed, only negotiated fixed pricing. These follow a similar principle of one-on-one deals with no auction. That’s why both fall into a programmatic direct category.

  The difference? In the case of preferred deals, the inventory is not reserved specifically for the advertiser. Moreover, the advertiser isn’t required to buy inventory when there’s an ad request.

• Private marketplace or PMP – a programmatic auction for VIPs, invite only. Publishers set deal terms (price, timing, etc.), and advertisers validate they can comply with these requirements.

What Does Programmatic Advertising Tech Stack Consist of?

If you think about it, RTB is like the heart of digital programmatic advertising. Unlike humans who can’t live without a heart, programmatic could work without RTB in certain cases. However, it still needs other vital parts to function properly.

Before another dumb comparison finally kills what’s left of your engagement, let’s list these other organs (heh, did it) of the programmatic body (will do it again):

Demand-side platform (DSP)

From an advertiser’s side, a demand-side platform is the center of operations in programmatic advertising. As mentioned above, DSP allows one to automatically buy traffic, create, and optimize ad campaigns.

Targeting, analytics, and creative management – a demand-side platform is an advertiser’s Megazord.

Supply-side platform (SSP)

Every Naruto has his Sasuke, and SSP is just the one for a DSP. It’s basically a similar multi-tool that covers the publisher’s needs. An SSP collects audience data and helps to sell and manage ad space.

#Fun_fact
Epom white-label ad server may act as an SSP, adding its placements to the programmatic supply and connecting inventory to a custom DSP endpoint. Cool? Cool.

Ad exchange

Ad exchanges are the middle link between DSPs and SSPs. Think of those as Amazon for traffic but with more features.

Ad exchanges are digital marketplaces that tech providers/ad networks use to connect advertisers and publishers, matching bids and inventory. Naturally, ad exchanges earn with little price markups (like Amazon) for gathering juicy offers under one hood.

You might assume that ad exchange triggers an RTB, but the latter exists within the ecosystem and is kind of its own thing.

How Does Programmatic Advertising Work?

By this time, you should have a general picture of what goes where in programmatic. To complete the puzzle, here’s how programmatic works in detail.

1. The user clicks on the site, and the RTB kicks in.
2. The site sends an ad request to an SSP if there’s a chance to show this visitor an ad.
3. The SSP collects the visitor’s data and analyzes if there’s suitable ad space. Let’s assume the publisher needs to fill a large skyscraper ad slot.
4. The ad exchange helps to exchange (heh) this data with DSPs that want to place a large skyscraper ad.
5. Based on the pre-set targeting options, the DSPs bid on impressions.
6. Three hypothetical advertisers have CPMs of $4.50, $5.00, and $4.70. Ad exchange has determined the second to be the highest CPM, so their bid wins and has an ad placement on the publisher’s website.

The whole process takes about 100 milliseconds, making it quicker than my Friday work shift.

Programmatic Vs. Display Network Advertising. What’s Better?

Now that you know what programmatic advertising is about, it’s time to delve a bit deeper into its history, use cases, and differences from its twin brother.

Disclaimer: If your head is already over-encumbered with information, just skip to the next heading with pros & cons. This is some big-boy knowledge coming.

When Did Programmatic Advertising Start?

The birth of programmatic advertising as we know it today should be dated to the invention of RTB in 2009 by Brian O’Kelley. It came to the mass market in 2014, a young, fresh counterpart to direct media buying. Speaking of which…

What Is the Difference Between Display and Programmatic Advertising?

The yin and yang of modern advertising often oppose each other in searches like “programmatic vs. direct media buying.” It’s difficult to imagine the ad tech world without each; it’s even more difficult to understand one without the other. That’s why we’ll explore both.

Use cases

The ad banner that you see as a user is a result of certain ad units going into certain ad slots on the web page. For more detailed explanations, check our ultimate guide on ad placement.

As we’ve mentioned prior, in programmatic, you have next to zero control over where your ad will be placed. Surely, a large skyscraper banner goes in the “large skyscraper” ad slot, but which one?

On the contrary, with direct deals, you know precisely what and where you post. This makes the main divergence in approaches.

With programmatic ad placements, it really comes down to how many users will see the ad. This means that on a hypothetical toaster-lovers.com, an advertiser pays $5 for 1000 impressions (user interaction with the ad) on his “Click here if you love toasters” banner.

With direct deals, it’s about what ad the users will see. This means that on toaster-lovers.com, an advertiser pays $5 to show his “Click here if you love toasters” specifically on the first screen.

Why not just place ads programmatically all the time and say bye-bye to traditional direct media buying? As an advertiser, you might have different goals, one of which is to make your ad most visible.

How? Put it in the site’s top header so more people will see it. This obviously can’t be done programmatically.

In the publisher’s case, you might have plenty of unused ad inventory. Wanna sell it? List it as CPC (cost-per-click) and try programmatic.

Look, the point is – both media buying methods are useful; claiming that one is “better” than the other is plain dumb. So, “Friendship is magic,” let’s move on.

Programmatic technology vs. direct buying technology

The tech stack differs accordingly: an ad server – for direct deals and a demand/supply-side platform – for programmatic deals.

