The Ultimate Guide to Programmatic Advertising

Ultimately, one of the main goals for any firm planning to advertise is to buy the best ad space at the best price and target it to the right audience. Programmatic advertising is a modern way of achieving this goal for online advertising.

Technically, programmatic advertising is simply using an automated process to buy and sell online advertising space. You will find ads sold through programmatic advertising across the web. For example, Google, Facebook, YouTube, and virtually any website showing ads use this process to decide who gains the prime electronic advertising real estate on their platforms. You even see programmatic advertising being used out-of-home in bus stations, billboards, and shopping centers. Advertising networks bring together advertisers who want to buy online ad space with publishers who own websites with advertising space to sell.

Programmatic advertising uses algorithms to handle the buying and selling of online ad space in real-time. Indeed, most people aren't aware of online auctions going on behind the scenes.

The Ultimate Guide to Programmatic Advertising:

Supply-Side Platforms and Demand-Side Platforms

While the online advertising market may seem very simple on the surface, it is more complex when you look at it in detail. There are two sides to online advertising and a place where they meet that makes the advertising happen. 

What is a Supply-Side Platform SSP

On one side, you have the publishers (websites) with space on their sites that they allocate to displaying ads. They use a technology platform (specialist software) called a supply-side platform (SSP) to manage their advertising space, fill it with ads, and ensure that they receive advertising revenue. SSPs work to earn the best incomes for publishers.

On the other hand, advertisers want to purchase advertising space. They also use specialized software called demand-side platforms (DSP) to help them find advertising spots at the best price and manage the online bidding process. DSPs work to find the best advertising slots for the lowest price for advertisers.

Google Ads is a special type of demand-side platform. Advertisers can use it to buy ads, but only on Google (and websites in the Google Display Network). They can't, for instance, use Google Ads to purchase advertising space on Facebook or Amazon.

In the past, advertisers met with publishers directly to negotiate and work out deals for advertising space. Eventually, the parties would agree on a specific price for particular advertising slots. How good the advertising slot was and the price that the advertiser had to pay depended on the two parties' comparative strengths and the level of competition for the advertising slots. The problem with this system was that it took up a lot of time, and not everybody enjoyed the negotiation process. Often there was a perceived power imbalance.

Using demand-side platforms and supply-side platforms makes the process fairer and saves a considerable amount of time for the parties involved.

Ad Exchanges

Adpushup describes ad exchanges as "a metaphorical crossroads [that] connects thousands of publishers and advertisers. It provides a platform to sell and buy ad inventories using its connections with various ad networks and supply-side platforms."

DSP, SSP, and Ad Exchange

In most cases, ad exchanges are separate from the websites that publish the ads. However, a few larger publishers have set up their own ad exchanges. So, for example, if you want to advertise on Google, you can work through Google Ad Exchange.

Publishers connect with ad exchanges with the help of a supply-side platform. They are looking for suitable bidders for their unsold advertising spaces. Advertisers connect with ad exchanges with a demand-side platform. They are looking for online advertising spaces that reach their target audiences, where they can bid a competitive price to display their ads.

Publishers share many of their users' demographic and psychographic details to enable ad targeting to enable this to function. Likewise, advertisers provide details of their target audiences and their campaign requirements. Ad exchanges store all this information, and behind-the-scenes match advertiser requirements with publisher ad spots.

Advertising Networks

Ad networks are another group involved in the advertising process. While ad exchanges are a technology, ad networks act as intermediaries that collect ad inventory from publishers and sell it to advertisers. Ad networks are effectively resellers of advertising spots. They can assist and help advertisers trying to buy advertising spots.

Perhaps the easiest way to distinguish ad networks from ad exchanges is to use an analogy. Ad networks are like stockbrokers in the stock market. If you want to buy stocks, you go to a stockbroker with your requirements, and they help you buy the right stocks. Ad exchanges, however, are more like stock exchanges that provide the technology for you to buy or sell stock in an open market.

Ad Network vs. Ad Exchange Programmatic Business Model

Ad networks typically aggregate and curate publishers' ad inventories, sell them to advertisers and charge a commission. Ad networks generally work with a set of websites and offer advertising inventory to advertisers who want to advertise on these sites. Advertisers can use an ad exchange to buy ads from multiple ad networks.

How Does Programmatic Advertising Work?

Unless there is a problem, the average computer user probably never thinks about the ads on their computer, tablet, or phone screen. Ads are just there. Some users avoid viewing many ads, thanks to ad blockers, but these only remove some types of ads. Others still appear on even the most ad-averse users' screens so subtly that many ad-haters don't notice them.

Ads appear so quickly on a user's screen that they almost appear hard coded into a webpage like the rest of the content. There generally is no lag between the ad content and everything else on a page. You might even wonder whether everybody receives the same ads.

But, in reality, there is considerable work going on behind the scenes, ensuring that the right ads appear before the right people at the right time. Programmatic advertising handles this complex process with ease. 

