What Does Programmatic Advertising Mean & How Does It Work?

What Does Programmatic Advertising Mean & How Does It Work?

What does programmatic advertising mean? Using programmatic advertising platforms to automatically seek, bid & win digital ads instead of traditional means

By: Mussarat Nosheen | 5 mins read
Published: Feb 6, 2024 2:44:09 AM | Updated: Apr 19, 2024 12:45:19 AM

With an estimated $558 billion global ad spend in 2023 to its credit, digital programmatic advertising seems the future of advertising.

According to an ROI revolution survey, 30.5% of marketers will maintain or increase their investment in programmatic media buying. 

But what does programmatic advertising mean, and how does it work? 

Let us go over these topics below. 

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What Does Programmatic Advertising Mean?

Programmatic advertising is an automated system of buying and selling personalized digital advertisement space. 

It does away with all the hassle, paperwork, proposals, negotiations, and the cost of setting up an ad. 

Instead, a sophisticated technology-intensive process allows advertisers to bid and purchase ad impressions to specific audiences in the right place and time within seconds. 

Advantages of Programmatic Advertising

So, why are so many marketers turning to digital programmatic advertising? Let us find out.

  • Cost efficiency - all stages of programmatic advertising, from proposal seeking to final placement, happen online, automatically, and within seconds. It saves the cost incurred on achieving the same via traditional means. Also, with real-time data, ads are optimized to appear before the right audience at the right time.  
  • Automation saves time - programmatic media buying spares marketers and publishers from manually placing/responding to proposals and bids, negotiating, and tracking results, saving valuable time and effort.
  • Efficient advertising - multiple channels are targeted at the same time. All the keyword targeting, bidding ad placement, and performance evaluation happen in real-time, allowing for instant improvements. It makes programmatic advertising more efficient. 
  • Enhanced audience targeting - the opportunity to integrate first-hand user information with second and third-hand data to build better user profiles allows for much better audience targeting based on their demographics (age, sex, location) and psychographics (interests, values, personality). 

Programmatic Advertising Channels

Programmatic advertising can buy ad impressions on various digital advertisement channels. We briefly discuss some of the most common programmatic advertising channels below. 

  • Display Ads - the ads using a combination of visually appealing formats to promote a product, service, or brand displayed on digital platforms. 
  • Video Ads - these ads use video content to promote a product, service, or brand displayed in-stream, out-stream (within content or as a pop-up), or display ads.
  • Native Ads - these ads use the same components as the platforms they are displayed in, including search, social media, and open web, to fit natively into the platform.
  • Connected TV - the ads are displayed on streaming platforms and applications within the video content. 
  • Digital Out of Home - the digital, dynamic ads displayed on billboards, LED screens, and digital signage in spaces your target audience frequents. 

Programmatic Advertising Components

To understand how programmatic advertising goes about, first, we need to understand the components through which it happens. 

Demand Side Platforms (DSPs)

A demand-side platform allows advertisers to purchase ad inventories for various ad channels (display, video, mobile, etc.) in an automated bidding procedure. 

Supply Side Platforms (SSPs)

Publishers use a supply-side platform to sell digital advertising impressions across platforms like websites, apps, or games in real time via automated auctions. 

Data Management Platform (DMP)

Data management platforms collect, analyze, and manage data (behavior, demographic, and psychographic) from various sources (first, second, and third party) to build user profiles for targeting, report building, and creating lookalike audiences for programmatic advertising. 

Ad Servers

An ad server stores and maintains ad creatives evaluates and displays ads to the right users at the most reasonable time, and tracks user interaction with the ads. 

Ad Exchange

An ad exchange is a central place where advertisers and publishers directly connect to buy and sell digital ad impressions for programmatic marketing. It differs from an ad network since it can rope in several networks and act as a digital marketplace. 

Ad Networks

An ad network is an intermediary platform for selling and buying ad inventories from several in-network publishers. 

Auction Types of Programmatic Advertising 

Let us now discuss the different auction types for programmatic advertising. 

Real-Time Bidding (RTB)

Real-time or open-market bidding is an ad space auction method where advertisers bid for the ad space in real-time, and the highest bidder gets the slot. 

It is open to any advertiser or publisher and is considered a cost-effective method for buying ad impressions with a large audience. 