Naturally, it’s waaay more complicated than that. Both have their specific use cases, types (that differ on user’s access, source code, etc.), and could work perfectly in tandem.

In theory, the main difference is automation, but is it? Modern ad servers keep up with the time, packing features like auto-optimization and serving rules, so it’s hardly manual.

If we try to cover an ad server in this article, it’d be 15+ pages that nobody will finish.

So, to keep things simple, programmatic advertising platforms differ from direct ones with a unique protocol and tech stack.

Why (Not) Use Programmatic Advertising?

This article is already getting too long and boring, so we’ll speedrun the long-awaited “pros/cons” section.

Why Is Programmatic Advertising Important for Businesses?

Programmatic media buying has earned its place on top with a number of benefits for publishers, for advertisers, and for both:

1. Advertisers & publishers: buy & sell ads immediately

Advertisers don’t need long preludes to start a campaign. An ad creative + some cash on the deposit is all they need to start bidding. Setting up a campaign comes down to choosing target parameters and trusting an automatic media buying algorithm.

In essence, this is as complex as boosting an Instagram post, except you have the power of machine learning to optimize advertising budgets.

The same efficiency goes for selling traffic with an SSP.

2. Advertisers & publishers: use real-time analytics

We don’t need to explain how important it is to understand the limber holes of buying/selling traffic. Both DSPs and SSPs usually come with real-time analytics support, so you can quickly react to the upcoming storm.

3. Advertisers: scale tech stack with growth

The ease and transparency of automatic media buying give its users the power of easy scaling. Combine that with the smart strategy of allocating greater budgets to better-performing inventory, and you’ll get why programmatic is so important for smaller businesses.

4. Advertisers: optimize budgets

In an open auction, you pay the price you can afford. If the budgets are tight, you could still cut low-performing traffic sources later. Programmatic media buying gives plenty of maneuvering space for smaller brands.

5. Advertisers: get a wider audience reach

Niche brands often struggle with the limitations of Google & Facebook ad inventories, especially regarding vertical-specific traffic like gambling or adult.

Programmatic platforms offer a wider range of traffic beyond the walled gardens of large corporations.

6. Publishers: sell ad inventory at desired prices

Aside from the ease of programmatic inventory sales, publishers may also benefit from the versatility of the mediums available. In simple words, no matter what device you have inventory for, with the help of SSPs, you’ll find the right buyer at the best price.

Why Is Programmatic Advertising Bad?

Nothing’s perfect, and just like we’ve mentioned before, programmatic media buying isn’t a panacea for any advertising strategy. Let’s highlight the main issues.

Little control

As mentioned, in programmatic, you never know which specific ad slot on which specific website hosts a specific ad. This leads to two potential drawbacks.

Firstly, the inability to predict where your ad placement goes might be a deal breaker for some advertisers. This lack of control simply doesn’t suit the style of brands that, for instance, want to serve an ultra-specific audience on an ultra-specific website.

Secondly, DSPs and SSPs can’t immediately check the quality of ad exchange traffic sources, so scammy bot traffic can only be detected afterward.

(Hidden) Markups

Markups defined by a provider are an inherent part of any business; they are, for example, essential to self-serve DSPs with their initial free model.

Things get nasty when you pay for something not written in the contract. Hidden markups sometimes happen in the industry, so be wary of who you work with.

How to Start with Programmatic Advertising?

Programmatic might be as mad as Alice’s Wonderland, but we hope that this article answers the majority of your questions.

Still wondering how to set up programmatic? Just to get started, this article will explain how to set up a campaign in 3 simple steps and introduce you to the first step – the self-serve DSP.

If you wonder how to do programmatic advertising like a boss – try a white-labeled DSP.

Epom’s white-label DSP lets you:

• Scale faster with its advanced analytics and flexible plans;
• Save up to 30% spent on markups of self-serve DSPs;
• Customize the platform’s UI elements as well as user roles;
• Consolidate traffic with 50+ SSPs and custom traffic endpoints;

Long-readers deserve the best deals – start a free trial today!

FAQ Section

• Programmatic advertising vs. programmatic ad buying. Are those the same?
  To clarify, “programmatic advertising” and “programmatic ad buying” are nearly the same. The first refers to a phenomenon, and the second – the automatic ad space purchases.
• Which brands use programmatic advertising?
  Programmatic is an ultimate weapon for small businesses, but what about the big boys? The Economist, Lacoste, Turner Sports, Audi, The Amanda Foundation, Kellogg’s, Unilever, Netflix, and many many more choose programmatic advertising.
• Are social media ads programmatic?
  Social media is just one of many channels that you can choose while setting up a programmatic campaign along with native, mobile, or DOOH.
• Is programmatic more popular than direct?
  This is really difficult to answer. Programmatic is obviously a better choice for smaller businesses, but direct media buying is still as popular as ever.
  
  For example, according to Statista, direct has just a bit higher media spend than programmatic in India, but there’s no comprehensive worldwide research yet.
• Is programmatic the same as Google ads?
  Both follow the same principle of automatic traffic selling/buying. In fact, Google Display Network is more of a walled garden, while programmatic platforms allow for more diverse ad exchanges/ad networks.
• How much does programmatic advertising cost?
  The cost depends on the platform. For example, the Light plan of Epom’s WL DSP will start from $250 per month.