What Is Programmatic Advertising? Definition, Types, Channel, and Advantages

Programmatic advertising is the process of automating the buying and selling of ad inventory in real-time through an automated bidding system. Programmatic advertising enables brands or agencies to purchase ad impressions on publisher sites or apps within milliseconds through a sophisticated ecosystem.

This article covers the basics of programmatic advertising, how it works, the types of programmatic media buying, programmatic ad channels, and its advantages.

Programmatic advertising has become one of the most preferred ways of running ad campaigns. But, the AdTechOpens a new window space is complex, and a lot of mystery surrounds programmatic advertising. Marketers are still unsure about the concept of programmatic advertising and its ecosystem. We aim to clear all this confusion in this primer.

Table of Contents

• • What Is Programmatic Advertising? Explained
  • Types of Programmatic Media Buying
  • Top 6 Programmatic Advertising Channels
  • 5 Advantages of Programmatic Advertising
  • Closing Words

What Is Programmatic Advertising? Explained

Programmatic advertising is the real-time buying and selling of ad inventory through an automated bidding system. Programmatic advertising enables brands or agencies to purchase ad impressions on publisher sites or apps through a sophisticated ecosystem. Programmatic advertising includes ad slots for digital out-of-home (DOOH), online, streaming, TV, video and voice ads.

#Fact: Programmatic advertising is also known as programmatic marketing or programmatic media.

The traditional/offline advertising model is inefficient as the manual process between buyers (advertisers/brands) and sellers (publishers) tends to be time-consuming, expensive and involves extensive paperwork, request for proposals (RFPs), and negotiation. The biggest shortcoming of the offline method is the lack of functionality to measure the Return on Investment (ROI).

On the other hand, programmatic advertising introduces an elaborate system that relies less on humans and more on programs to complete this process and display ads across the internet.

Understanding how the different components of the programmatic advertising ecosystem work together can be complicated; but you might have heard of terms such as the demand-side platformOpens a new window (DSP), supply-side platformOpens a new window (SSP), data management platform (DMP), ad servers, ad exchangeOpens a new window , and ad networksOpens a new window . Let’s understand what they mean and how programmatic advertising works.

Programmatic advertising uses a program to purchase ad slots on publishers’. The artificial intelligence (AI) powered algorithms evaluate users based on their behavior, demographic data, cookie data, and other criteria to determine which ad should be shown to each user.

Advertisers use a DSP to facilitate the process of ad buying and a DMP to utilize third-party user data (brands can merge first- and third-party data to strengthen targeting capabilities). Publishers use an SSP to manage their ad inventories. SSPs take the final call on deciding which ads to serve depending on the bids.

Types of Programmatic Media Buying

Contrary to the traditional media buying process, programmatic advertising may not necessarily involve advertisers and publishers working on a one-on-one basis to serve ads. The ad delivery depends on the type of programmatic deal chosen.

Different types of programmatic deals dictate the rules when delivering ads on publishers’ websites. Let’s look at the key programmatic deals:

1. Real-Time Bidding (RTB)

Also known as open auction or open marketplace, real-time bidding (RTB) has become synonymous to programmatic media buying primarily because of its widespread usage.

The ad slots are open to everyone in RTB, and they’re sold through an open auction type of bidding. The highest bidder gets the spot. The whole process takes place in real-time, and advertisers can choose ad slots as they are made available.

Although in RTB, the highest bidder gets the slot, they don’t have to pay their bid amount to get the slot. RTB follows a type of auction known as the second-price auction. In second-price auctions, the highest bidder is charged only $0.01 more than the second-highest bidder for the slot. The second highest bidder is charged slightly more than the third-highest bidder, and so on.

Although RTB is easy to set up and optimize, it lacks the transparency from the advertiser’s perspective. Advertisers know the general category of publishers, but they don’t know the exact publisher websites on which their ads will appear.

2. Private Marketplace (PMP)

The private marketplace functions in similar veins as RTB except for the fact that it is available to advertisers on an invite-only basis. In private or closed auction, publishers usually set aside a premium ad inventory reserved only for select advertisers. Many DSPs have their own PMPs that are accessible exclusively to the DSP users/customers.