With RTB advertising, advertisers are only familiar with the category of publishers but not the exact publishers where their ads are displayed. 

Private Marketplace (PMP)

As the name suggests, a private marketplace auction for programmatic advertising is a closed auction, open to select advertisers

Typically, PMP offers premium inventories for auction, possibly with a base value set beforehand, for exclusive invite-only or, sometimes, selected advertisers. 

It bypasses ad exchanges, and advertisers deal directly with the publishers, with knowledge about the websites where their ads are displayed. 

Publishers with massive reach offer PMP programmatic ads.

Preferred Deals 

The preferred deals, or spot buying method, involves ad inventory offers to the priority advertisers at a given price before opening it to a private or real-time marketplace.

Though more straightforward and fuss-free than RBT or PMP, preferred deals do not guarantee a specific number of impressions. 

Programmatic Guaranteed

The programmatic guaranteed, programmatic direct, or automated guaranteed method skips any bidding process. 

Instead, it sells an ad impression for a fixed price, involving direct negotiation between an advertiser and a publisher. 

It involves agreement on the price, dates, number of impressions, and placement, offering better control and return on investment (ROI).

How Does Programmatic Advertising Work?

Programmatic advertising removes the hassle of face-to-face proposals and negotiation processes. Automating the entire process has made advertising quicker, more efficient, and more targeted

How does programmatic advertising work?

Shared below is how programmatic advertising goes about. 

  • A visitor lands on a publisher’s website or mobile app, prompting a bid request. 
  • The publisher (website/app owner) uses a supply-side platform to put up an ad impression for auction (the process may vary depending on the type of auction).  
  • Both publishers and advertisers use a data management system (DMS) to find user profiles for ad targeting
  • Advertisers use the demand side platform to send requests for ad impressions based on user profile and their marketing goals in the ad exchange.
  • These ad exchanges automatically match the bid requests from publishers to ad impression requests from advertisers in real-time based on the data, requirements, and insights.
  • Bidding ensues, and the highest bidding advertiser wins the ad impression (depending again on the type of ad impression purchase method used) within seconds.
  • The winning advertiser's ad appears on the website/app immediately.

Programmatic Advertising Platforms

As discussed in the previous section, various types of programmatic advertising platforms facilitate the advertising process. 

In the graph below, you will find some examples of various categories of programmatic advertising platforms. 

Common platforms used for programmatic advertising

Of these, some platforms offer more than one type of service for programmatic advertising. For example, Xandr offers both DSP and SSP services for programmatic advertising.

Crieto, on the other hand, offers DSP, SSP, and Ad exchange services, all in one place.

Programmatic Ad Fraud

Advertisers beware of programmatic ad fraud, the deceptive activities involving online advertising for the sake of financial gains. 

It can involve bot activity or other means to show inflated clicks and impressions, and wrongfully claim credit for conversions.

Stacking ads behind each other in the same ad placement, misrepresenting the domain, or hijacking it are other types of ad fraud. 

It hurts the campaign's effectiveness by failing to reach the right audience, wasting ad spend, misrepresenting the KPIs, and causing a loss of brand credibility. 

To protect yourselves from ad fraud, use the services of reputable ad networks/ publishers, set clear KPIs and monitor them closely for anomalies, implement fraud detection and ad verification tools, and collaborate with internal teams and external industry experts. 

Conclusion 

The blog addresses the query; “What does programmatic advertising mean, and how does it work?”

It is an automated process of buying and selling digital media impressions in real-time

Digital programmatic advertising is a more cost-effective, time-saving, and efficient mode of advertising with enhanced customer targeting. 

Components of programmatic media buying include demand-side platforms, supply-side platforms, data management platforms, ad servers, ad exchanges, and ad networks

Types of programmatic ad auctions include real-time bidding, private marketplace, preferred deals, and programmatic guaranteed.

When a user clicks to visit a website or a webpage, an ad request is triggered. The target audience for the ad is identified using a DMP, and an SSP floats the ad request in an ad exchange or ad network. 

Then, an ad exchange or an ad network matches DSPs to SSPs based on the target audience and other requirements. 

Depending on the media buying method, the highest bidder or the exclusive client with an appreciable budget wins the ad impression, and the ad goes live. 

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