Programmatic advertising is the use of artificial intelligence (AI) and machine learning (ML) to purchase advertisements on a real-time basis rather than through human discussions and pre-set rates.

Figure 1: Global Programmatic Advertising  Spending (Accessible in PDF Version) 

From the chart above, it is apparent that marketers are investing more and more in programmatic advertising.

From across the top five programmatic economies in the world, the United States is by far the largest spender on programmatic digital ad spend. Its amount is more than five times that of China, the world’s second-largest market. Despite having four times the population of the United States, China has been inefficient to spend in the digital ad and programmatic.

Brief History of Programmatic Advertising

Advertisements were traded in the initial period of internet marketing in almost the same way that you would purchase a standard magazine ad. Sales representatives would negotiate with advertisers to position a banner on a webpage for a set period. This implied that no matter who visited the site, the very same banner was showcased.

In 1995, the very first central ad server was created, allowing sales representatives to sell ads across numerous websites. This meant that one could select to display one’s ads across multiple new websites owned by the same company. DoubleClick was among the first ad servers, and it was acquired by Google in 2007 for $3.1 billion. It is still in use presently, but it has been incorporated with Google’s marketing brand, Google Marketing Platform.

Initially, the count of publishers outnumbered the number of advertisers, implying that there are many more websites available as compared to people willing to advertise on them. This resulted in an excess supply of ad space and large amounts of unsold inventory for publishers. Ad networks were designed as a solution to this issue. They are platforms that aggregate unsold ad space from multiple publishers and make it accessible to advertisers at a reduced rate.

How does Programmatic Advertising Work?

Figure 2: Publisher Process (Accessible in PDF Version) 

Ad Exchange: The ad exchange is located in the programmatic ecosystem and is connected to a Demand-Side Platform (DSP) on the advertiser’s edge and a Supply-Side Platform (SSP) on the publisher’s edge. An Ad Exchange is a place where publishers and advertisers can connect and decide on a price for displaying ads. It works similarly to the trading floor of a stock exchange, but for digital advertising. Often these ad exchanges use real-time auctions, in which an ad purchase is made at the very same time as a visitor loads a website.

Difference between Ad Network and Ad Exchange: An ad network is a platform that is linked to several sites and provides inventory for advertisers on those internet sites, on the other hand, an ad exchange is a trading floor in which advertisers can purchase ad space from numerous ad networks.

Demand-Side Platform (DSP): A Demand-Side Platform (DSP) is a tool or platform that helps advertisers to purchase ad placements automatically. The DSP’s task is to purchase ad space from publishers as cheaply as possible.

Supply-Side Platform (SSP): Publishers make use of Supply-Side Platform to handle their display space in just the same manner that advertisers use Demand-Side Platforms to handle their programmatic ad purchasing. The SSP links to an ad exchange and informs it of the available inventory. SSP is in charge of selling ad space at the best price possible.

Data Management Platform (DMP): To gather, store, and sort data, a data management platform is used. DMPs are most commonly used in conjunction with a Demand-Side Platform on the advertiser’s site – or a Supply-Side Platform on the publisher’s side. A DMP links to a DSP and feeds information to it. A DMP must be in place to organize and segment the received cookie data so that the ads are targeted to specific visitors.

Methods of Programmatic Advertising

Real-Time Bidding (RTB): Real Time Bidding (RTB) is a method of trading ads via real-time auctions, which implies exchanges are completed in the time it takes to load a webpage; approximately 100 milliseconds. Real-Time Bidding enables easier and faster targeting by allowing ads to be traded on a case-by-case basis, which means that only visitors who are the target customers will be exposed to the ad. Real-Time Bidding accounts for roughly 90% of programmatic purchasing.

Programmatic Direct: It is a method of purchasing a set number of impressions on specific websites. It is typically used for large “premium” formats such as full-page takeover ads. It frequently involves a fixed-price pact rather than a negotiated auction.

Private Exchange Buying (PMP): Private Exchange Buying (PMP) is an ecosystem where one or a limited number of publishers encourage selected advertisers to make an offer on their inventory space. It is used to avoid ad exchanges entirely, where buying platform connects immediately to the publisher’s inventory. Bidding is usually held; however, the terms of the transaction are pre-negotiated, resulting in a more manual ecosystem as compared to that of regular RTB.

Channels of Programmatic Advertising

Figure 3: Channels (Accessible in PDF Version) 

Display Ads: Just the advertisements positioned in the header, footer, or sidebar are regarded as display ads in the environment of programmatic ads. Advertisers and publishers collaborate with display networks like Google, Microsoft, and Snapchat to buy and sell ad slots. Publishers earn money based on data from the display network’s clicks and impressions.

Video Ads: As video becomes by far the most favored medium of consuming content, the demand for programmatic video ads grows. In the United States alone, digital video ad spending is expected to reach $22.18 billion by 2021.

