What Is Programmatic Advertising? How Does Programmatic Advertising Work? Programmatic Explained

Programmatic Advertising

What Is Programmatic Advertising? How Does Programmatic Advertising Work? Programmatic Explained

Read Time: 7 minutes

Online advertising is now 129 billion dollar industry.

For the first year ever digital ad spend is set to exceed traditional media spend. Overall this is great news for businesses, as online advertising offers more options, lower costs and more flexibility than traditional media advertising.

But one of the big challenges with all these bells and whistles of online advertising is figuring out, how to select what platforms to advertise on? There are more options (Display Ads – CPM, CPC, CPA, Search Ads, Social Media Ads, Influencers, etc) than ever and it can be overwhelming for businesses. This is where Programmatic Advertising comes, it changes the game.

What Is Programmatic Advertising?

Programmatic ad buying typically refers to the use of software to purchase digital advertising as opposed to the traditional process which involves an RFP (Request For Proposal), negotiation and a manual insertion order. So that means you’re using machines to buy ads instead of doing a manual place and buy one to one type of deal or negotiation.

Programmatic Advertising uses artificial intelligence in real-time bidding (AI+RTB) to help automate and streamline the ad buying process.

Programmatic Advertising

In a nutshell, Programmatic campaigns allow you to specify a target market, budgets and goals for a campaign. Ad Experts can figure the campaign and use AI to place ads across dozens of ad networks to reach your highly targeted audience. This all works in a similar way to how a lot of modern investing programs work.

How Does Programmatic Advertising Work?

You specify what percentage of your portfolio you want to invest in different types of stocks and bonds, what your risk tolerance is, and software programs can help determine the best path to financial success. For programmatic advertising, let’s go through a quick example. If you’re trying to sell a new high-tech winter jacket, you can choose to only target ski enthusiasts from Western Canada and create your goal to be, I want to increase e-commerce purchases. A programmatic campaign would take all these parameters and analyze them against hundreds of data points to select the best ad platforms and bids to drive maximum ecommerce sales. The recommended strategy might be to dedicate 30 percent of the budget to Snapchat ads, but only on weeknights after 6:00 p.m. because that’s the time that they’re performing the best.

Putting AI to work for an ad campaign can be very, very powerful. There are a few other key advantages to running a digital ads campaign with programmatic advertising. First, access to dozens of ad networks. It can be time-consuming and tedious to set up individual ad campaigns on each platform. Programmatic advertising connects automatically to platforms like Google Ads, Instagram, Facebook, Simpli.fi, Pandora, AdsWizz, and more. One expertly crafted campaign can get you maximum visibility across multiple networks.

Second, highly targeted campaigns. Through the power of AI your ads are only shown to the people who fit your specific target market. Instead of guessing what sites and keywords your market is utilizing, programmatic advertising has this step built-in. And third, your campaigns are delivered across devices. Programmatic campaigns reach users where they are at, whether it’s a mobile device, tablet, or desktop. This allows you to run a true omni-channel strategy for your ad campaigns. If your business has a crystal clear target market that you want to go after, programmatic advertising is a fantastic option to consider.

You cast a wider net with your digital ads and have access to tons of ad platforms but also very targeted campaign elements.

Programmatic Advertising Explained

Another illustration, say you have an app and if you go through the traditional direct RFP process. In the below image, your app has an ad unit in green of 320 x 50 pixels and every month your app generates 10 million ad impressions for this ad unit from users opening your app and using it. You are using Google’s DFP as your ad server and so every month you have 10 million ads that run through that ad server and you have a month to sell those ads (audience/inventory/impressions) as you want to monetize. So you go out directly to an advertiser and try to sell to them. So let’s say you go to Coca-Cola and you convince them to buy 5 million ad impressions every month of this ad unit. You have just sold 50% of your ads to one advertiser. But you need to sell 5 million more, so you get in front of Nike and they agree that they will buy two and a half million. Now 75% of your ad impressions for this ad unit is sold and then lastly you go to McDonald’s and they agree for two and a half million impressions.

Direct Buy Vis-a-Vis Programmatic Advertising

Now you have done a direct deal with advertisers and sold 100% of your ad impressions for the agreed months. This is great if you’re going to do that and you’re getting the highest price possible. There are really no middlemen here you’ve gone direct to the advertiser, so you don’t have to pay an agency or an exchange or any sort of network, any fee. The obvious disadvantage here is that one, it’s difficult to get in front of these people especially if you’re a small app. And two, even if you do get in front of them there is no guarantee that they’ll actually buy, so it could be that you get in front of advertisers and you sell only 75% of ad impressions. You still have two and a half million impressions every month that go unsold and you really don’t want that. That’s lost potential revenue for you. So it’s a great idea but there are really only a few very large apps and very large publishers that are able to get that audience directly with major advertisers and are able sell out all of their inventory directly.

