What Is Programmatic Advertising and How It Works
What is programmatic advertising and why it can change how you think about online ads
What is programmatic? It’s a breakthrough in buying online advertising that allows automatic optimization and precise targeting. Learn how it works and why it’s worth adding to your marketing strategy.
Key takeaways
- Programmatic advertising is an automated way of buying and selling ads that uses real-time bidding (RTB) technology, enabling instant transactions and more efficient campaigns.
- The core tools used in programmatic are DSPs, SSPs and DMPs, which streamline the whole process from buying to selling ads and manage data for better targeting and personalization.
- Programmatic advertising brings many benefits, such as advanced targeting and personalization, but it also comes with challenges around data privacy and the need to monitor the quality and safety of the placements where ads appear.
Definition and basics of programmatic
Programmatic advertising is the automation of buying and selling online ads with advanced technology. Unlike traditional display media buying, programmatic refers to the automated method of buying ads, not to the format of the ads themselves.
The foundation of programmatic is automated buying and selling of online ad inventory through dedicated platforms.
Automation with advanced technology and algorithmic tools is key to efficient media buying in programmatic. The essential parts of the programmatic ecosystem are:
- supply-side platforms (SSPs) for publishers
- demand-side platforms (DSPs) for advertisers
- ad exchanges that facilitate the flow of ad inventory between SSPs and DSPs.
What is programmatic advertising?
Programmatic advertising is a way of buying and selling ad space that runs fully automatically, using software, artificial intelligence, algorithms and data.
Process automation
Programmatic technology enables an automated buying system by automating decision-making in media buying. That makes it possible to use real-time data to quickly adjust strategy and optimize ad performance. The effectiveness of programmatic is further increased by real-time data analysis, which allows quick corrections to optimize campaigns. In practice, this means you can monitor your campaign’s performance on an ongoing basis and make the necessary changes immediately to get better results.
Real-time bidding (RTB)
Real-time bidding (RTB) is an open auction process for buying ad impressions in real time, where prices fluctuate depending on how competitive the ad space is. With RTB, an ad can go live instantly, and transactions and decisions are made within seconds. RTB is the key mechanism for efficiently buying and selling digital ads, allowing advertisers to bid for ad space in real time as users visit websites or mobile apps. The RTB process streamlines buying and selling compared to traditional methods, eliminating the need for RFPs, negotiations and insertion orders while giving advertisers more control.
Main platforms and tools
Programmatic uses a range of platforms and tools to automate and optimize the buying and selling of ad space under the programmatic model, including programmatic direct. These include DSPs, SSPs and DMPs, which together form the complete cycle of buying and selling ad space.
The most widely used DSPs include Google Display & Video 360, The Trade Desk and Amazon DSP, which offer advanced targeting, AI-supported optimization and support for many ad formats. Key SSPs such as PubMatic, Google Ad Manager and Magnite give publishers tools to monetize their digital inventory through automation and optimization.
DMPs also matter, such as Adobe Audience Manager, Lotame and Permutive, which collect and manage the data needed for targeting and personalization in programmatic campaigns.
Today all the major social media platforms also let you run programmatic campaigns.
Demand-side platform (DSP)
A DSP lets digital media buyers manage multichannel ad campaigns from a single interface. With a DSP, advertisers can buy impressions across many publishers’ sites, which makes campaigns more effective.
The advanced algorithms used by DSPs allow more efficient reach of the right audience. A DSP triages millions of available ad impressions and lets advertisers set a preferred price per impression in line with their budget and campaign goals.
Supply-side platform (SSP)
A supply-side platform (SSP) connects publishers with ad networks, data management platforms, ad exchanges and demand-side platforms in order to sell ad inventory. SSPs let publishers connect with a larger pool of potential buyers and set bid ranges to maximize revenue, while giving them control over which advertisers can buy and at what price. They also provide publishers with reporting, offering insight into the value of their inventory to different advertisers.
Data management platform (DMP)
A DMP integrates advertising data, builds audience profiles and reaches them across devices, which is essential for managing online campaigns and improving marketing results. A DMP manages different types of data, including first-party data from CRM systems and the company’s own channels, as well as third-party data from external platforms to extend audience reach. The DMP is the backbone of digital marketing and is essential for companies that want to understand their customers better.
Benefits of programmatic advertising
The advanced targeting options in programmatic advertising allow:
- contextual targeting
- behavioral targeting
- geographic targeting
- device-based targeting
Advertisers can aim their ads directly at the people most interested in their products or services, using the auction model for buying ad space.
Personalization and contextual relevance in programmatic advertising make it possible to deliver ads matched to users’ preferences and browsing behavior, which leads to higher campaign effectiveness and better results.
Practical uses of programmatic advertising
Programmatic advertising is used, among other places, on social platforms, where demographic, geographic and behavioral data allow precise delivery of ad messages.
At adsfox we use programmatic buying on most marketing channels. You can read about the results in our agency case studies.
The future of programmatic
As third-party cookies lose ground, programmatic advertisers have to look for strategies different from the old ones, for example focusing on first-party data and forming partnerships to use second-party data. Google has walked back its plan to remove third-party cookies from Chrome entirely, but Safari and Firefox block them by default, and privacy laws keep tightening.
Alternatives to cookies are emerging, such as Unified ID 2.0, which requires user consent, along with contextual targeting and publisher-side data clean rooms that aggregate data without exposing individuals.
The future of programmatic lies in AI and machine learning, along with the growing popularity of paid native ads and the expanding video and connected TV market, which requires advertisers to keep adapting. Return on investment in programmatic is becoming more important, especially as the industry has to invest in new targeting methods because of changes in privacy regulation.
Summary
In short, programmatic advertising is changing the way companies decide how to buy and sell online ads. With advanced technology and algorithms, advertisers can now target their ads precisely, adjust them in real time and monitor their effectiveness.
The technology also brings challenges, such as user privacy and data quality. Going forward, programmatic will have to adapt to changing regulations on privacy and data use, and develop new targeting strategies.
At adsfox we take care not only of the effectiveness of your programmatic campaigns but also of their compliance with GDPR (EU) and US state privacy laws such as CCPA.
