Blog Post

What is Programmatic Digital Advertising?

January 12, 2021 - Sierra Ducey

Just a little over five years ago, in 2015, data shows that advertisers spent about $24.48 billion on programmatic digital advertising in the United States. By the end of this year, that number will more than triple. Experts predict that advertisers will spend just under $80 billion on programmatic advertising in 2021.

Many factors contribute to the exorbitant growth of programmatic digital advertising: better technology, a need for better targeting, and the introduction of mobile phones, to name a few. Experts no longer question the validity of programmatic marketing or if advertisers use it. Instead, people now look to the future to see how they can work to combat any drawbacks people face to grow programmatic marketing and to help advertisers reach their audiences even better.

Before we dive into the different facets of programmatic, it’s helpful to look at the last decade or understand how programmatic quickly climbed up the ladder of digital advertising to become a preferred tactic amongst advertisers.

Basic Programmatic Glossary

Demand Side Platforms (DSPs): A piece of bidding technology or ad servers with optimization and inventory links. They allow audience buying via RTB across multiple sources of inventory. Using algorithmic driven evaluation techniques, DSPs can determine which impressions to buy in real-time.

Demand Management Platforms (DMPs): Used to manage cookie IDs and to generate audience segments, which are subsequently used to target specific users with online ads.  Advertisers now buy media across a vast range of different sites. DMPs can help tie all that activity and resulting campaign and audience data together in one, centralized location and use it to help optimize future media buys and ad creative.

Supply Side Platform (SSP). Supply refers to the seller of media – in most cases, the publisher. SSPs are vehicles for publishers to make their inventory available for programmatic buying via an exchange type marketplace. SSPs are sometimes referred to as yield-optimization platforms. 

Agency Trading Desks: Distributed media buying platforms that exist within the larger ad agency holding companies. Their primary purpose is to buy and sell digital media, including display, video, and mobile, on behalf of agency clients. 

A brief history of programmatic digital advertising

To understand programmatic advertising, we have to travel back to 1994 when the first banner ad was displayed. Hotwired.com made a deal with AT&T to display a banner ad on their site for three months. Over this period, the ad resulted in a rumored 40-50% click-through rate, which will astonish any current-day advertiser who is accustomed to industry-standard CTR rates of ~0.06%. 

And for the next few years, digital advertising mirrored this simple and straightforward process. Advertisers worked directly with publishers to negotiate pricing and placement. These ads were about reach, not relevance. 

Flash forward two years as the internet continued to gain more mainstream use and integration into society. At this point, advertisers had jumped on board, and they too wanted to advertise on these new websites. This led to creating the programmatic ecosystem’s first element: an ad server – DoubleClick to be specific (which would eventually be purchased by Google for  $3.1 billion in 2007).  

Right before the turn of the millennium, competition arose for DoubleClick as they couldn’t keep up with the demand. From 1998-2000, we saw a boom of ad servers that allowed advertisers to place their ads on various sites within the network. 

In this same time frame, Google launched AdWords, which allowed advertisers to run CPC-priced campaigns on the Google networks. This isn’t exactly the moment programmatic was born. This only allowed advertisers to run in the Google network; however, this would eventually lead Google down the path of more targeted advertising. 

In tandem with Google’s journey, the beginning stages of programmatic advertising were on the rise. At this time, ads were first-come, first-served (literally). Backed by name-brand recognition and power, Google launched AdSense, their display network, in 2003. Unlike other moments in the timeline of programmatic, this too had its ups and downs. AdSense quickly became synonymous with spam and ad fraud. And what did Google do to combat this? They launched the Panda update, which still affects how sites are ranked by reducing ranking for low-quality sites. 

Google was not the only player during this time working through the bumps and bruises of digital advertising; however, their journey indicates that no company had a linear line to what we know today as programmatic. And it only grows more complex. 

The Birth of Real-Time Bidding

The next decade of programmatic advertising history (the 2010s) cannot be easily outlined linearly. However, most simply put, in 2009, we saw the first use of real-time-bidding (RTB). RTB allowed for the first big wave of programmatic advertising. As outlined in the graphic below, the process is as follows:

  1. A visitor lands on a page, and the publisher sends a bid request to the ad exchange.
  2. The ad exchange makes the user’s profile available to all bidders.
  3. The advertiser’s bids are automatically sent to the exchange by the bidding algorithm.
  4. The highest bid wins the impression.
  5. The high bidders’ creative is served, and the page is rendered.

