programmatic advertising

Programmatic Advertising is quickly taking over both the digital, and traditional marketing channels in a monumental shift of advertising budgets.

This multi-billion dollar trend has spawned a frenzy of articles and guides aiming at explaining this emerging discipline.

But here is the problem: programmatic advertising remains very complicated and confusing.

So with this post I’ve aimed to create a comprehensive but still digestible guide that demystifies the topic.

I will explain programmatic advertising in the simplest possible terms, while also providing you with the knowledge you need to impress even the most discerning  dinner party companions.

Why do you need to know Programmatic?

In 2013, 50% of brand marketing budgets were spent on Programmatic. In 2017 this figure is expected to be around 83%, and by 2020 it will be 95%.

The programmatic media purchase process has many industry experts thinking that it is the next big thing in terms of ensuring every dollar within the marketing budget is well spent. In case you read that too quickly, let me repeat this again for you, …marketing budget… not digital marketing budget.

Why? Because these experts are already testing the use of programmatic for traditional marketing channels. Once they fine tune it, the industry will change forever very quickly. So, if you have anything to do with marketing, then Programmatic is something you should understand sooner rather than later.

What is Programmatic Advertising?

Programmatic means, in any context, something that is automated.

In the digital marketing context, it refers to the automation of buying and selling Display Advertising.

This particular type of advertising comes in several forms and it relies on rich media such as images, video and audio to convey a message.
Its most common type of ad is the display banner.

Programamtic Display Ads Example

Now let me demolish the first biggest barrier in understanding Programmatic:

Programmatic Advertising, Programmatic Buying, Programmatic Display and Programmatic Marketing are often used interchangeably and refer, to the same identical process.

Is that all?! No, but it’s a great first step!

What about Programmatic RTB?

RTB is only a subset of Programmatic. We’ll have a closer look at it later.

In order to really understand what we refer to when we talk about Programmatic, we need to have an idea of what was happening before programmatic became mainstream.

Before Programmatic

Before programmatic advertising, the process of placing digital ads looked more or less like this:

A car manufacturer (Advertiser), let’s call it Toyota, wants to advertise its new, low emission, family car to internet users that match a particular buying persona, e.g. young families that are environmentally conscious. So they decide to target internet users that have the following characteristics:

  1. They live in the San Francisco area
  2. They have visited a car manufacturer website in the last two weeks
  3. They have bought solar panels online before

Toyota then reaches out to an agency, the middle man (Marketer) who has in mind a selection of websites (Publishers) where these ads will work.

After several sales calls, emails, faxes, implementation issues, technical hiccups, and several weeks later, the marketer would seal the deal with the client over a beautiful lunch with a martini or two. You might argue with me that the lunch and martini sound great, but you have to admit that everything else doesn’t.

It was slow, complex and very inefficient.

When was Programmatic born?

There is not one single date you can pinpoint, because the automation doesn’t happen overnight of course. It emerged as an evolving process, dictated by the ability to implement the technologies available at the time. Without going through the extensive history of display advertising, here are the milestones that made Programmatic what it is today.

  • 1994 The launch of the first digital ad.
  • 1996 The launch of the first ad network. A media company that aggregates ad space from publishers and matches it to the advertising demand.
  • 2005 Ad Exchange launch. Effectively a market place that allows real-time bids for ad inventory, just like AdWords with search.
  • 2007 sees the introduction of a demand-side platform or DSP. It basically allows marketers to manage multiple ad exchanges through one interface.
  • 2007 Sees the introduction of Supply Side Platforms or SSP. This the same as DSP but on the seller’s side.
  • 2011 Programmatic Real Time Bidding (RTB) goes mainstream.

Programmatic Advertising Milestones Timeline

One big barrier in understanding programmatic is knowing what all the unfamiliar acronyms stand for and what each of these software services does. So before proceeding further I have prepared an explanatory cheat sheet below:

Ad Inventory is the amount of space a website owner/publisher has available to sell. An ad inventory includes the specific location where the ad space is available on the single pages and the size of the ad in pixels.

An impression is a measure of the number of times an ad is seen. Clicking or not is not taken into account. Each time an ad displays it is counted as one impression.

DSPs: Demand Side Platforms are tools that allow a marketer to easily set parameters that then allow DSPs to set bids only on impressions that fulfil these parameters. Part of this job used to be performed by Ad Networks. DSPs allow for the operations performed by the marketer to be centralised. They also provide greater transparency. In fact, Marketers charge set fees rather than undisclosed mark-up fees.

