Programmatic Advertising Explained: Terms, Elements, Buying Methods, Programmatic Monetization

Programmatic advertising is swiftly expanding its market share and is becoming the dominant model in the digital advertising ecosystem. According to the joined report by IAB and PwC, programmatic ad revenues currently account for 80% of all digital display advertising revenues. Programmatic advertising enabled companies to capitalize on their consumer data and reach audiences more cost-effectively. 

According to recent estimates, brands spent $106 billion on programmatic advertising in 2019. The prediction for 2020 says that programmatic ad spendings will grow to $127 billion and will reach $147 billion by 2021. 

What is programmatic advertising?

Programmatic advertising is the process of buying digital ads through automated platforms. It is gradually replacing the traditional model of digital advertising that involved human negotiations, manual insertion orders, and requests for proposal (RFPs). 

The software takes over the menial tasks previously done by human ad buyers. In direct media buying, you would have to look for publishers, negotiate the price, and ad placement in person. Programmatic technology streamlines the ad-buying process and makes it cheaper by removing human interactions wherever possible.

It allows marketers to spend more time on tailoring their targeting and customizing campaigns, removing redundant ad-buying procedures. It is a data-driven approach that replaces inefficient manual practices prone to human error. 

Advantages of programmatic advertising

Programmatic advertising introduces transparency to the digital marketing marketplace. It eliminates the informational asymmetry that used to plague the industry. Direct media buys stimulated deals behind the closed door, obscuring the actual market value of the traffic. 

With programmatic monetization, publishers can access the demand and get a fair price for their ad spaces. 

At the same time, now advertisers can get precisely what they paid for. Programmatic platforms are optimized in real-time based on the extensive publisher’s data. It allows marketers and advertisers to aim at individual impressions instead of buying blocks of advertising. Auctioning may drive up the price of specific placements, but in the long run, it is a more cost-effective strategy for advertisers than direct deals. 

Programmatic advertising rests upon the whole ecosystem of ad exchanges and digital platforms (e.g. SSP and DSP), connecting publishers and advertisers and facilitating the ad inventory trading. Buyers and sellers transact in real-time, a lot like stock exchanges.  

Key elements of the programmatic advertising ecosystem

SSP

A supply-side platform or SSP is a programmatic monetization gateway for publishers, who can use it to sell advertising spots across their websites, mobile apps, or games through automated auctions. SSP connects to ad exchanges and demand-side platforms, enabling advertisers to bid on ad inventory.

SSP enables publishers to check their fill rate, overall yield, and evaluate the demand from the buyers. It provides a unified platform to oversee multiple ad networks and DSPs.

The goal of SSP is to provide access to real-time data and maximize the price for the ad space. Publishers usually set a bid floor they are willing to accept.

SSP can feature a wide variety of formats. At the same time, it can be devoted to a particular type of advertising, for instance, in-game ads.   

DSP

A demand-side platform (DSP) is a platform that lets companies, ad networks, and agencies to buy ad spaces from publishers and ad exchanges. DSP puts forward the advertiser’s requirement on the audience, price, and campaign goals.

After that, the platform automatically assesses available ad inventory, and purchases ad spaces that meet these criteria most cost-effectively. DSP also can measure and optimize marketing campaigns in real-time. 

Ad server

Advertiser ad server

An ad server is a platform where an advertiser hosts its creative assets, such as video, native ads and banners, as well as stores data about them. It ensures delivery of the creatives to the ad spots within milliseconds, once the impression is sold. 

An ad server also equips advertisers with campaign tracking, performance reporting, and ad management, in cases where there are multiple versions of creative assets. The ad server can help to consolidate data when multiple DSPs and publishers are involved.

Publisher ad server

An ad server is also an irreplaceable tool for publishers. It is an ultimate gateway for programmatic monetization of the traffic that allows publishers to set ad units, connect to multiple demand partners, prioritize ad delivery and monitor campaigns.   

Ad network

An ad network is a platform that accumulates ad spaces from multiple publishers and websites to bundle them together and sell to agencies and advertisers. Ad networks sell advertising inventory of a particular website, of specific categories of sites, and impressions to certain audiences. 