• In-stream advertisements: These advertisements appear within the video player itself. In-stream ads, for example, are ads that appear just before YouTube videos.
• Out-stream Ads: Out-stream advertisements are those that show up between the articles online. These are often embedded in the content or appear as pop-up windows.
• In-display ads: These ads appear in search engine results or video recommendations rather than the video player.

Figure 4: Spend Markets Worldwide (Accessible in PDF Version) 

Social Ads: Social media sites capture a huge amount of data from their users to improve their targeting. This data is used by programmatic social advertisements to determine who will see their ads, the ad format, ideal time, and frequency caps. This data assists advertisers in optimizing their ad spend.

Programmatic influencer marketing automates influencer marketing campaigns by recognizing and onboarding the appropriate influencers, as well as automating campaign management based on audience and campaign performance.

Audio Ads: To optimize the customer experience, programmatic audio channels use real-time audience data to position ads and capitative display along with video ads. Ad pods are the audio equal to video ads. Google, SoundCloud, Pandora, BBC, and Rubicon Project are the current market leaders in programmatic audio.

Digital Out-of-home (DooH) Ads: Digital out-of-home advertising is the digitally advanced and analytical superior version of traditional out-of-home advertising.

The very same media purchase procedures apply to programmatic DOOH as they do to RTB and programmatic direct.

Even though the measurement and attribution are still difficult in programmatic DOOH as it is yet in the inception stage, advertisers are using its functionalities like geofencing to execute targeted and highly engaging retargeting.

Benefits of Programmatic Advertising

Real-Time Insights: Marketers no longer have to wait for days for an excel sheet from their media company after the advertisements go live. Advertisers can modify and fine-tune ads in real-time, experiment and boost performance, and have complete control over their ad spend with programmatic. Marketers can use this real-time campaign information to analyze further their target market and campaign.

Enhanced Targeting Capability:  The enhanced capabilities of programmatic advertising give marketers a lot of leeway in personalizing their ads. To enhance the audience profile and approach them with precision, one can integrate first- and third-party data with programmatic advertising. Contextual advertising is another option. Contextual programmatic advertising utilizes information from both user profiles and page content to deliver ads in the most relevant location. More so than that, marketers can fine-tune their targeting by using remarketing, geo-targeting, data and IP address targeting, and website or app targeting.

Better Utilization of Budget: Because programmatic advertising offers marketers real-time campaign results, they can allocate their ad budget to the channels that yield the best outcomes. This effective investment enables marketers to invest their marketing spend more appropriately and generate a higher ROI.

Greater Transparency: Because of the transparency provided by programmatic advertising platforms, advertisers can analyze each publisher in real-time depending upon the success of their ads and select those who yield legitimate outcomes. Significant programmatic ad platforms also combat ad fraud by preventing fake bot traffic and pre-roll ads, as well as providing ad credits in the occurrence of fraudulent tactic.

Easy Access to Ad Inventories and Streamlined Campaign Management: Advertisers can browse through the best inventory across multiple exchanges at the same time, allowing the automated system to do the heavy lifting in bidding. Centralizing campaigns across devices and layouts in one system enables advertisers to visualize progress in one location.

Benefit to Customers: The primary advantage for the consumer is the consistency that programmatic advertising offers. The essence of the customer experience is consistency, and ads are a component of that experience. ad campaigns, as a brand, are part of the message a brand wants to convey to the users or consumers. Because programmatic advertising typically uses only one or two platforms to manage the overall advertising experience, the message of the brand remains cohesive and has a greater impact as compared to traditional advertising. The campaign remains well-organized.

Limitations of Programmatic Advertising

Limited by Walled Gardens: Walled Gardens are browsing ecosystems that limit or regulate the data that a company can access. As a consequence, sites such as Facebook or Google might not always get the same level of data or targeting capacities, preventing businesses from purchasing ad space on Facebook.

Privacy Issues: There are tools widely available that enable a customer to opt-out of being exposed to targeted campaigns. For the last 5–10 years, privacy and security issues have been taken much more seriously and also have entered the legal realm. Customers in Europe, for example, must now opt into targeted advertising under the GDPR. What this implies for the marketing environment is that programmatic platforms must ensure that they are aware of a user’s status as to whether or not they opted in at all times.

Future of Programmatic Advertising

In-house Programmatic Ad buying: Small companies can compete with bigger corporations thanks to programmatic self-service platforms. Programmatic advertising for small and medium-sized businesses (SMBs) is a steadily growing trend in the marketing industry. It opens up a whole new dimension that was hitherto inaccessible to small firms. Businesses are using self-service platforms to purchase programmatic advertisements in-house instead of going through media agencies.

Tracking without the use of cookies: Cookies have become much less efficient for targeting as a result of growing tracking challenges enforced by various search engines. It is anticipated that deterministic and probabilistic tracking will become more popular.

Conclusion

Businesses taking control of their programmatic ad production as well as purchasing naturally follow in an age where transparency in digital advertising is a critical factor. Programmatic advertising is consistently progressing, and staying up to date on the newest technologies and practices is an essential component of a successful programmatic strategy.