SSP or Supply Side Platform is the seller’s counterpart of the DSP. It is a platform that was built with seller’s or publisher’s needs in mind. While DSPs are the marketers’ tools that aim to find the best ad space for the lowest price, the SSP is the publisher tool of choice that aims at selling their ad space at the highest possible price in order to maximise returns.

Ad Networks used to be media companies that would try to connect buyers and sellers in exchange for a mark-up fee. Before Programmatic this used to be a very profitable business, but the sometimes shady transactions and the lack of price transparency left the business model vulnerable to disruption, leading to innovation in the industry which has resulted in today’s Programmatic Buying process. Ad Networks still exist today and are relegated to buying ad inventories from an Ad Exchange and reselling it to DSPs or direct buyers.

Be mindful that this is a very simplistic explanation of DSPs and SSPs. In the real world things get really complicated. DSPs, SSPs, ad exchangers and ad networks can each overlap the job of the other, making it harder to keep up with the industry.

Remember that process of placing an ad we described earlier?

Thanks to software automation, it now requires a fraction of the time!

It takes expensive and inconsistent variables out of the equation, like human ad buyers and sales people.

Suddenly the whole process is much more efficient.

But before you start thinking about apocalyptic scenarios, where robots rule over us and hatch human babies to feed their thirst for energy in a matrix-like scenario, stop there.

Machines are not taking over our jobs yet, they are just being relegated to perform the part of the process that didn’t require skills and was repetitive. This has freed humans from menial tasks and has allowed them to focus on campaign optimisation and strategy.

So what does today’s Programmatic Process look like?

Going back to our example, once Toyota engages an agency to display adverts for a certain type of audience, the agency marketers have the ability to set these parameters and their budget through the DSP – Some advertisers have an internal team and can skip the costs of the agency – The DSP then starts to automatically place bids in real time for ad spaces/impressions on an Ad Exchange, which then communicates instantly with different SSPs. SSPs can represent thousands of different Ad Inventories and through these, the DSP is able to finally pick ad spaces that match the demand of the marketers. Once chosen, the ad is then displayed to the user.

The Programmatic Ad Journey

That is a simplified version to allow us to understand the process.

Reality looks a lot more like this:

Programmatic Advertising - A Confusing Process

Much more confusing right?

Want to know the best part?

This whole process happens in milliseconds every time a page gets requested by a user and starts to load. By the time the page has loaded, all the relevant ads are appearing in front of the user.

Can’t I get the same outcomes using google Display Network or Google AdWords?

This particular type of targeting or customer segmentation is not possible to perform with other advertising tools like AdWords or Google Display Network (GDN).

This is all to do with the way AdWords and GDN access first-party and third-party data.

AdWords doesn’t offer any, as it focuses almost exclusively on query targeting.

The GDN offers limited access to third-party data, but it pales in comparison to the amount of information Programmatic is able to offer through Data Management Platforms.

Jargon Buster

AdWords (Google AdWords) is an advertising service by Google for businesses wanting to display ads on Google and its advertising network.

An evolving discipline

The reality with Programmatic is that it’s an environment that is very dynamic and that is changing constantly. For example, the ad exchange is not only the place where the auction takes place. Sometimes, if the marketer is after high volume impressions and is less interested in the quality of the ad space, or is not interested in very specific targeting, the ad exchange can offer this loosely matched and low priced inventory. Ad space is deemed to be low quality when the user that is visiting the website does not have a third-party cookie installed and therefore lacks any sort of behavioural information that would segment them into a specific audience.

Ad Exchanges also offers remnant ads. These ads may come from high quality Ad Inventories, but are deemed to be remnant when they have been unable to sell. They are included in the ad exchange at a significantly lower price.

On the other side an SSP can bypass Ad Exchanges and DSPs completely and talk directly to a big agency. Or it can interface exclusively with an Ad Exchange that hosts auctions only to a carefully selected group of agencies.

These different and intricate scenarios often determine the type of Programmatic advertising that is taking place.

How many types of Programmatic Advertising are out there?

Well, that is quite a hard question to answer. It’s like going to the doctors and asking them to cure your knee pain. Depending on the specialisation and experience of the doctor, each of them will diagnose the pain to different causes and will most likely advise different therapies.  Programmatic is similar. If you ask different players, you will get different answers.

