Programmatic advertising explained: Everything you need to know

James Haslam

Jul 23, 2019

Programmatic advertising has revolutionized the way we buy and sell inventory and is now a critical component of a marketer’s overall strategy. By 2021, it will make up 88% of US display ad spend with a total of $81 billion, according to eMarketer. So how does programmatic ad spending work, and how can marketers make the most of programmatic technology? In this guide, you’ll learn how this process can be used, what this allows you to achieve, and the terminology needed to dive into programmatic media buying.

What is programmatic advertising?

Programmatic advertising is media buying with the assistance of algorithmic technology, as opposed to traditional methods of digital advertising that are performed manually. This type of advertising is also known as programmatic ad buying and programmatic media buying. Essentially, these terms all mean the same thing: machines purchase ads autonomously based on the requirements set by an advertiser.

What does programmatic enable marketers to achieve?

Traditional media buying involves a lot of menial tasks and manual labor, from requests-for-proposals (RFPs) to negotiations and manual insertions of the orders (IOs). All of this creates a workflow that is slow and inefficient by today’s standards. Programmatic advertising offers a more efficient alternative, making ad buying quicker (and consequently cheaper) by removing people from the laborious and repetitive parts of that process.

This is a valuable asset to advertisers because it gives them more time to flex their creativity and less time spent pulling triggers. In addition to this, advertisers manually purchasing media have little control over their inventory and placement if ads are purchased in bulk. This means there’s potential for them to miss the right audiences, highlighting another reason why programmatic has become essential.

Programmatic allows you to target specific audiences. Identifiers including device type, user geolocation, and certain in-app events can all be used to inform the type of user you’re trying to acquire. You can also use programmatic buying to choose the partners you want to work with, as well as the specific inventory. By using programmatic, you’re optimizing the bidding process and only paying for the best users.

How popular is programmatic in the digital display ad market?

In the US, automation will account for $59.45 billion in ad dollars in 2019, making up 84.9% of the digital display ad market (two-thirds of that figure will go to mobile,) according to eMarketer. Their report also shows that video, social and native investments are the fasting growing areas. By 2021, the growth rate for mobile will dip below the broader programmatic average. This is due to advertisers investing more in other areas, such as connected TV.

Marketers are still involved in programmatic media buying, but more time can be spent on analysis, optimization, and communications. Programmatic advertising software can work in several ways, which is why it’s important to know what defines real-time bidding (RTB), private marketplaces and programmatic direct advertising.

Programmatic media buying: terminology you need to know

By using data insights and algorithmic technology, programmatic media buying enables marketers to target audiences at the right time, and the right cost. In order to run a tight ship, it’s important for marketers to understand the different terms that define how programmatic media buying works. For that, we’ve compiled a short list of essential terms:

Firstly, programmatic media buying can be categorized into three subcategories: real-time bidding (RTB), private marketplace (PMP) and programmatic direct.

1. What is real-time bidding (RTB)?

Real-time bidding ( RTB) is a subcategory of programmatic media buying, referring to the buying and selling of ads. Working in real time, RTB is when the price of inventory is agreed up at auction. This is typically an open auction for advertisers and publishers.

But how does an RTB auction work? In simple terms, it’s exactly like a “real” auction or the type of bidding seen on eBay – but with automation that acts upon the requirements set by the advertiser. Multiple advertisers are able to bid on an impression, and the winning bidder (willing to pay the most) gets their ad shown to the user. This all happens within a split second. For example, imagine a scenario in a Gaming app where the player views an ad between levels. As this happens, the mobile SSP runs an auction. Advertisers can then make their bids and, within milliseconds, the highest bidder is chosen and their ad is served to the user.

RTB is beneficial for advertisers and publishers. For advertisers, it offers a fine-tuned targeting process that allows them to focus on relevant inventory – ultimately increasing ROI as a consequence of more relevant ads. RTB can also increase revenue for publishers because it opens their inventory to more bidders. Publishers can also learn their highest bidders and how much they are willing to pay, then use that to inform how much they should charge for premium placements.