Considering the benefits it offers to publishers, PMPs are primarily used by websites and publications with mass reach. Contrary to RTB, the advertiser using a PMP knows which websites their ads are being served on, allowing them to measure the accurate ROI of their ads.

3. Preferred Deals

In preferred deals, advertisers get to choose the ad inventory at a fixed price even before it is made available on private marketplaces followed by on open auctions.

Also known as spot buying, the negotiation in preferred deals takes a refined approach as both the parties agree on the pricing, targeting, etc. beforehand.

The advertiser is given a sneak peek of the publisher’s ad inventory and is not bound to make any purchase. Advertisers can use a DSP to understand their audience and determine whether to purchase the ad impression.

4. Programmatic Guaranteed

Programmatic guaranteed, also known as programmatic direct or automated guaranteed, follows the traditional approach of media buying. Here, the advertiser and publisher negotiate the terms on a one-on-one basis.

Unlike other media buying types we looked at, programmatic direct doesn’t follow a bidding process. The inventory is sold directly to the advertiser after the negotiation. Programmatic guaranteed provides advertisers the ability to choose when it comes to ad inventories, prices, audience targeting, and frequency capping.

Automated guaranteed is used by advertisers that know precisely where to place their ads and have hefty advertising budgets.

Learn More: Ad Network vs. Ad Exchange: Key Differences and SimilaritiesOpens a new window

Top 6 Programmatic Advertising Channels

In this section, we look at six commonly used programmatic advertising channels/formats. We will also look at some examples of programmatic advertising.

1. Display Ads

While the term ‘display ads’ is used to refer to any form of online visual ads, in the context of programmatic ads, only the ads placed at the header, footer, or sidebar are considered display ads.

Advertisers and publishers work with display networks such as Google, Microsoft, or Snapchat to facilitate the buying and selling of ad slots. Publishers generate revenue based on the clicks and impressions data collected by the display network.

Here is an example of a programmatic display ad. The following visual was a part of The Economist’s ad campaign. The campaign consisted of 60 such creatives that targeted users based on the reading preferences of potential Economist readers/subscribers.

Image Source: EconsultancyOpens a new window

An Example of Programmatic Display Ad Campaign by The Economist

Learn More: What Is Display Advertising? Definition, Targeting Process, Management, Network, Types, and ExamplesOpens a new window

2. Video Ads

The popularity of programmatic ads continues to grow as video continues to become one of the most preferred mediums of content consumption. Digital video ad spend in the US alone is predicted to grow up to $22.18 billion in 2021.

There are three main types of video ads. Let’s quickly look at each:

1. In-stream ads: These ads appear in the video player itself. For instance, the advertisements that are run before a YouTube video are called in-stream ads. Here is an example of an in-stream ad:

An Example of In-stream Video Ad on YouTube

There are three types of in-stream ads:

a. Pre-roll: These ads appear before the video begins to play.
b. Mid-roll: Mid-roll ads run in the middle of the content. These ads are notorious for interrupting the viewing experience.
c. Post-roll: Post-roll ads appear after the video ends.

2. Out-stream Ads: Out-stream ads appear between online articles. These are placed either within the content or show up as pop-up windows.

Here is an example of an out-stream video ad on Forbes:

An Example of an Out-stream Video Ad on Forbes

3. In-display ads: These ads aren’t displayed in the video player but in search results or video recommendations.
Below is an example of an in-display ad.

3. Social Ads

Social media platforms collect a vast amount of data from users to enhance their targeting capabilities. Programmatic social advertisements use this data to decide who will see their ads, the ad format, ideal time, and frequency caps. This information helps advertisers optimize their ad spend.

Furthermore, social ads are not exclusively restricted to platform ads. Programmatic influencer marketing automates influencer marketing campaigns by identifying the right influencers, getting them onboard, and automating campaign management depending upon the audience and campaign performance. Startups such as NeoReach, Fanbytes, and INFLURY are already disrupting this space.

Learn More: What Is Social Media Advertising? Definition, Costs, Best Practices, Benefits, and ExamplesOpens a new window

4. Audio Ads

We can identify three key reasons for the growing adoption of programmatic audio ads:

While popular podcasts still follow the traditional sponsorship model to place ads, programmatic audio can amplify revenue generation efforts.

