The internet has revolutionized advertising. Since the turn of the century, the way businesses promote their products and services has undergone a seismic shift as a result.
Whereas traditional advertising involved a boardroom of executives devising a campaign and seeking out and purchasing ad space, the online advertising marketplace has evolved into a far more complex beast.
Fortunately, with the evolution of machine learning, we can now automate much of the buying and selling of ad space using computer algorithms. In digital marketing, we call this automation “programmatic advertising”. It saves time, it saves money, and it improves customer targeting. But it’s also packed with jargon. And it can be hard to get to grips with!
In this post, we explore what programmatic advertising involves, how it works in digital marketing, and what different types of programmatic advertising are available.
Read on, or use the clickable menu to jump to the topic of your choice:
- What is programmatic advertising and how does it work?
- Who uses programmatic advertising?
- What are the different types of programmatic advertising?
- What are the benefits of programmatic advertising?
- Programmatic advertising platforms and tools
- Programmatic advertising examples
- Getting started with programmatic advertising
- Key takeaways
Ready to get the lowdown on everything programmatic? Then let’s get going.
1. What is programmatic advertising, and how does it work?
Programmatic advertising is the automated buying and selling of online advertising space via virtual marketplaces. It occurs between publishers (or sellers) and advertisers (or buyers). Acting as an intermediary between these two groups is a third party known as an ad exchange. Ad exchanges exist to manage the bidding process.
Most programmatic advertising uses real-time bidding (or auctions). In a nutshell, a publisher’s website automatically assigns ad space to an advertiser based on predefined factors, such as the user’s device, geographic location, keywords, and so on. If an advertiser wins a bid, they win the ad space.
Behind the scenes, however, programmatic advertising is a highly complex technical process. Complex though it is, this whole process takes a matter of milliseconds. The whole thing is done and dusted in the short time it takes for a user to send their browser request and for their destination webpage to load. Amazing!
How does programmatic advertising work?
The emergence of programmatic advertising for buying and selling online ad space has created far more efficient trading between publishers and digital marketers. But as is often the case with modern convenience, hidden behind this time-saving model is a highly complex set of integrated technical processes.
We’ll try to keep this post as jargon-free as possible but before we walk you through the process, there are a few key terms you’ll need to know:
- Supply-side platform (SSP): A software platform that allows publishers (e.g. newspapers, blogs, and other websites) to sell ad space to buyers (those who want to promote their products or services).
- Ad impression: The space on a publisher’s webpage that publishers can sell to buyers, or advertisers. Advertisers can then place their banners, product images, or sales copy here.
- Demand-side platform (DSP): A software platform that allows advertisers (e.g. brands, agencies, and digital marketing teams) to purchase ad impressions.
- Ad exchange platform: An intermediary platform that facilitates the buying and selling of ad impressions between SSPs and DSPs.
Now we’ve got that cleared up, here’s the process in more detail:
- A consumer browses online and opens a publisher’s website, e.g. an article, news item, or blog post.
- As they do so, the publisher’s server registers an ad impression.
- The ad impression is immediately sent for auction on one or more of the publisher’s chosen supply-side platforms (SSP).
- The SSP triggers a bid request on an ad exchange platform (the intermediary broker). Via the ad exchange platform, demand-side platforms (DSPs) are alerted to the new buying opportunity.
- Along with the purchasing alert, the DSPs receive key information about the ad impression being sold, such as the cost, location of the user, and other data.
- Based on the advertiser’s campaign strategy, budget, and other factors, the DSP decides whether or not to bid for the ad impression. If it does, the DSP automatically sends the bid to the ad exchange. The exchange reviews all the bids and declares the winner.
- Finally, the ad exchange informs the SSP of the auction’s outcome. The publisher automatically assigns the ad impression to the winning bidder.
- The buyer’s advertisement appears on the publisher’s website just in time for the consumer to see it (and hopefully to click on it!)
Add to this the complication of data management platforms and we start to get an idea of the intricate back and forth occurring between DSPs, SSPs, and ad exchanges every time you click on a webpage.
But the only clue you’ll ever have to this frenzy of buying and selling is the small lag that sometimes occurs when a page loads. It’s kind of amazing when you stop to think about it. Who knew?
2. Who uses programmatic advertising?
There are three main beneficiaries of programmatic advertising. These are the sellers (or publishers, who receive the money), the buyers (or advertisers, who get to promote their wares), and the exchange platforms that facilitate the process (who receive a small amount of money for each successful transaction). There’s also a whole industrial complex of SSP and DSP providers.
But we’re talking about advertising here. So which companies use programmatic advertising? The truth is, programmatic advertising is increasingly widespread. But some well-known companies that use it as part of their digital marketing strategies include:
- The Economist
- Audi
- AirAsia
- Kellogg’s
- Unilever
- Netflix
- Lacoste
- InterContinental Hotels
- Intel
- Procter & Gamble
We’ll explore a couple of these in more detail later on. But needless to say, there are also many other companies you can “ad” to this list (sorry).
3. What are the different types of programmatic advertising?
Though we explained the programmatic advertising process in the first section, in reality it’s not always this straightforward.
