What is Programmatic Advertising: The Comprehensive Guide

Many believe programmatic advertising to be the savior of the media buying industry. But will programmatic advertising technology really save AdTech? In this article, we'll finally answer the "what is programmatic?" question and discover the best ways to utilize the targeting capabilities of this technology.

Although all major ad networks have developed their own programmatic solutions over the last few years, many small and medium businesses don't quite understand how it functions, and are suspicious about this programmatic advertising hype. So let's dig deeper into the issue and dispel any doubt whether you should try programmatic advertising platforms or not.

The Definition: What is Programmatic Advertising?

IAB defines programmatic as the technology which 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.

Programmatic allows buyers and sellers to agree upon the price per impression before it actually occurs. This distinguishable aspect of the technology is known as a guaranteed impression. Brands looking to reach a wider audience can bid for real-time impressions.

Programmatic allows publishers and advertisers to set the desired CPM to pay or to earn without negotiating the price between each other. To set a programmatic ad campaign, they also need to specify targeting preferences and adjust creative options. However, each campaign can be auto-optimized by smart algorithms of a demand-side platform (DSP), and therefore don't require babysitting. We will explain how does programmatic advertising work with a DSP a bit later.

Programmatic Advertising = Programmatic Ad Buying?

While programmatic advertising refers to the phenomenon in general, programmatic ad buying is a term that advertisers use to describe the process of automatic purchases of ad space. Programmatic buying eliminates duplicate traffic and human error while giving maximum transparency and optimization opportunities.

It's opposed to direct media buying, where you need to look for publishers on your own and later negotiate the price and the placement with them in person. Direct media buying is still a relevant method to promote your brand, although it requires tons of time and effort. The primary tool for direct advertising is an ad server platform, which is quite different from a DSP and has a steeper longer curve. Programmatic display advertising skips the negotiation process. It gets your ad shown to your audience in a matter of seconds, so you can immediately start driving traffic to your own website.

The programmatic ad buying process has never been easier: you set up geos, audiences, time of the day to narrow down their targeting options and run a personalized ad campaign. Brand advertisers & agencies can also benefit from automated media planning through a DSP dashboard, where they identify a floor CPM of each source and estimated impressions they can get from it. Based on this info, you can set the right CPM to win those impressions.

Programmatic ad buying skyrockets advertiser's chances to get quality traffic at a fair price, without the need to pay a huge cut to the intermediaries.

Key Elements of Programmatic Advertising Ecosystem:

• Ad Server is a server that hosts ad creatives in various formats including video & native and stores data about them. With HTTP, an ad server ensures the delivery of ads to different digital platforms, websites, and mobile apps.
• SSP (supply-side platform) is a platform that assists publishers in selling and managing their ad spaces (inventory) programmatically. It also collects data on publisher's audiences to optimize ad delivery.
• DSP (demand-side platform) helps advertisers purchase an unlimited amount of targeted traffic from SSPs by connecting them to multiple ad exchanges.
• DMP (data management platform) is a tool that collects and consolidates 3rd-party user data. It can be connected to the DSP to enhance data-driven decisions regarding your programmatic advertising campaigns.
• Ad Exchanges are marketplaces that connect DSPs and SSPs. Their main goal is to help advertisers buy ads from multiple publishers via a real-time bidding auction.
• Ad Networks are companies that resell traffic from publishers to advertisers.
• Ad Verification Providers are platforms that ensure the quality of traffic and targeting. These third-party vendors also check whether the ads are placed appropriately on the publishers' websites.

How Does Programmatic Advertising Work?

And now, let's get the principle of how programmatic advertising work explained. Here is an illustrative example of how each real-time bidding auction takes place:

The advertiser launches the campaign targeted at a specific audience. The publisher, on their side, sends a request to fill the specific inventory slot with a particular kind of ad.

Then, programmatic advertising platforms (DSP and SSP) exchange data. DSPs get all the necessary data about publishers' audiences (age, GEO, device types, search histories, etc.), render ads, and then deliver them back to SSPs.

After this, the real-time bidding auction (RTB), which involves all ads that match that specific inventory, starts. Advertisers bid on this ad space, while DSP assesses the bids and defines the winner, who is the bidder with the highest CPM. If three advertisers have CPMs of $3.50, $4.70, and $4.00, the second advertiser will eventually have an ad placement on the website.

Programmatic advertising technology is all about speed. The whole process from bidding to actual ad delivery takes around 100 milliseconds, which is 30 times less than a blink of an eye.

Programmatic vs. RTB: What is the Difference?

While many businesses misguidedly believe programmatic ad buying and RTB (real-time bidding) are the same things, RTB is only a part of programmatic marketing. RTB programmatic platforms are auction marketplaces that allow advertisers to bid for a certain impression in real-time.

Thus, if we define programmatic advertising, we can say that it's the technology of automated buying and selling ad inventory. A real-time-bidding auction is the method of ad serving that is used by programmatic advertising platforms to implement the technology.

Is RTB the only way to get traffic programmatically?

