What Is Programmatic Advertising: Everything You Should Know14 min read

What Is Programmatic Advertising: Everything You Should Know14 min read

07/07/2018 1 By Vasyl Tsyktor

Programmatic advertising is the next big thing within modern marketing strategies. To be successful, an advertising campaign requires multiple and constant negotiations between publishers and advertisers. A tremendous loss of time and delayed analytics data are the main disadvantages of traditional direct advertising.

 

With these facts in mind, many companies like Google, L’Oreal, and Procter&Gamble turn towards automated ad buying. According to eMarketer, the overall spending on programmatic advertising in the U.S. will reach $46 billion by the end of 2018. In a couple of years, it will become a major way of ad purchasing. The research agency states that 86.2% of digital display advertisements will be purchased through automated channels by 2020.

 

What is programmatic ad buying? Let’s sort things out.

Definition


Programmatic advertising is an automatically processed ad buy. In other words, it’s a way to automate different processes and tasks that advertisers focus on when buying display, mobile, or native ads. These processes include choosing a suitable website to place an ad, purchasing this ad, advertising campaign optimization, and placing. Programmatic buying relies on demand-side platforms (DSPs) and supply side platforms (SSPs) to leverage ad campaigns. Businesses (advertisers) use DSPs to define impressions to buy and decide how much to pay for these impressions. Unlike those who pay for ad placing, media platforms (publishers) use SSPs to sell ad space to advertisers.

Demand-side platforms

Demand Side Platforms are software systems that interact with supply side platforms, ad networks, and ad exchanges to help advertisers place their ads. The difference between ad networks and ad exchanges lies in their destination. While an ad network aggregates inventory in one database, an ad exchange is a marketplace for buying and selling ad inventory. 

 

The main purpose of the DSP is to help advertisers buy impressions for the best price as well as choose the most suitable website to place an ad on in accordance with advertiser’s requirements. That’s why, when conducting different ad campaigns, advertisers should select another demand-side platform for every campaign.

 

Using special services called Trading Desks, advertisers can manage data from different DSPs to increase the effectiveness of their advertisement campaigns. Using the trading desk interface, advertisers or agencies can make bets, set the required number of impressions or clicks, collect data about the target audience, and upload this information to their demand-side platform.

 

The DSP analyzes this data, compares it with the information about the audience available at the auction, and makes bids. When it comes to AdWords, demand-side platforms allow users to improve advertising campaigns by optimizing key metrics like effective cost-per-click (eCPC) and effective cost-per-action (eCPA). One of the main advantages of DSPs is that they enable advertisers to accurately calculate the cost-per-impression (CPM) before purchasing ads. This helps ad buyers save their costs.

Features

Demand-side platforms have the following basic features:

  • Real-time bidding (RTB). Using the RTB, advertisers make bets at ad auctions
  • Real-time analysis. Ad campaign reports get updated every a few seconds, unlike Google AdWords reports that require over 18 hours to update data.
  • Automated ad budget optimization. Using a DSP, advertisers can optimize their ad budget either manually or automatically.
  • Impression analysis. Users can get a detailed report for each impression to check how effective particular ads are. This report includes a list of websites involved and ad outcomes.
  • Built-in ad server. Ad servers are tech platforms that host ads and deliver them to publishers within an ad network.
  • Interaction with multiple SSPs. Using a DSP, advertisers can buy ad inventory from different supply side platforms.

Demand-side platforms provide advertisers with access to a wide media coverage. They allow ad buyers to configure their advertising campaigns by key audience indicators rather than particular websites.

 

Another benefit of DSPs is that they enable advertisers to buy cheap residual traffic (also known as expired traffic). What is the residual traffic? This is users that still get converted into website visitors, leads, customers after the main advertising campaign has been completed.

Supply-side platforms

Supply-side platforms are software systems that allow web publishers to sell their inventory via ad networks. The main purpose of any SSP is to sell inventory in the way to enable publishers to earn as much money as possible.

Features

Supply-side platforms have the following basic features:

  • DSP integration. An SSP exchanges data with a DSP to conduct auctions.
  • Data management platform (DMP) integration. DMPs are databases that store and segment audience data to transfer it to a DSP upon request.
  • Winner determination. Within real-time bidding, a supply-side platform determines the best bet to sell inventory.

Supply-side platforms conduct auctions based on targeting. Unlike demand-side platforms, SSPs don’t provide publishers with the predefined CPC. Instead, supply-side platforms work with the highest bids. The more specific audience a certain media resource targets, the more money its owner can earn.

How programmatic buying works

Before the auction starts, an SSP receives an advertisement request from a DSP, collects website data, sends data to a DMP, retrieves bets from a DSP, determines an auction winner when it comes to real-time bidding, and delivers an ad to a web browser. Thus, programmatic buying makes possible to adjust advertising planning to the target audience and avoid choosing between various media sites. Programmatic advertising relies on two basic ad buying models that include programmatic direct and real-time bidding.