The digital advertising ecosystem wasn’t designed to serve the purpose it currently serves; rather, it has gradually evolved over many years. As a result, it’s a highly sophisticated beast, and emerging technologies and standards are constantly shifting how it works.
If you’re considering adopting programmatic advertising as part of your digital marketing, though, there are the four main types that you’ll need to consider:
Real-time bidding
Real-time bidding involves bidding for ad space that’s up for grabs by any company and in any location. Also known as the open marketplace, this type of programmatic advertising is called real-time bidding for the simple fact that the auction takes place in real-time, whenever a consumer clicks on a website, triggering the bidding process (the process we outlined earlier).
It’s simple: the highest bidder wins the ad impression. Advertisers don’t usually have to pay their highest bid but a small amount more than the second-highest bidder, making it an efficient way of spending.
Pros
Allows for precise pricing.
Cons
Advertisers have no control over where their ad appears.
Private marketplace
A private marketplace is exactly like real-time bidding, except publishers restrict potential advertising spots to an invite-only list of selected bidders. This is so they can sell their top advertising spaces at a premium price. Private marketplaces are commonly run by publishers with a wide readership, for example, Business Insider.
Pros
Advertisers always know exactly where their ads will appear.
Cons
Not ideal for smaller advertisers as it’s hard to secure an invite.
Preferred deals
A preferred deal allows advertisers to select their preferred ad spots before they become available. This typically involves a period of negotiation between the buyer and seller. When a spot then opens up, there are fixed terms and pricing already in place.
When a preferred deal spot becomes available, advertisers can choose whether or not to bid. But they’ll know exactly what they’re paying upfront (should they win) and have already previewed the advertising space beforehand.
Pros
Advertisers will know what they’re paying and where their ads are placed if they win.
Cons
There are no guarantees of winning since other advertisers can still bid.
Programmatic guaranteed
Programmatic guaranteed adopts a similar approach to traditional buying. In short, publishers and advertisers negotiate the terms of buying/selling ad space in a closed deal.
There’s no bidding involved, meaning that when the spot becomes available (and all the agreed terms are met) the publisher automatically awards the spot to the advertiser at the agreed price.
Pros
No bidding required and advertisers have a lot of control over the ad’s timing and placement.
Cons
It’s usually very expensive—you’ll need a big budget.
4. What are the benefits of programmatic advertising?
Compared to traditional advertising, adopting the programmatic approach offers many benefits. Some of the key advantages of programmatic advertising include:
It offers greater targeting
Being so integrated into the modern tech infrastructure (along with cookies, pixel counts, and other digital objects) programmatic advertising is heavily data-driven. Data management systems play a vital role in the bidding process. They allow advertisers only to bid when the space available matches their customer segments, geographic location, and other metrics. This is far more precise than the old-school approach, which essentially involved making an educated guess about when and where to place an ad.
It’s easier to measure success
In addition to being more targeted, programmatic advertising allows buyers to measure results far more precisely, too. While measurement is not always part of the transaction, being digital means advertisers have plenty of opportunities to collect data about a consumer’s post-click behavior. They constantly measure success, assess real-time information, and retarget their campaigns accordingly.
Meanwhile, platforms like Google’s AdX (an ad exchange) supply metrics such as viewability (an estimate of the likelihood of an ad being viewed), clickthrough rate, and video completion rate. All this is gold dust for digital marketers.
It saves time for advertisers
Once an advertiser has set up a campaign on their chosen platform, they can simply let it run. By choosing bidding parameters upfront (such as when and where to bid, how high to go, and so on) they don’t have to constantly monitor their campaigns.
Instead, they can check when it suits them. In short, the algorithm does the grunt work, freeing up time for the humans to do what we do best—get creative!
It’s more cost-effective
Another benefit of programmatic advertising is that it’s generally much more cost-effective. Set a maximum bidding price and you can be sure that whatever campaigns you’re running won’t go over budget. And because they’re better targeted, you get an improved return on investment, too.
It’s easier to create fully integrated campaigns
Purchasing individual ad slots manually can be time-consuming. Programmatic advertising allows you to create fully-integrated, omnichannel marketing campaigns that are cohesive across devices and platforms.
You don’t need to worry about customers receiving piecemeal messaging. And because the process happens at the click of a button, you can focus on getting the messaging right and launching your campaigns much faster.
5. What are the main programmatic advertising platforms and tools?
At present, we can divide the vast majority of programmatic advertising platforms and tools into three categories: supply-side platforms (SSPs), ad exchanges, and demand-side platforms (DSPs).
As an advertiser, the most relevant of these are DSPs. However, many providers offer both SSP and DSP services, so it helps to understand the full ecosystem. It’s why we’ve also listed some SSPs below.
Here are some of the most popular platforms according to the software review site, G2.
Most popular demand-side platforms (for advertisers)
Most popular supply-side platforms (for publishers)
Whether you’re in publishing or advertising, most organizations use more than one platform anyway, allowing them to trade across numerous ad exchanges simultaneously. It’s hard to stress just how massive the online ad marketplace is, and it’s undeniably fragmented.
