What is Programmatic Advertising, and How Does It Work?
This article was first published in the downloadable first issue of markonmag. The article has since been updated and expanded upon by Nicole Rachel Kwan.
Just in 2018 alone, 80% of all digital ad buys in the US were done via programmatic ad buying. As a marketer or marketing student, you may have come across the term before. But what exactly is programmatic advertising?
What does programmatic mean in advertising? A short definition
Programmatic is a combination of two words: program and automatic. It’s one of the main types of online advertising, which involves the use of programmatic technology to automate real-time bidding (we’ll explain this later) on the advertising space to deliver the right online ads to the right audiences, at the right place, and at the right time.
What are the Types of Programmatic Media Buying?
There are four different ways of media buying in programmatic advertising:
Real-time Bidding (RTB)
Private Marketplace (PMP)
Preferred Deals
Programmatic Guaranteed/Direct
Real-time bidding (RTB):
As you might guess, RTB is an open online auction conducted in real-time for a company to buy digital advertising space. As a page is loading, information collected about the user is sent to the ad exchange and matched with advertisers’ target audiences. Their bids are pitted against one another, and the best bid wins.
One interesting thing about RTB is that the highest bid doesn’t have to pay their bid amount if they win - they just pay $0.01 above the second-highest bidder.
Although the publisher would generally match their selected category, advertisers wouldn’t know the exact website that their ad appears on.
Private Marketplace (PMP):
The private marketplace operates by invite-only: a publisher, typically with high reach volume, sets aside ad space, known as ad inventory. These publishers then invite specific advertisers to bid for their ad spots.
One key benefit of this buying method is that advertisers know exactly where their ad will appear. For the publisher, it also ensures that their ad spaces are filled with approved brands, protecting their own reputation.
Preferred Deals
For preferred deals, advertisers get a first look at the inventory available. Based on the information provided (eg. prices, audience sizes), advertisers can then choose whether to buy the inventory.
If the deal is made, advertisers and publishers benefit from having a fixed CPM (cost per mille) and having transparency from being in direct contact with each other. Publishers also get to control the quality of ads on their sites.
Programmatic Guaranteed/Direct
This method follows the traditional way of media buying - negotiations are conducted between advertiser and publisher, without the use of an auction. When the deal is made, several things are agreed upon, including the prices, dates, and number of impressions.
How does programmatic digital advertising work?
A diagram of information flow between different systems in programmatic advertising.
In programmatic advertising, information flows from the publisher to their supply-side platform, which connects to the ad exchange. For the advertiser, information flows to their demand-side platform, which also communicates with the ad exchange. In the ad exchange, real-time bidding can take place.
There are a few different players in the digital ad buying process. Depending on the needs of the business, their programmatic advertising solution may include a mix of these players. Here’s a short summary of each player:
Ad Exchange
An ad exchange is a digital marketplace where the buying and selling of advertising space happen through real-time bidding between advertisers and publishers.
Agency Trading Desk
An ATD is a programmatic advertising agency within a larger advertising agency, that executes digital ad buying as a service. The ATD then inputs the requirements and targeting strategies, which get transferred to the ad exchange.
Demand-Side Platforms (DSPs)
A demand-side platform is a programmatic media buying platform that allows advertisers to buy ad placements automatically and is connected to an ad exchange. Rather than dealing with individual publishers, a DSP lets advertisers manage all their placements at once.
Supply-Side Platform (SSP)
Similar to a DSP, supply-side platforms are programmatic media buying platforms that help publishers to manage their ad display space. It connects to an ad exchange and transfers information about the available inventory. Through the SSP, publishers can also set minimum prices, and get reports on purchases of their inventory.
How it all comes together:
Imagine this: Borders have reopened and you’re itching to travel within Asia, but you’re not sure where to go yet. For the past three days, you’ve been searching online for interesting places to visit in Asia. You’ve selected a few countries but you still need a little push to decide on that one destination.
During those three days, your cookies would have stored information about your location, interests, and browsing behavior.
At the same time, an online travel agency is seeking a target audience with similar profiles like yours, to promote its latest travel deals.
Back to our little scenario - today, you chanced upon an interesting travel blog article about food tourism in Japan, and you click on it. This blog is connected to the ad exchange by their SSP, so an auction signal is sent over with information on the ad space available.
The ad exchange communicates with the DSP to find a suitable ad for the placement, through a real-time bidding auction.