Programmatic Direct


Programmatic Direct is an ad buying model within programmatic advertising that enables advertisers to communicate with particular publishers regarding buying certain ad inventory for a fixed price. This model requires advertisers to properly understand what kind of audience is on certain media resources. It enables advertisers to choose between Automated Guaranteed and Preferred Deal transactions.

Automated Guaranteed

The Automated Guaranteed transaction means that advertisers obtain programmatic access to certain guaranteed inventory. Thus, ad buyers can place their ad on high-quality inventory with the “premium” content where the audience is most likely to perform target actions.

Preferred Deal

Preferred Deal, also known as “Unreserved Fixed Rate” or “Private Access”, is a transaction within Programmatic Direct that implies publishers selling their inventory to a certain advertiser for a fixed price. This type of a transaction provides advertisers with the full transparency and control over the ad buying process.

Real-time bidding


One of the main elements of programmatic advertising is real-time bidding (RTB). It’s a real-time auction that implies bidding to buy ads aimed at a certain audience. Using the RTB ad buying model, advertisers can configure their campaigns by a wide range of parameters that include a bid value, network reach for each impression they purchase as well as behavioral and audience metrics.

Open Auction

The main sense of real-time bidding is Open Auction. Numerous advertisers get access to inventory from a marketplace or open ad exchange. Within the RTB Open Auction, transactions happen in real-time. Because of the real-time access to the open auction for all ad buyers, the RTB ecosystem works on a basis of supply and demand. This drives the inventory cost transparency for all auction participants.

Invitation-Only Auction

The RTB system also has a closed auction for a few certain advertisers. The Invitation-Only Auction is a modified automated guaranteed but within real-time bidding. Using the Invitation-Only transaction, publishers invite certain ad buyers to access their inventory. This type of transaction enables inventory owners to establish bottom limits for bids. This ensures that publishers won’t have a rate lower than predefined. To identify those users who have won the closed auction and deliver their ads before open auction winners even though they’ve made higher bids, the RTB system may use a digital insertion order equivalent called Deal ID.

Advantages

Benefits of programmatic advertising - diagram

To be effective, ads have to match user’s intents and needs. Furthermore, they have to reach the right users at the right time. If a company or its marketing agency make a deep research and accurately determine the target audience, it will benefit from all advantages of programmatic advertising.

Optimizing Budgets

With programmatic buying, businesses can reach their audiences in a more effective way. Because of the technology improvement, audience targeting becomes more accurate. This means that promotion will be more cost-effective, the CPC (cost-per-click) will decrease while improving ROI (return on investment).

 

The ROI value is one of the key metrics for any marketing channel including programmatic. With this technology, companies pay a fair price for each impression and get exactly what they pay for. Moreover, they can quickly remove inefficient placements to focus on those that drive more leads.

Improved Targeting Capabilities

According to a study by IAB Europe, 71% of advertisers and 75% of agencies recognize targeting efficiencies as the most important advantages of programmatic buying as of 2017. Understanding the benefits of the improved targeting capabilities appears in getting things clear how the system collects programmatic data. Its basic principle relies on how users receive information and what kind of content they prefer. When it comes to display ads, the technology stack analyzes user cookie data to provide the most precise image of the target audience.

 

Programmatic advertising includes targeting by the following segments:

  • Demographic;
  • Geographic;
  • Psychographic;
  • Behavioral;
  • Look-alike;
  • Device Type;
  • Operational system etc.

 

Businesses can create a media strategy using display, social media platforms, video, search, and different forms of retargeting. Automated advertising allows brands to reach the right audience by where they live, what devices they use, who they are, what they do for a living etc. This is a tremendous set of options that help companies offer only relevant ads.

Transparency

Transparency in programmatic buying helps businesses better control and manage ad campaign investments. Since this technology provides real-time performance analysis, brands can timely improve their campaign. Using the latest performance insights, companies can optimize media campaigns in a highly effective manner by focusing on those impressions that work and removing those with low performance. This ensures the continuous growth of the overall campaign performance without wasting the budget.

 

Programmatic buying provides the transparency of the inventory advertisers purchase, thus ensuring the brand reputation safety. Brands can track where their ads are shown, what performance it drives, how users interact with particular ads and use this data for efficient reinvestment. With proper tracking capabilities, companies can invest a smaller amount of their budget to get better results.

 

Programmatic buying provides a level of transparency that cannot be achieved with display advertising. With programmatic campaigns, businesses can monitor any costs associated with their impressions. All this information is available in real-time. There’s no need for waiting until the campaign is over to get reports. With several clicks, any report is available at any stage of the campaign.

 

According to eMarketer, the programmatic ad spending will continue growing across the globe. Organizations will spend additional $19 billion between 2018 and 2020 compared to previous years. And most spendings will be on private setups like private marketplaces and direct transactions since ad buyers need more transparency for their programmatic campaigns.