Nevertheless, as is the case with all things digital, as programmatic advertising continues to evolve, it’s likely that we’ll see much more integrated solutions emerging. Watch this space!
6. What are some examples of programmatic advertising?
Next up, time to put all this theory into practice with a couple of programmatic advertising examples. As you’ll see, for all its technical ins-and-outs and, programmatic advertising is really more about creating highly-targeted campaigns. Let’s take a look.
AirAsia
Based in Kuala Lumpur, AirAsia is Malaysia’s largest airline (by fleet size and destinations). Following 2014’s devastating AirAsia crash, the airline wanted to improve customer confidence. They chose to do this using a programmatic advertising campaign on Facebook.
AirAsia’s video campaign targeted three customer segments: those who’d purchased a flight before the crash, those who’d purchased one afterward, and regular flyers. Each customer received a unique ad targeted to their specific psychographic.
Frequent flyers were shown a video highlighting fares for their most regular routes. Those who’d purchased a flight before the crash were shown an ad for routes they’d previously taken. Finally, those who purchased a flight after the crash were shown an ad for routes they’d searched for previously, but never booked.
This targeted approach was highly successful–the campaign produced a 30% return on investment for AirAsia and helped to improve their reputation.
InterContinental Hotels Group (IHG)
IHG is an international hotel chain based in the UK with hotels across the world. With the emergence of meta-booking platforms like booking.com, IHG found that their customers were moving away from booking hotels direct. Instead, they were opting for convenience and “cheap” deals via popular comparison sites. Except there was a problem—the deals weren’t cheaper!
To disrupt this trend, IHG adopted programmatic advertising to remove the middle man. By analyzing data on customers who book hotels, IHG found which customers were actually spending more money, not less.
They created a targeted online campaign for these customers, helping to dispel the myth that booking sites are cheaper. With clear slogans such as “Our rooms always cost less when you book direct” and “Book anywhere else and you’ll overpay”, IHG managed to claw back much of the custom that was otherwise going to comparison sites—all thanks to programmatic advertising.
7. How to get started with programmatic advertising
Okay, so by now you should have a clear idea of the fundamentals of programmatic advertising. What are the next steps? Here are a few options:
Explore programmatic advertising in more detail
We’ve done our best to provide a clear summary here, but we can’t cover everything. Your first job should be to listen to some marketing podcasts, check out some more blogs and familiarize yourself with the terminology (we’ve kept it simple but you’ll come across plenty of complex jargon as you progress).
Finally, be sure to seek out case studies that relate to your particular industry, products/services, or campaign approach. You may be surprised what you can learn from those who went before you.
Choose a demand-side platform
Next up, make sure you pick a DSP that’s appropriate for your needs. There are a few things to consider when choosing a platform. Firstly, make sure it has the reach you require, i.e. it covers the channels your target audience uses. You might also want to explore how fast it is (you don’t want to get left behind in a bidding war!)
If you’re new to programmatic advertising, it’s also worth considering the support options available. But most important is cost. Select a platform that you can afford within your marketing and advertising budget, not forgetting to factor in the budget for the advertising itself, which will come separately.
Create your campaign and set goals
As with any marketing campaign, programmatic advertising needs to be underpinned by a rigorous and data-driven strategy. This will take into account all the factors that might impact your campaign’s success: Who are you targeting? What action do you want them to take? How will you get your message across?
Upfront, this may require a little more time than you would usually put into a campaign: programmatic advertising provides a great opportunity to target your ads, but it also means you’ll need to do more work creating tailored content. Come prepared!
Balance technology with humanity
Lastly, a gentle reminder: just because your ad campaign is automated doesn’t mean you should leave everything to the machine.
Algorithms are great for managing what would otherwise be a time-consuming transaction, but the campaign itself still needs the human touch to keep it on track. Striking this balance can be tricky at first, but with some practice, you’ll soon get the hang of it.
8. Key takeaways
There we go, a full introduction to programmatic advertising! In this beginner’s guide, we’ve explored what programmatic advertising is, how it works, how it can benefit you, and how to get started. We’ve learned that:
- Programmatic advertising is the automated buying and selling of advertising space via complex virtual marketplaces.
- Programmatic advertising involves a complex bidding process between supply-side platforms (representing publishers/sellers), demand-side platforms (representing advertisers/buyers), and intermediary ad exchanges.
- There are four key types of programmatic advertising: real-time bidding (public), private marketplaces, preferred deals, and programmatic guaranteed.
- Programmatic advertising offers more targeted advertising, improved success metrics, cost and time savings, and the opportunity to create flawless omnichannel campaigns.
- Companies like AirAsia, Kellogg’s, Unilever, InterContinental Hotels, and Lacoste have all adopted programmatic advertising strategies.
With the boundaries between data, digital marketing, and machine learning growing increasingly opaque, you can bet that programmatic advertising approaches will continue to grow and evolve.
Interested in learning more? Why not try our free, 5-day introductory course? You’ll receive five lessons over five days direct to your inbox, which will help you figure out whether or not digital marketing is for you.
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