There are many different types of programmatic advertising, but a typical process is:

Steps to Programmatic Advertising Success

  1. Website owners using an SSP, signpost available advertising space (inventory) to enter the auction process
  2. Advertisers set up advertising campaigns in a DSP and bid for advertising spots
  3. An online viewer goes to a page on a website that has space allocated for advertising
  4. The webpage software asks ad exchange software to serve up an ad targeting that viewer (based on their online profile). All available advertisers that meet that viewer's criteria automatically enter an auction
  5. The ad exchange facilitates the auction for that ad space. They use real-time bidding to assist with this process
  6. The advertiser with the highest bid wins the spot and gets to serve their ad to the viewer
  7. Ideally (from the advertiser's point of view), the user clicks on the ad and converts

The key to successful programmatic advertising is that the online auction phase happens almost instantaneously, and the viewer never notices the process going on behind the scenes. Steps 3-6 of the process occur in the time it takes for the webpage to load.

Real-Time Bidding

The process we have described above features real-time bidding (RTB), although that doesn't happen in all cases of programmatic advertising. You will also find static auctions for online ad space that involve upfront bulk buying of ad impressions.

With real-time bidding, you can instead bid on individual ad impressions, meaning you can focus more on specific viewers (or at least the viewing profiles that people log in with). With real-time bidding, advertisers generally won't have a say about the particular websites where their ads go (although they may be able to set some exclusions). Still, they know their ads will appear on sites where their target audience browses.

Programmatic Direct

Another variation is "programmatic direct," where advertisers buy guaranteed ad impressions on specific websites. Here, advertisers know the websites where their ads will go but have less opportunity to target individual viewers.

Often, advertising networks buy the premium advertising inventory (ad spots) and then resell them to their clients using programmatic direct. The websites then release their remaining advertising inventory to the ad exchanges to get the best prices through real-time bidding.

Many advertisers opt to use a mix of RTB and programmatic direct advertising to reach the best audiences at an affordable price.

Benefits of Programmatic Advertising

Programmatic advertising makes it easier for advertisers to get their ads before suitable viewers. In turn, it tends to make viewers happier because they see fewer irrelevant ads.

Many programmatic advertising algorithms use highly advanced AI to match advertisers with the best cost-effective slots for their audience. The algorithm does all the hard work to determine the optimal allocation of your advertising budget for you.

It works with multiple ad exchanges and ad networks, reaching a wide range of people. This gives many opportunities to advertisers to reach audiences while at the same time enabling them to avoid wasting money serving ads to the "wrong" people for their campaigns.

Programmatic advertising makes it easier to measure many KPIs for your campaigns. Simply counting clicks on ads isn't enough. Instead, you need your KPIs to gauge whether you are achieving the goals of your campaign. Programmatic advertising allows you to undertake detailed targeting for your campaign, making it possible to determine whether your campaign is converting or whether you need to modify your advertising.

Programmatic ad exchanges give you access to real-time data about your campaign. As a result, many advertisers use A/B tests and multivariate testing to determine which ads work best with viewers. Advertisers can then modify their campaigns at scale.

How Do You Determine the Cost of a Programmatic Advertising Campaign?

Much programmatic advertising uses a cost per impression, i.e., CPM (Cost Per Mille), model. CPM is the price an advertiser has to pay for 1000 impressions on a website, i.e., the price of having their ad served 1000 times. 

There may be some variations, e.g., YouTube charges advertisers based on Cost per View (CPV), which is effectively the same as CPM, but for a video audience. We have previously looked at how Amazon uses Cost per Click (CPC) when determining a cost for Sponsored Product ads on their platform.

Many advertisers find that CPM advertising charges in much the same way as traditional advertising. They have traditionally paid an amount every time their television, radio, or newspaper ad displays. With CPM online advertising, they pay every time their online ad plays to an audience of one. However, programmatic advertising allows for much more refined targeting than traditional ads. 

Requirements for a Successful Programmatic Advertising Campaign

While one of the key benefits of programmatic advertising is that it can dramatically reduce your workload, there are a few things you need to do to make the most of your campaign. You can't completely set and forget your advertising if you want optimal results.

For a start, you need to research and understand your marketplace. There is little point in setting up an elaborate programmatic advertising campaign if you target the wrong audience. If you haven't already done so, spend some time establishing your ideal customer so that you can find look-alike audiences.

As mentioned above, you need to set advertising goals for any campaign. You can't measure success if you don't establish what success represents. Use any existing data you have for your first campaign, and then notice how well your new ads meet your campaign goals. Next, establish your best ads and make more like these in the future.

As good as programmatic advertising is you can't remove the human touch altogether. Ideally, you should use skilled marketers to plan, control, and optimize your campaigns. Don't rely on algorithms alone to dictate how you spend your marketing budget.

Also, spot-check that your ads appear on sites that fit your company ethos. Programmatic advertising doesn't take your company's values into account. For example, you may find your ads served up on popular fake news websites if a reasonable percentage of your target audience visits them. You will have to decide whether you want your brand associated with such sites. To get around this problem, many demand-side platforms allow you to make blacklists of sites you wish to avoid or, conversely, whitelists of sites you approve of. Likewise, if you work with an agency, ensure they know about the sites you prefer and those you wish to avoid having your ads show on.

About the Author
Nadica Naceva, Head of Content at Influencer Marketing Hub, is a seasoned writer and reviewer with in-depth expertise in digital and content marketing. Leveraging her extensive experience in guiding content creation and strategic direction, Nadica brings a critical eye and analytical approach to reviewing articles and educational pieces. Her commitment to accuracy, integrity, and innovation with each review helps IMH grow as a leading source in influencer marketing. Her insights are backed by first-party data, ensuring content meets the highest standards of relevance.