When looking to buy media with a large-scale audience base, real-time bidding can be a smart, cost-effective option. RTB is usually facilitated by a supply-side platform (SSP). Advertisers can use RTB to apply specific targeting and focus on the inventory most relevant to them. This allows them to generate better ROI and increase eCPMs.

2. What is a Private Marketplace (PMP)?

As the name suggests, PMPs are auctions that have restrictions on who is able to bid. This means that only specific advertisers have access to the marketplace, by invitation only. In certain cases, publishers will implement a selection process by which advertisers can submit an application that grants them access to a private marketplace.

Advertisers who want access to premium inventories before they become available to everyone will prefer PMPs. This marketplace also offers a much closer relationship with publishers than with RTB.

3. What is Programmatic Direct?

When a publisher bypasses bidding via an open or private auction, this is called programmatic direct. This means media inventory is sold at a fixed price, usually cost per mille (CPM), to advertisers. Due to the nature of exclusivity and specificity of programmatic direct media buying, it is particularly useful to companies focusing on premium placements and brand safety.

Real-time bidding vs programmatic buying

With so many terms for programmatic media buying, it can be hard to learn what is and isn’t the same. An important takeaway from this guide is the distinction between these three terms (RTB, PMP, programmatic direct) from programmatic buying. So remember: programmatic buying means any (and all) of these methods, while real-time bidding, private marketplace and programmatic direct are all subcategories.

Now that you know the different ways programmatic media buying can be bought, let’s take a look at the three main components of this ecosystem: sell-side platforms (SSP), demand-side platforms (DSP) and ad exchangers. Note that unlike the terms above, which are in opposition, these terms are all necessary components of the same process.

What is a Sell-Side Platform (SSP)?

An SSP is software that enables the publisher to sell display, mobile and video impressions in real time. This happens autonomously, giving publishers greater control of their inventory.

What is a Demand-Side Platform (DSP)?

A DSP is software that enables advertisers to buy inventory autonomously. They allow advertisers to purchase high-quality traffic at scale, making them a powerful marketing automation tool.

There are three key stages to how a demand-side platform functions. Firstly, the advertiser uploads creative, sets up targeting and puts down a budget for their campaigns. Secondly, by using the advertiser’s criteria, the DSP scours through its network of publishers for sites/mobile apps and makes a bid. After this, the DSP resolves the bid, places the ad and makes the necessary payment – all in a matter of milliseconds.

This allows advertisers to scale their efforts on mobile and take advantage of the globalized nature of the mobile app economy.

What is an Ad Exchange?

The ad exchange is fed inventory by the supply-side, which requires a connection with the DSP. This enables advertisers, agencies, networks and publishers to buy and sell ad space. As long as the ad exchange allows it, virtually anyone can buy from an ad exchange. Advertisers, agencies and even other ad networks can utilize DSPs (or their own version) to do this.

How to approach programmatic advertising

Now that you know the ins and outs of programmatic advertising, it’s critical to remember the key benefits and learn how to utilize these for best results. Here are two ways you can leverage the power of programmatic advertising.

Lookalike Audiences

Although programmatic buying is going to help you autonomously, it’s only as powerful as your analysis of who to target. It’s important to remember that programmatic advertising applies to both new user acquisition and retargeting. This means that it’s not all about installs: the aim is to acquire the most valuable users who are likely to convert, increasing ROI. This can be achieved by learning how your audience currently interacts with mobile ads, then using that analysis to serve ads to lookalike audiences.

The path to conversion: Retargeting

Programmatic advertising should align with what you understand about your app’s user funnel. This includes where users churn, why they return and who you should be retargeting. For example, your analysis may reveal that if you push users past level 3 in your gaming app, they are far more likely to make a purchase further down the line. It’s these types of insights that can be used to inform your programmatic advertising for best results.

Understanding how programmatic advertising works and ways it can optimize the path to purchase is an important step in utilizing this method of purchasing inventory. Moving forward, this should give you more time to focus on data analysis and refine your target audience – connecting you with the most valuable users.

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