This entire process happens within one-tenth of a second. This way of buying and selling ads in an open exchange allowed advertisers to bid on specific consumer personas, such as demographic or device type. And the seed was planted. Gone were the days of digital display ads simply used for reach; now, there was an era of relevance. 

But to be clear, because RTB gave people the first real glimpse into the world of programmatic, many people believe that this is the only way to purchase ads programmatically. However, programmatic digital advertising has grown much beyond the 2010-era. So with that said, let’s jump in.

What is programmatic digital advertising

Programmatic advertising is a method of marketing that utilizes technology to buy and sell online advertising space. It’s helpful to target segmented audiences using real-time data in ways that humans simply can’t accomplish, which yields advertisements delivered to the right people at the optimal times.

Conversations defining and describing programmatic can get extremely heavy in industry jargon. But when it comes down to it, brands and agencies use a DSP to decide which ads to buy and how much to pay for them, while publishers use an SSP to sell ad space. Backed by tremendous amounts of data, these two platforms match up in an ad network in real-time to serve an ad onto a site in front of a consumer.

And what is attractive to advertisers is the customization, targeting, and data-driven technology behind each of these purchases. Rather than purchasing 100,000 impressions on one news site, programmatic digital advertising allows you to purchase 100,000 impressions across various sites, targeting specific audience segments. You can decide to target a particular age demographic of people, on a specific day, at a particular time, that has a certain interest that directly correlates to the product you are trying to sell. You can even target this person with one specific creative version of the ad you are running. Backed by data, the benefits of programmatic advertising is clear – there’s no reason to be playing a guessing game with your digital advertising budgets anymore.

Different ways to Buy Ads Programmatically

The buying and selling ads programmatically mirror the RTB process outlined above, as RTB is a segment of programmatic digital advertising. However, there are three other ways (four total) to purchase ads programmatically:

  • Open Auction (RTB): hundred or buyers competing
  • Private Auction: Negotiated minimum price, Invitation only auctions, Non-guaranteed volumes.
  • Preferred Deals: Fixed price, One-to-one deals, Non-guaranteed volumes.
  • Guaranteed Deals: Fixed price, one-to-one deals, guaranteed volumes

The last three buying options are referred to as programmatic direct, and obviously, the step in which the ad goes to the open exchange would be removed as these are privately negotiated deals. These different buying options have clear benefits based on the overall goal of the campaign. 

After learning about the history of programmatic and what it is, you may be questioning, “so programmatic relies on computers or robots?” And this is where the importance of choosing a strategic programmatic partner becomes ever so clear.

The Importance of an Effective Programmatic Partner

Realistically, you could launch a programmatic campaign, and go about your day, week, or however long the flight is running. The computers will work to target the audience parameters and targeting you have in place. However, with such great data available to advertisers, the days of “setting it and forgetting it” should be long gone. 

The element of the human touch remains priceless to programmatic – even if it is a technology-driven industry. Just as programmatic ads’ buying and selling happen in-real-time, so too should the optimizations and analysis. 

At Digilant, we understand that programmatic campaigns need fostering in order to reach their full potential. Our team of highly qualified campaign solutions analysts monitors our client’s programmatic campaigns every step of the way to ensure the audience is reached effectively. Where traditional agencies can be slow to react, overly complicated, and high-cost, we are proactive, agile, and readily available. As we monitor campaigns, we can quickly adapt to what is working while also shifting away from what is not. This also allows us to uncover new audience insights that can be established for use in current and future campaigns. 

Learn more about some of the recent successful programmatic digital advertising campaigns we have run for the following clients:

University Drives Interest For Undergraduate and Graduate Programs

SaaS Enterprise Software Company Drives Engagement

Top 10 US Automotive Brand Increases Seasonal Sales

Interested in learning more about how Digilant’s passion and industry expertise will ensure your programmatic digital advertising campaigns reach new heights? Let’s talk.

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