So now compare this to the programmatic process. You have your app and generate 10 million ad impressions and use double-click as your ad server but instead of going direct to advertisers, you have partnered with DSPs, ad networks and exchanges and you could have multiple partnerships at any one given time. So with multiple partnerships, say you are going to work with Google’s ad X and you are also going to work with InMobi and Somato and open X. So essentially you are allowing all of them to bid on your inventory and the reason you want to work with them is because these are large companies that do have access directly to advertisers, and into agencies and to those who are actually spending the money. So behind each one of these tech companies are dollars. Dollars that are directly tied to advertisers so as an app you don’t have to go direct to the advertiser to get them. You just have to go to one of these tech companies and these tech companies are always looking to add new inventory, new apps, new ad units, new places to fill in to sell the ads that they have from their demand partners and from their advertisers on the back end.
Programmatic Process
The disadvantage here is that now there are more steps and middlemen essentially between you (the app developer/publisher) and the end advertiser who’s actually serving that ad. So the advertiser might be working with an agency or another exchange who takes a small margin and then it gets to these demand partners to take a small margin and then DFP might take an ad serving fee on top of that for working with one of these companies. So along the way you’re losing a little bit of money, however you don’t have to work directly with a sales team, you don’t have to hire people, you don’t have to manage them, you don’t have to pay for travel, you don’t have to pay for taking people out for meetings and for dinners and drinks and whatever it normally takes to court a major advertiser. So yes you might be giving up some of those margins along the way but it is a much more cost effective way to run your advertising now if you just create your own app and your own game and you’re a small independent guy or even a small group of people. Programmatic is really the way that you want to go because that gives you the most opportunity to monetize your app with essentially the least amount of work. You set up the pipes and then they run. If you’re a large app though let’s say you’re somebody like ESPN. ESPN is huge and they can demand an audience with some of the biggest advertisers in the world. So what they can do is a combination of that direct RFP process and programmatic. So again same app, same ad space, same amount of ad impressions, the same ad server. Now being ESPN you can go direct to coca-cola and they very well may buy half of your ads in a month and Nike might buy 25% of that and then you might still have 25% of your ads unsold. At that point you bring in your programmatic partners who as we discuss have demand and advertisers on the back end to fill that remaining 25%.
Direct/RFP Process And Programmatic
At the end of the month if you have 10 million impressions available you sell all 10 million of them or as close to 100 percent fill as you possibly can. Now that is general explanation of programmatic, how it differs from a direct buy and then in the real world, how it actually works together. The process of filling those ad units takes place through the process of RTB or real-time bidding.
Real-time Bidding Definition
Real-time bidding or RTB is the buying and selling of online ad impressions through real-time auctions that occur in the time it takes a webpage or an app to load. So we had talked about all of those different demand partners or DSPs, exchanges and networks and behind them they’re tied into hundreds if not thousands of different advertisers. These advertisers have specific interests, budgets, needs which all vary slightly. So given the ad placement, what app is on or what website it’s on, who’s using it, what time the day, where they are, what kind of content is around, etc, etc, these advertisers will say I am interested in that and I’m willing to make a bid for it and here’s how much that audience is worth to me – just like any other auction you will say, that particular piece, be it a car or a piece of art or anything up for sale has different value to different people at different times.
So to illustrate this, let’s say you have your app here. You have your app content and you have your same ad unit and on the right you have four advertisers that potentially could buy this inventory. Those four advertisers are going to look for certain key metrics to decide if they even want to make a bid at all and then how much they’d be willing to pay. The first thing they look for is location be that GPS or lat/long knowing exactly where that user is especially in a mobile environment, as that is incredibly valuable information. They would like to know the age of that person and the gender to make sure that it fits with their target audience and then they definitely want to know the content. In this situation the app content or a website content – you want to make sure that its brand safe, it’s appropriate content and that it’s relevant to the brand.
Programmatic Advertising
For example Nike would probably be interested in advertising around sports content but probably not around things for maybe children or anything maybe alcohol related. So in this particular situation this app can share location data and they can share what type of content the app is serving. However, they can’t serve age and they can’t serve gender. Now when they can’t do that, it’s usually because a user has said – “I’m not going to share that information with you”, therefore if the app doesn’t get it they can’t pass that information along to the advertiser. So in this situation given that age and gender are out, Nike and McDonald’s will say we’re out. They say, for that reason I am out, don’t even want to make a bid.
Programmatic Advertising Bidding
However Coca-cola and Uber say yes that content meets my guidelines and the location meets my guidelines. I’m willing to make a bid and try to win this ad so they both make a bid and Coca-cola bits a dollar 50 and Uber bids a dollar 25. In this instance Coca-cola has bid more and they win the auction. That is the real-time bidding transaction, it takes place in milliseconds, billions of times every single day and is really the heart of programmatic advertising.
Progrmmatic is growing at 70% to 80% every year along with the Programmatic Technology. To talk specifics about how programmatic advertising can help your business, give one of our ad experts a call today.
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