What Is Programmatic Advertising?

diagram of what programmatic advertising is and how it works

If you’re involved with the advertising and marketing for your company, especially digital marketing, chances are you’ve at least heard of programmatic advertising. Although the technology has been around for several years, most mid-sized companies aren’t utilizing programmatic buying. Those that are leveraging it often outsource their programmatic advertising to an agency or other digital marketing partner. Why? Because its complex. And it’s just one piece of the online advertising puzzle. It’s hard for many marketing decision makers to decipher if it’s worthwhile or not. Plus, much like other digital marketing initiatives, just ‘doing it’ won’t generate results without all the pieces in place.

Making it work takes great display ads, great landing pages and the right strategy to retarget this potentially expensive traffic. Plus, if you don’t know what you’re buying, you may end up paying for traffic that you could generate on your own. Not to mention the fact that you could also find yourself paying open rates for prices that an agency partner can negotiate down. And finally, there’s a well documented problem of “click fraud” or “bot traffic” involved if you choose the wrong vendor. And nobody wants to pay for bots.

If you’re still asking yourself “exactly what is programmatic advertising”, it might might help to start with a definition of some key terms. It’s important to have this foundation before going further with the question. 10 important programmatic advertising terms include:

1st, 2nd and 3rd Party Data: You’ll see programmatic vendors talk about 1st party, 2nd party and 3rd party data quite a bit. 1st party data is data gathered by website owners about their visitors’ behaviors. It’s your data. This is the most valuable type of data because of the quality and accuracy and because your company owns it. It may include your email subscriptions, social media followers, and CRM data. 2nd party data is, in essence, someone else’s 1st party data. This type of data is either bought directly from a seller/publisher or through a DMP (data management platform). It can also be acquired by trading with industry partners. 3rd party data is where the rubber meets the road. It makes up the bulk of most programmatic ad buying. It’s aggregated data from other platforms and websites. This data can be vague or even downright wrong, as companies have different collection methods for information on users and may “trust” it without checking it first.

Ad Exchanges: An ad exchange is a digital marketplace that enables advertisers and publishers to buy and sell advertising space, often through real-time auctions. They’re most often used to sell display, video and mobile ad inventory. These are where the automated bidding happens. It’s where remnant inventory is sold at above-floor prices to satisfy demand.programmatic ad image

Behavioral Targeting: This term references attempts to deliver more relevant ads based on a user’s past browsing history. Platforms typically do this by analyzing and grouping visitors into audience segments. People that visit the same sites tend to have the same interests and demographic profiles (such as incomes, product purchase behaviors, etc). Over time it can be surprisingly accurate.

Contextual Advertising: This type of ad placement requires an automated system to identify the content of the page, such as keywords or overall topic, and delivers targeted programmatic ads (both text and display) around the content. Imagine reading an ESPN.com article about golf, and seeing ads around that conent for golf clubs, golf lessons or destination resorts with golf courses. These are all likely contextually placed display ads.

Cross-Device Traffic: This is traffic that migrates from one device (an iPhone for example) to another (a laptop for example). This attempts to track individual users across every device, including mobile phones, tablets, desktops, and apps. This data is used to better understand users’ behaviors online and target or retarget individuals with relevant advertising. Users that see your content on mobile devices can also see it at home on their tablet or at work on their laptops or desktops.


DMP’s (Data Management Platforms): A Digital Management Platform is a system for managing data, such as cookie IDs. This centralized management platform is used by ad agencies, publishers, and marketers to help manage first, second and third party data and integrate it all to tie user information and activity together and optimize media buys.

DSP’s (Demand Side Platforms): A Demand Side Platform allows buyers to automate the purchase of display ads, video ads, mobile ads, and text ads. There is no need for any negotiation of rates, so buyers can quickly buy targeted impressions across a wide variety of content offered by publishers across various platforms.

Real Time Bidding: RTB (Real Time Bidding) involves buying and selling of ad impressions through ad exchanges and platforms in real time (fractions of seconds). Price is determined by immediate demand. Real-time bidding works like this – someone visits a website and their information is given to an ad exchange, where a real-time auction for that individual impression then occurs.  

Remnant Inventory: Ad inventory that a publisher is unable sell becomes remnant space. It is then sold to third party ad providers, deeply discounted, or used for public service announcements. Deeply discounted space is often purchased by programmatic vendors to maximize impressions and lower overall click costs.

SSP’s (Supply Side Platforms): An SSP is a software platform that allows publishers to easily connect their inventory with exchanges, ad networks, and DSP’s simultaneously to sell impressions at peak value via real time bidding. An SSP provides publishers with access to many potential buyers at once, and they can set a minimum price they will accept for their ad impressions or clicks.

a programmatic advertising guide imageNow that we know these important terms, we can  accurately understand how programmatic advertising really works. in a nutshell, when someone is browsing the web, an SSP reads cookie data and serves up the most relevant ad possible. Meanwhile, DSP’s value the impression and serve up bids via real time bidding. Then it’s back to the SSP to choose the winning bid. If there isn’t a winning bid, it becomes remnant space. But assuming there is…presto! The user is served an ad. This happens in milliseconds. All thanks to programmatic technology.

This year, programmatic advertising will account for 63 percent of all display ad spending, and by the end of 2017, sales are expected to increase to more than 70%. By 2020, programmatic advertising could account for 85% of targeted display banners and 65% of streaming video ads units. It’s not the future. It’s the present.

If you’re currently doing display advertising that isn’t programmatic, it’s time to start asking questions. And if you want a trusted outsourced digital marketing partner to make the right decisions for you, and fit programmatic advertising into a larger strategy, please contact us today. Smarter marketing is just a click away.

Author Jason Keeler

Jason is a Digital Strategist and Digital Marketing Consultant. He's spent more than a decade working in Ad Agencies on businesses ranging from start-ups to Fortune 500 companies like General Electric and U.S. Bancorp.

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