RTB is the major, but NOT the only way to buy traffic programmatically. Even if you know what programmatic advertising is, you may not be aware of three more programmatic buying methods:

• Fixed-price Programmatic, where fixed-price inventory can be bought after prior negotiation with a publisher through an API, without real-time bidding.
• Preferred Deals enables advertisers to place their programmatic ads in the desired inventory with a fixed price without bidding for it on the open market.
• Private Marketplace (PMP) works similarly to regular RTB, where the auction happens in real-time, based on the money advertisers are willing to pay, and then the highest bid gets the impression. This marketplace usually offers exclusive traffic to well-known websites, and you need to be invited to take part.

Advantages of Programmatic Advertising

Programmatic advertising was valued at 418 billion U.S. dollars in 2021, and it's expected to grow to 725 billion by 2026, according to the latest estimates.

Programmatic has brought much more transparency to the online advertising industry. Now advertisers can get exactly the traffic they pay for. Thanks to extensive targeting options, the right people see their ads at the right time. Programmatic advertising platforms also allow marketers to collect more data on their target audiences and make smarter business decisions on their spendings. Any brand can now bring programmatic in-house, having an advanced tool at their fingertips.

Let's sum up the major benefits of programmatic for your digital revenue:

1. Efficiency

Buying ads automatically is more effective, as the human factor is eliminated. You focus on making the creative, the machine does boring programmatic media buying operations.

2. Advanced Reporting

With the amount of actionable data that programmatic platforms provide, you take advantage of the detailed reporting features. You can customize it to your most important KPIs and access any data in real-time.

3. Performance Optimization

Many DSPs offer automated programmatic ad campaign optimization, in which you can set up your goals and let the platform manage your campaigns without your involvement. Some programmatic advertising platforms like Epom also have a bidding multiplier option, using which you can increase your visible CPM, but paying only 10 cents more than the highest bidder.

4. Inventory Quality

Some say that programmatic media buying will never provide you with the same quality as we can get directly, but that's not always true. If you choose a DSP that is connected to credible SSP and provides quality traffic sources, that's not an issue. Programmatic advertising allows you to scale ad campaigns quickly and allocate greater budgets in the best-performing inventory after analyzing each traffic source.

5. Price Optimization

First of all, you pay the price you can afford in an open auction. Later, you can manage your programmatic ad campaigns, cutting off traffic sources that aren't driving ROI, and focusing on the ones that do.

Throwbacks of Programmatic Advertising

Programmatic advertising software is an overpromising technology that allows marketers to automate ad buying across all channels. However, the online advertising ecosystem is not perfect and when a single link of the advertising chain is rusty, it affects everyone.

1. Ad Fraud

Programmatic is facing severe fraud issues, as a media buying process still happens indirectly. DSPs and SSPs can't immediately check actual traffic sources and their reliability, but match all connected supply and demand partners. Thus, bot traffic can be identified only afterward.

The worldwide costs of digital advertising fraud were predicted to increase from $35 billion in 2018 to $100 billion by 2023, while the United States was projected to face digital ad fraud costs of $81 billion in 2022.

2. Brand Safety

There are websites where you would prefer your ads not to be shown. This is how programmatic advertising work: here you are buying AUDIENCE through RTB, not the confirmed list of websites. Thus, your creative can potentially be shown next to very unreliable content.

However, you can disable specific categories of websites while setting up a programmatic ad campaign, and your ads will not be displayed on them. The blacklisting option is available in the DSP dashboard.

4. Hidden Bid Mark-up in Self-Serve DSPs

Self-serve DSPs are the easiest to use programmatic advertising software. It's free to start: you sign up, put a deposit in your account, and start buying ads. Yet, the programmatic software provider still takes a hidden fee, which is reflected in a bid markup. You can't see it, but it exists.

If you operate huge budgets and would like to decrease your ad spend, the viable solution is to buy a white-label DSP. Here you don't pay a platform fee instead of bid markup, which appears to be lower if your monthly ad spend exceed, say, $10,000.

Brief FAQ: Programmatic Advertising

• What is programmatic advertising?
  Programmatic is the technology that automates your media buying. It allows buyers and sellers to agree upon the price per impression via automated auction.
• Why use programmatic as one of the digital advertising channels?
  Programmatic helps you expand the reach and improve targeting along gaining more control & transparency. It's easier to tune up ad campaigns with automated optimization algorithms and real-time analytics. Overall, it's also more affordable than traditional advertising.
• What do I need to engage in programmatic advertising?
  Advertisers need a demand-side platform to set campaigns, upload creatives and bid on impressions. Publishers need a supply-side platform to list their inventory, set price floors and optimize their placements.
• Are real-time bidding (RTB) and programmatic the same thing?
  Not quite. Programmatic is a technology that automates media buying. Real-time bidding is a process of how this technology can be implemented. Programmatic not always involves RTB. There is such thing as programmatic direct, and more.
• How do ad networks profit from programmatic advertising?
  Ad networks can use a full-stack programmatic solution to match their supply and demand clients, earning on the bid and floor price mark-ups on both sides. This can be done by buying a white-label DSP and/or a white-label SSP.