Challenges

Disadventages of programmatic advertising - diagram

Despite all advantages of programmatic buying, many companies still hesitate to use it because of various concerns they have.

Many Targeting Settings

A main distinctive feature of programmatic is automation in buying and selling media. It uses specialized software to operate ad campaigns and eliminate personal negotiations. Improved targeting capabilities are powerful marketing tools in the hands of savvy specialists that have convenient experience.

 

However, programmatic buying still requires a marketing specialist to set convenient targeting configurations. Few companies can afford hiring professional digital marketing managers. A wide range of targeting settings can confuse and make businesses turn towards traditional marketing tools like AdWords. A study by IAB Europe shows that 43% of advertisers and 46% of publishers suppose that the need for hiring employees with the right skill set is one of the main barriers of adopting programmatic buying.

Questionable Cost-Effectiveness While Dealing with Small Audiences

If your audience is narrow, programmatic advertising may not be the most cost-effective way to promote your services or products. In this case, there may be other better ways to reach the target audience. A small audience will not engage and interact with an impression if the delivered content is not valuable and relevant enough. That is why it can be more effective to approach to the narrow audience directly on the specific website they may prefer.

No Profitability Guarantees

Even though programmatic advertising is highly effective, this doesn’t eliminate the need for making a research and determine potential customers. It is worthless to entrust everything to the technology because software cannot make all marketing decisions. While programmatic strategies simplify the work for businesses, it cannot do everything. Neither programmatic campaigns nor any other type of advertising can be profitable for sure.

Advertising Fraud

One of the biggest challenges advertisers may face is paying for those ads that have never been seen by humans. According to the 2017 Bot Baseline report, the fraudulent bot traffic in programmatic buys is comparable to general market media buys. It means that 9% of the display advertising and 22% of video advertising spending are worthless.

Viewability

Another issue with programmatic advertising is that a target audience may not see the purchased impression which the system marks as seen. This impression may appear below other website content or below the fold thus not working despite the advertiser’s payment. The improper viewability can affect advertiser’ willingness to spend too much money on programmatic campaigns that cannot ensure the expected level of the return on investment (ROI) rate.

The difference between display and programmatic advertising

Mobile programmatic ad spending - diagram

The difference between Google display ads and programmatic buying is the amount of available inventory and access to ad networks. While Google display advertising provides access to a single ad network (Google’s one), programmatic advertising contains dozens of different ad networks. Thus, ad buyers can choose between much more inventories compared to Google display advertising.

The difference between programmatic advertising and RTB

Programmatic digita display ad spending forecast - diagram

RTB, the same as Programmatic Direct. is an ad buying model within programmatic advertising. Real-time bidding refers to an automated open or closed auction where advertisers make bids to buy publisher’s inventory and place their ad, whereas programmatic advertising is all about the automation of the ad selling and purchasing process.

Companies using programmatic advertising

Brands always strive to capture consumers’ attention. To attract more customers and increase the income, companies strive to explore new effective marketing strategies. Programmatic buying is one of them

L’Oréal

L’Oréal used programmatic buying within their advertising campaign aimed at women aged from 25 to 30 who had the experience of buying luxury beauty products online. The brand used Google Analytics Premium and Google’s DoubleClick Bid Manager to get more email subscribers, increase awareness of their new cosmetics brand, and drive more sales.

 

Within their programmatic campaign, the company combined targeted social and display ads, retargeting aimed at encouraging users to submit an email or make a purchase, and remarketing tactics. As a result, L’Oréal got the 2,200% ROI rate, increased their revenue by 100%, and significantly enhanced their email list as well as website traffic.

Unilever


In 2016, Unilever decided to take the lead in the specific niche of frozen snacks consumed between 4 and 6 pm. They used programmatic advertising to promote their frozen Mordisko snacks in Mexico. Holanda used the proximity targeting feature in the DoubleClick platform to target those consumers passing by Mordisko’s sale points within the snack time. Proximity targeting allows advertisers to set up the radius on the digital map and target those consumers who walk within this radius and even at the certain time.

 

By showing the nearby Mordisko’s points of sale to smartphone owners, using ads with funny slogans like “Freeze you hunger” appearing while users watching video on YouTube, and implementing a simple interactive branded game similar to Pac Man, the brand got the outcomes that had exceeded their expectations. They generated 1.5M clicks and 157,000 users watched advertising videos. As a result of the programmatic campaign, Holanda increased their sales by 37% compared to the previous year.

Final thoughts

Different industries can greatly benefit from programmatic advertising. This technology provides extremely accurate targeting while eliminating the need for personal negotiations. It allows businesses to monitor the ad campaign progress and make changes in real-time. This effective promotion tool leverages both automatic and manual techniques to provide companies with a high level of control over their advertising campaigns. Based on either real-time bidding or direct cooperation, programmatic buying offers advanced targeting options, various ad formats, and real-time access to campaign configurations.