Ad networks used to be the primary intermediary for the ad buyers in the early days of digital advertising. They allowed advertisers to secure ad spots across hundreds of media sources, yet this model lacks transparency. 

Today, ad networks focus on the premium inventory, ad formats, and placements that cannot be acquired through programmatic, such as branding, rich media, and packages of high-quality inventory. Ad networks remain a critical piece of advertising infrastructure for many categories of publishers.

If you want to create your own ad network, you should consider the White Label Platform. It is a comprehensive solution, that allows you to easily build an ad network and connect it to reliable programmatic monetization sources. 

We’ve previously described how to choose the right tech partner to create an ad network.

Ad exchange

An ad exchange is a virtual marketplace that allows publishers and advertisers to trade advertising spots automatically. Exchanges enable advertisers to buy ad spots across a range of sites in bulk, in contrast to negotiating buys directly with specific publishers. 

Exchanges operate via real-time auction, with advertiser bidding on the available ad inventory from publishers. The dynamics of supply and demand determine the price of an ad. Usually, exchanges appraise ad placements on cost per thousand impressions (CPM) basis.

Ad exchanges enable buyers to assess the price of sold impressions and provide greater transparency than ad networks. 

Agency trading desk

An agency trading desk (ATD) is a platform that allows advertising agencies to manage programmatic marketing campaigns of different clients. 

Brands using a trading desk basically outsource campaign management to the agency, which removes the need to hire an in-house programmatic specialist. At the same time, such advertisers pay extra ATD fees on top of the DSP commission. And, unlike DSP, advertisers cannot access the available inventory directly.  

Agency Trading Desks are responsible for analyzing data, research audiences, measuring key campaign indicators, optimizing strategies, and ad budgets. ATD bring to the table additional expertise and toolbox for working with DSPs, audience planning, and getting the most cost-effective ad placement. 

ATD advantages for advertisers

1. Extensive experience. Agency media buyers working with ATD are usually more knowledgeable than in-house programmatic specialists hired by brands.
2. Performance optimization. The technology automates menial processes while humans execute more complex tasks. Advertisers don’t need to interfere in any processes.
3. Broader campaign data. ATD employs historical campaign data, optimization techniques and bidding methods that have proven effective to forecast and optimize the results of current campaigns.
4. Access to several DSPs. ATDs that have access to multiple demand-side platforms, may provide more effective ad placement.

DMP

A data management platform (DMP) is a software platform that consolidates data about the target audience from multiple sources and channels. 

What does DMP do?

1. It analyzes user behavior on sites and mobile applications as well as user data from other sources, and packs users into segments in line with demographics, location, and behavioral attributes.
2. DMP divides audience data into clusters and provides suggestions on targeting, messaging, and primary channels of communications.
3. DMP analyzes big data and creates lookalike audiences, where users with similar characteristics are suggested for scaling.

User tracking

Cookies

A cookie is a small piece of data stored in the users’ browser by the site they visit. The browser stores the cookie and sends it back during the next visit. Typically cookies help websites to keep the user logged in, remember the language, items saved in the shopping cart, etc.  

Search engines and websites use cookies to personalize your online experience and remember your preferences. Cookies don’t carry personally identifiable information, only the user ID.  

Cookies underpin digital advertising and make sure that the ads displayed to the users are relevant. They allow advertisers to recognize the users across websites and platforms, and serve them targeted ads of their product. 

How cookies work

1. A user visits your website, clicks around your product inventory, and leaves to the news site to follow up on the new smartphone release.
2. A pixel on the website registers this behavior and places the cookies in the user’s browser with the data about the website visit. It allows the advertiser to show the most relevant ad.
3. While on the news site, the cookie notifies retargeting platforms, which serve a relevant ad about a smartphone the user has just been searching with a discount.

Mobile advertising IDs

Cookies do not work in mobile apps. Instead, advertisers employ user-resettable identifiers provided by the operating system of the mobile device, AdID for Android and IDFA for Apple. 

Those IDs allows media buyers to match their user profile with the impression received from the publisher. Mobile advertising ID works similarly to cookies and enable advertisers to measure the performance of their campaigns effectively, track user activity, and facilitates attribution, frequency capping, and remarketing.