For the sake of simplicity we can identify three main types of Programmatic Advertising:

  • Private Exchange
  • Programmatic Direct
  • Programmatic RTB

Below is a quick overview of how they differ from each other

Types Of Programmatic Advertising

Programmatic RTB

Also called Open Auction, Open Marketplace and Open Exchange. It is regarded by many as the Wild West of ad auctions. It is the first type of programmatic that went mainstream a few years ago. RTB stands for Real Time Bidding. It’s the same type of auction that is used every day in the stock exchange.

For those familiar with online advertising, RTB is very similar to how Google AdWords works, but instead of bidding for search queries you bid for display ads.

RTB auctions happen mostly on the AdExchange, where SSPs sell their impressions and DSPs buy them.

From the Publisher perspective:

The publisher allows any and all buyers to participate in this type of auction. This tactic is usually used by publishers that have large amounts of advertising space on websites that are not topical or are not able to offer a big audience. It is also used as a way of selling remnant inventory. That is, ad space that has not been sold through the other, more remunerative, types of programmatic advertising by the big ad networks or media companies.

RTB is often regarded as the “race to the bottom” for its nature to favour whoever is willing to drive their prices lower.

The publishers usually don’t know who is buying their ads, they can only try to introduce a minimum of control by including price floors or blocklists. But that doesn’t mean RTB is a lower quality type of Programmatic; high quality ad space is also regularly sold through this type of auction.

Jargon Buster

Price Floors are fixed rates that a publisher can set to avoid selling their ad space to buyers that pay below a certain price threshold.

Blocklists are lists of buyers that the publisher has decided not to sell to for any reasons, including past purchasing behaviour or malicious intent.

From the buyer’s perspective:

The buyer is able to buy from any publisher that is willing to trade impressions on the ad exchange. The buyer has the advantage of pushing for low prices. On the other hand, buyers don’t know who they are buying from. There are too many transactions that take place every hour for the process to be 100% traceable.

Fraud and trust issues:

In the past there have been instances where fake publishers have been able to sell large amounts of ad space that in reality didn’t exist. The industry and IAB have come together to tackle these problems and combat piracy, malware and fraud by building Quality Assurance Guidelines.

Programmatic Direct

Programmatic Direct, Premium or Reserved all refer to same style of auctions.

Programmatic Guaranteed and non-guaranteed are often considered as subsets of Programmatic Direct.

If this is not enough to confuse you, the Interactive Advertising Bureau (IAB), in a bid to clarify programmatic, has introduced a further nomenclature: Automated Guaranteed.

Welcome to Ad Tech…

Programmatic Direct started around 2011, when Programmatic RTB was on the rise. Some advertisers were resistant to jump on the new practice due to perceived inadequacies with RTB. The agencies that were committed to offering good quality advertising space on the internet saw the potential of automating the direct exchanges between publishers and clients.

Perfect, so Programmatic Direct is high quality ad space while RTB is about low-quality stuff?

Not really, Direct is just a different type of programmatic that is only a tiny portion of the Programmatic market.

“Invitation-Only Auction”

Also known as private exchanges auctions.

Similar to an Open Auction, an invitation only auction is very much as the name suggests, where only selected advertisers or buyers are invited by a publisher to participate. This is still an auction however, and all buyers must take part in bidding on the inventory.

This type of auction came about due to concerns from upmarket publishers, who thought that selling their premium ad space through automation was bringing the price down. Now many large publishers such as the Wall Street Journal and The New York Times regularly hold invitation only auctions with select advertisers, financially benefiting from the extra control this enables them.

Conclusions

Programmatic is a complex subject. Because of its flexibility, the process to deliver the same outcome can take almost infinite paths. The evolving nature of the discipline, the rapidity of the changes and the number of players involved, makes it inevitably hard to create industry standards or even try to establish consistent naming conventions.

Not long ago, an article from The Economist argued that Programmatic was not delivering greater transparency and that many businesses were complaining about a “technology tax”. Some argued that ad-tech firms take advantage of the Programmatic opacity and charge extra costs on ad spend.

The bottom line? We need to understand programmatic.

It is already part of big business’ plans. American Express marketing and business insights director has admitted “We talk about how we’re going to go programmatic, rather than talk about why”. Nevertheless, the industry is on the march and shows no sign of stopping soon. Now that Google and AOL are already trying hard to streamline the process and become a one stop shop for programmatic buying, we’re already on our way to a self-fulfilling prophecy.

Welcome to the future.