The online travel agency wins the bid, and you load the article to see their travel deal ad. Since it sounds promising, you click on it and it sends you to their website, where you book your trip.
This is a win-win for:
The publisher who gets advertising revenue for the use of its advertising space
The advertiser which acquires a new customer
You, the customer, found a good deal!
Some examples of programmatic ads
Let’s take a look at some examples of programmatic advertising.
The Economist
The Economist is a digital and print publication that used programmatic advertising to increase its subscriptions. From their programmatic campaign, they generated 650,000 new prospects and increased awareness by almost 65%.
How did they do this?
First, they analyzed their audience data, creating audience segments for different interests, such as “Finance”, “Politics”, and “Social Justice”.
Next, they built lookalike audiences from these segments and created ads that were relevant to their interests.
Using more than 60 different advertisements, they gained 1million unique website viewers and 9500 subscribers.
John Lewis
John Lewis is a high-end department store in the United Kingdom.
In 2016, they partnered with a DSP, buying digital ad space through programmatic direct deals with premium sites. This allowed them to avoid inflated advertising costs of prime ad space during the Black Friday weekend itself.
This buying strategy helped them to achieve an ROI that was 346% higher than their target, exceeding record weekly revenue by 6.5%.
Is programmatic advertising effective?
According to this article on Inc.com, programmatic comes with two main benefits - reducing time costs, and financial efficiency.
With the automation of media buying, marketers save time on having to manually negotiate and purchase each placement. Using multiple ad exchanges and networks also allows advertisers to access a high volume of ad space.
In addition, programmatic advertising allows for more specific targeting, which allows advertisers to ensure their ad spend is focused on reaching more relevant audiences.
In ancient times, advertisers would display ads to all visitors of sites they felt matched their target audience. In comparison, programmatic advertising takes away the guesswork and increases the quality of reach by showing your ad only to your target audience.
For example, using the old model, you might display diapers to everyone who visits a parenting site, although a significant portion of visitors might not need them anymore. Under programmatic advertising, it would only show your ad to parents who meet your criteria - for example, having viewed diapers or other baby products recently. This ensures that your ad dollars are only spent on reaching a relevant audience.
Programmatic buying is also the leading method for trading digital ad space - global programmatic ad spend is projected to reach 82% in 2022. The continued investment in programmatic definitely says something about its effectiveness!
My Experience as a Programmatic Trader
I was given an internship offer by Havas Media to work in the Agency Trading Desk (ATD) as a trader.
A steep learning curve
The learning curve was really steep in the initial phase, where I had to learn the fundamentals of programmatic advertising, as well as the nuances of the advertising industry. With the guidance of my teammates, I slowly worked my way up to execute my first programmatic campaign.
I will always remember how nerve-wracking it was to enter the allocated budget into the ad exchange platform for the first time. Just one additional ‘0’ would spell disaster for the client. My palms are sweating just thinking about it!
What a typical day looks like
Similar to many marketing campaigns, a programmatic campaign consists of 4 phases: planning, setting up, optimizing, and reporting.
Here’s what a typical day is like at work: after getting myself a cup of green tea, I would spend the first half of the day optimizing campaigns that would run for the day ahead, and the next half setting up campaigns and reporting campaigns performance to the media planners. Depending on the urgency of tasks, I would need to be flexible in how I plan my day.
What I gained from the experience
For me at least, the most challenging part about being a trader was having to multitask, from managing multiple campaigns at once to communicating effectively with internal and external stakeholders.
On the flip side, the most satisfying part was seeing a campaign exceeding its KPIs, such as CTR and CPA. To achieve that, optimization is key.
Using the data obtained, I analyzed and decided which strategies to tweak so that I could motivate audiences to click on the ads, or even get them to make a purchase. Seeing how audiences were positively interacting with the ads that I had set up and executed brought a smile to my face.
At the end of my internship, I executed 16 programmatic campaigns for clients in the automotive, digital payments, and travel industries among many others. I was also given the opportunity to use various formats such as display, native display, native video, and YouTube Trueview.
This experience made me understand and realize that programmatic advertising is one of the fastest-growing aspects of the digital marketing industry and it is definitely here to stay.
Wrapping up
I hope that this has given you a good understanding of how programmatic advertising works. With its benefits of improving targeting and increasing the value of every ad dollar spent, programmatic is definitely a valuable way to advertise.
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