Programmatic audio platforms rely on real-time audience data to place ads and utilize engaging display and video ads to optimize the user experience. Streaming apps serve companion ads that are often programmatic display ads, while ad pods are the audio equivalent of video ads.

The current major players in programmatic audio are Google, SoundCloud, Pandora, BBC, and Rubicon Project.

5. Native Ads

Native ads follow the form and feel of the medium they’re being served on. In programmatic native advertising, advertisers work with a DSP to choose which impressions to buy and their price, while publishers sell their ad slots through an SSP.

According to research by IPG & Sharethrough on native ads, consumers looked at native ads 53% more often than display ads.

Unlike programmatic display ads that appear at the header, footer, or sidebar, programmatic native ads can appear in other locations on a webpage or app. Here are some of the native ad formats:

1. In-Feed Units
2. In-article Ads
3. Paid Search Units
4. Recommendation Widgets
5. Promoted Listings
6. Sponsored Content
7. Rewarded Video Ads
8. In-Ad (IAB Standard) with Native Element Units

Learn More: What Is Native Advertising? Definition, Components, Benchmarks, & Best Practices with ExamplesOpens a new window

6. Digital Out-of-Home (DOOH)

Digital out-of-homeOpens a new window is the digital and analytically superior evolution of the traditional out-of-home advertising. The traditional DOOH sales consisted of advertisers getting in touch with the network and agreeing on audience targeting, pricing, screen selection, etc., manually.

Although programmatic DOOH may appear a bit inexplicable initially, it follows the same media buying processes as RTB and programmatic direct.

Although measurement and attribution are still challenging in programmatic DOOH due to its nascency, advertisers can run targeted and highly engaging retargeting due to its features such as geofencing.

5 Advantages of Programmatic Advertising

Besides the efficiency brought in by the reduced need for human intervention and AI-driven algorithms, here are five advantages of using programmatic advertising.

1. Real-time Insights

In traditional advertising, it takes a significant amount of time to get the results of advertising campaigns, and there’s no exact method of knowing their accuracy.

Programmatic advertising, on the other hand, gives advertisers real-time information of the performance of their ad campaigns. Advertisers can utilize this campaign data to gather more information about their target audience and campaign.

2. Enhanced Targeting Capabilities

You can adopt two methodologies to connect with your target audience.

In the first approach, you can combine the first- and third-party data to improve the audience profile and reach out to them with accuracy.

The second approach pertains to contextual advertising. Contextual programmatic advertising derives data from both – the user profiles and the page content, to deliver ads at the most appropriate place. For instance, you can serve ads of a CRM application to a marketer or salesperson on business publications.

Apart from these strategies, advertisers can use remarketing, geo-targeting, data and IP address targeting, and website or app targeting to adopt a more refined approach towards targeting.

These improved capabilities provide plenty of room to advertisers to personalize their ads.

3. Greater Transparency

Since advertisers are aware of the ad inventory they are purchasing and the audience they’re targeting, they can trace the performance of their ads, see how their budget is being spent, and optimize their campaigns in real-time to get the results they want.

Also, the lack of human dependence reduces the risk of human error.

4. Better Utilization of the Budget

As programmatic advertising provides advertisers with real-time campaign performance, they can invest their budget in avenues that will get them the best results. This efficient investment allows them to spend their campaign budget effectively and yield better ROI.

5. Tackle Ad Frauds Effectively

The digital advertising industry is marred by unethical ad practices. Publishers have long been duping advertisers by implementing various fraudulent tactics.

The transparency offered by programmatic advertising platformsOpens a new window enables advertisers to evaluate each publisher in real-time based on the performance of their ads and choose those who deliver justifiable results.

Major programmatic ad platforms also curb ad frauds by blocking fake bot traffic and pre-rolls ads and offer ad credits in case a fraudulent tactic slips through their system.

Learn More: Top 12 Programmatic Advertising Trends for 2020 and BeyondOpens a new window

Closing Words

We hope this primer on programmatic advertising has armed you with the necessary knowledge to explore this topic and make it a part of your advertising strategy.

The benefits of programmatic advertising are immense, making it the future of advertising. If you don’t believe, wait until programmatic TV disrupts the world of AdTech.

Do you have any questions related to programmatic advertising? Ask us on TwitterOpens a new window , FacebookOpens a new window , and LinkedInOpens a new window