Programmatic Advertising 101

Programmatic Advertising 101

You’ve probably heard the word “programmatic” thrown around the digital ad space, along with Header Bidding and RTB. This term puzzles newbies and veterans of the ad space alike.

Some media buyers even use programmatic advertising without fully understanding what it is and how it differs from the old advertising methods. That’s because it sounds way more complicated than it actually is. 

Let’s break it down into 2 sections to show you just how simple yet powerful programmatic advertising can be:

  • What is programmatic advertising?
  • How does programmatic work?

What is Programmatic Advertising: Definition

In layman’s terms, programmatic advertising is an automated way of buying and selling ad space online. The selling side uses platforms that sell inventory on publishing websites (SSP) while the buying side uses platforms that buy inventory to place ads on publisher websites (DSP).

The entities involved in these transactions include but are not limited to DSPs, SSPs, Advertisers, and Publishers. You don’t need to be fully briefed on what all those are to understand the basics of programmatic advertising buying, but if you’d like to brush up on your knowledge you can check out some of our recent blog posts.

Well, if programmatic advertising is just an automated way to broker deals, how did advertising work before? In the good old times, the process was mostly manual and involved RFPs (request for proposals), insertion orders, face to face negotiations, and sometimes even signing an actual paper contract. Meeting someone in person to buy digital ad space? Ew. Can you imagine? 

With programmatic advertising, not only do parties never have to meet each other face to face, but also all transactions occur in a few milliseconds across all the platforms. 


How Does Programmatic Advertising Buying Work?

So, we get the general gist of it now. It’s automated and it’s fast. But how does it actually work? Let’s break it down step by step using a real-life programmatic native advertising example:

  • Let’s say your friend Tony owns a dog food store and wants to advertise his store on dog-related websites through native ads. 
  • Your other friend Lucas just got a dog and visits websites to look for tips on how to train his new dog.
  • Your girlfriend Claudia, owns the website “How-To-Train-Your-Dog.com” and wants to make some money selling advertising space there for various ad formats like native, display, video, search, and more.

Now let’s see how Tony (the Advertiser), Lucas (the user), and Claudia (the publisher) fit into the programmatic native advertising landscape:

  1. Claudia sets up  “How-To-Train-Your-Dog.com” on an SSP (Supply-Side Platform), so the SSP sells ad space on her website for her. The SSP lets advertisers know through DSPs that there is an ad space available to buy, and in this case, the ad space will be viewed by Lucas who’s interested in dogs and is visiting a dog website. This is valuable information for an advertiser like Tony, who is only looking to buy ad space on websites about dogs.
  2. Lucas visits “How-To-Train-Your-Dog.com”, which Claudia has set up to use programmatic advertising. 
  3. The SSP analyses Lucas’s visit to determine his user characteristics like geo, age or other determining factors. Most importantly, the visit data has demographic information, such as the fact that Lucas is interested in dogs since he’s visiting a dog-related website.
  4. The SSP tells various DSPs about this visit and that it’s up for sale.
  5. The DSP that Tony is using, knows that this ad space is perfect for him and bids on his behalf based on campaign settings he saved beforehand. Since Tony wants to use native advertising to promote his store, the relatable dog content on Claudia’s website is prime real estate for him to purchase. 
  6. The SSP receives bids from various DSPs, and depending on their bidding strategy (Waterfall bidding, Header bidding, etc) picks the winner. It turns out Tony’s DSP wins the auction for him.
  7. The SSP then displays Tony’s ad for his dog food store on  “How-To-Train-Your-Dog.com” right below the article Lucas is reading. Luckily, Lucas is out of dog food, clicks the ad and makes a purchase on Tony’s website. 

The whole process from Lucas visiting the website to him seeing the ad, takes a few milliseconds while the page is loading.


Programmatic Digital Advertising: Conclusion

Now you know what programmatic advertising is and how it facilitates a website visit being sold by a publisher to an advertiser to render a digital ad. The automated transactions and speedy process are only a few of the advantages.  

It’s definitely more than that. Programmatic advertising incorporates traffic data, as well as digital targeting methods to deliver impressions more accurately, which at the end adds up to higher ROI. That’s why, it shouldn’t be a surprise that around 88% or $81.00 billion of all US digital display ad dollars will flow via automation by 2021. 

No doubt, the future for programmatic advertising is bright. With more ad tech coming to the scene, it’s constantly evolving and becoming a better and cheaper performance marketing strategy for the advertisers and publishers alike.

If you want more articles on the details of programmatic and how it saves advertisers from wasting budgets on non-targeted ads, leave us a comment!

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