Data types

First-party data

First-party data is the data that a company or brand collects directly from its customers or audience. It consists of data from the user behavior on the app or website, data from CRM, email newsletter subscribers, or social media followers. 

First-party data comes at a minimal cost since it is collected in-house. It allows brands to personalize the customer experience and gain insight into their audience. Nevertheless, first-party data provide a limited data set, fitting for retargeting, but insufficient for large-scale outreach. 

Second-party data

Second-party data is fundamentally first-party data of other platforms and partners. Frequently, advertisers gain second-party data when they have a direct relationship with the publisher. Second-party data allows brands to reach new audiences, and better predict the behavior of the customer base, due to the additional layer of data. 

Third-party data

Third-party data is obtained through the outside sources that are not original collectors of the data. Those are large aggregators that pull it from various sources and publishers. 

Third-party data vendors, like Data Logic and Nielsen, supplement first- and second-party data with large data sets of demographic and geographic information. Google announced that by 2022 it will phase-out third-party cookies, which will force publishers to look for alternative ways of data collection. 

We’ve recently described how cookie elimination will impact the industry.

The amount of data is immense and hard to manage without the data management system. DMP consolidates first-, second-, and third-party data and conveys it to the DSP, which in conjunction with ad exchanges and SSP, finds the most relevant audiences. 

Programmatic monetization and buying methods

Real-time bidding

RTB or real-time bidding is the model of buying advertising spaces in the form of individual impressions through the real-time auction.

The selling and buying take place in the ad exchange that connects to publishers through SSP and to advertisers through DSP.

1. Publishers make the impressions available through SSP.
2. Then, the ad exchange places a bid request on the DSP.
3. Once advertisers assess the available ad inventory, they send a bid request back to the ad exchange.
4. SSP evaluates the bids and sells the impression to the highest bidder. A DMP facilitates this process through the exchange of data, and cookie matching between the supply and demand platforms.
5. After the transaction is finalized, the ad server places the creative in the ad spot of the publisher’s site.

The deal and following ad placement happen instantly within milliseconds while the web page is loading. Real-time bidding is usually an open marketplace without particular restrictions, where everybody can join. RTB is one, but not the only form of programmatic advertising.

Header bidding

Header bidding platforms became crucial as another auction model that is taking hold in the industry. In header bidding instead of each ad exchange having their own auction, one at a time, ad exchanges can bid at the same time at the highest priority in the ad server. Other programmatic buying methods focus on prior negotiations. 

Private marketplace

A private marketplace or PMP is an exclusive trading platform, where participants have to be invited. It is usually a closed ecosystem or premium publishers that provide their inventory for the group of hand-picked big advertisers.

In the private marketplace, the advertiser’s DSP connects directly to the inventory of the publisher bypassing the ad exchange. The process of buying and selling ad space also happens through the real-time auction. 

Programmatic guaranteed

Programmatic guaranteed is a practice of buying ad spots directly from the publisher. Publishers and advertisers agree on the price of the ad placements and the number of impressions beforehand, and those impressions never enter the auction. There is no bidding process involved, but the negotiations also happen automatically through an API.    

Preferred deals

Preferred deals is a way of offering ad inventory to the preferred advertising partners first, at the fixed price. If advertisers skip the chance of purchasing the ad space, it is then transferred to the private marketplace or RTB. Preferred deals are an efficient way for publishers to sell inventory to exclusive partners, with a chance to sell it on the auction if the inventory remains unused. 

Wrapping up. Benefits of the programmatic ecosystem

Now when you aware of the key players in the programmatic ecosystem, you can see the full picture of the industry transformation. The work that was previously performed manually by the team of media buyers is now done programmatically through the DSP and SSP platforms. 

The complex process of negotiations is reduced to automatic real-time auctions on ad exchanges. Direct deals are not extinct but rather streamlined through API negotiations. The preferred deals allow publishers to make use of direct deals as well as programmatic auctions. 

Negotiations that used to take days of communication now happen within milliseconds while the page is loading. Fragmented data-sources are now consolidated through the DMP for the most efficient optimization of ad campaigns.  

If you’re considering the implementation of programmatic solutions for your ad inventory or media buying, contact Yaroslav Kholod, Director of Programmatic at Admixer.

FAQ