A Beginner’s Guide to Programmatic Advertising

by | Feb 6, 2020 | Education

Just about everyone who’s getting their start in programmatic advertising has had a run-in with the infamous Display LUMAscape graphic.

Display LUMAscape Graphic

The Display LUMAscape graphic. Source →

Even more egregious is the (albeit tangentially related) MarTech Landscape graphic.

Marketing Technology Landscape

The “MarTech 5000” from chiefmartec.com. Source →

There has to be an easier way to wrap your head around this complex industry. In this guide, we’ll to arm you with the core programmatic concepts you need to build a foundation for a successful digital advertising career.

Let’s get into it.

What is programmatic advertising?

Programmatic advertising is an umbrella term that refers to the automation of advertising. It uses a combination of complex technology, artificial intelligence and human ingenuity to monetize content in real time.

It was pretty revolutionary when it first came to prominence in the early 2010s, but to fully understand it’s impact, let’s get into how things used to be done.

 

In the Days of Don Draper…

Back in the day, the advertising industry was very different. Brands (a.k.a. advertisers or marketers) would hire an agency of record (maybe more than one) who would take care of their advertising.

This work was roughly split up into three departments: accounts, creative and media. Accounts would get the job, work with advertisers face-to-face and deliver a brief to the creative team. The creative team would then create and pitch the ad campaign. Once approved, the media team would work with TV networks, radio stations, magazines and more to get the ads out there. To do this, the media team would buy “inventory” (e.g., a magazine page, a :30 radio spot, etc.) from the “channels” (e.g., magazine, radio, TV, etc.) and place the campaign’s ads within that inventory.

The crux of this whole process is that it was all done manually. Media teams would wine and dine TV station execs for the choice prime-time spot, deals were sealed over martini lunches, that sort of thing.

But along came real-time bidding (RTB) and programmatic advertising, turning everything on its head.

 

The Rise of Real-Time Bidding

We go much more in-depth in our “What is Real-Time Bidding” article, but we’ll go through a quick synopsis here.

The first steps towards programmatic advertising technology was through search engines in the late 90s. It was pretty rudimentary by today’s standards, but the premise was simple: “We know what people are searching for, so let’s serve them ads automatically based on those searches.”

The true break-through happened in the 2000s when Right Media took the lessons from programmatic paid search and applied it to display advertising.

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Newbie Note

Programmatic display advertising is advertising that appears as banners on websites, apps or social media. Usually display ads appear as text and an image in a banner, but they can also be interstitial, rich media, and more.

Learn more in our article on When to Use Display Advertising.

Right Media was the first true ad exchange (which we’ll explain below), where publishers could list the inventory they had available for advertisers to place ads within. All without the advertising agencies or advertisers having to talk directly with the publisher.

For the first time, you didn’t need to wine and dine to get your ads out there. On top of that, there was the promise of much more data and incredibly accurate targeting of your desired target audience. You could get numbers on, say, how many sets of eyeballs saw your ad (i.e., impressions) and how many of those sets of eyeballs decided to click (i.e., click-through rate).

It was a brave new world and a lot of people were looking to cash in. Out of this new foundation developed an entire complex ecosystem of technology, services and more, all looking to provide a little more insight here, provide unique inventory there or streamline the ad buying process.

What is the process of programmatic advertising?

The simplest way to think about programmatic advertising is within three groups.

  1. First are the advertisers, who want to get the message out about a new product, service, cause, etc.
  2. Second is a group of technologies and services we can generally bucket together as the “programmatic ecosystem,” sometimes referred to as the programmatic exchange.
  3. Third are the publishers, who have available ad space (a.k.a. ad inventory), that they would like to sell.

The advertiser will tell the programmatic ecosystem that they’d like to reach a certain type of audience at a certain time, usually within a certain context. The publisher will tell the programmatic ecosystem that they have ad space available that a certain type of audience is likely to see within a certain time and context. Then the programmatic ecosystem will connect the dots and provide reports to each on what was ad served when, where, and how effective it all is.

Essentially, what’s being exchanged here is impressions. In other words, publishers have a certain number and type of eyeballs on their site. They sell exposure to these eyeballs to advertisers and marketers. Impressions are bought on a CPM (cost per mille, a.k.a cost per thousand impressions) basis.

In other words, if an ad placement is sold for a $1 CPM, it costs the advertiser or marketer $1 to put their ad in front of 1000 sets of eyeballs.

Alright, so let’s get into where this programmatic ecosystem is today.

Programmatic Advertising Landscape Graphic

How does programmatic advertising work?

We decided to make this industry a little easier to digest. First, we have a simplified graphic of the whole ecosystem. Then, we’ll walk you through each section one-by-one. By the end, you’ll have a high-level view of the programmatic ad buying process.

Buy-Side

Also known as the marketer-side, demand-side or advertiser-side, this is the left portion of the graphic above. It encapsulates all the processes involved with getting an ad ready to populate within a publisher’s inventory.

 

Agencies

Advertisers and marketers hire advertising agencies (or use in-house teams) to craft their campaign and get it out into the world. Agencies will often create the ads and manage the process of programmatic buying themselves or hire a trading desk.

Trading Desks

Agencies or in-house brand teams will sometimes hire trading desks to manage programmatic ad buying, or they may have a trading desk team already (usually called ad operations or the media buying team). Trading desks typically sit atop licensed Demand-Side Platforms (hang with us) to buy advertising space/inventory.

DSPs

Demand-Side Platforms (DSPs) allow agencies/in-house teams (or their trading desk) to buy ad placements in real time. For more on DSPs, read our “What is a DSP?” article.

Creative Optimization

Creative Optimization technology allows agencies/in-house teams to generate and optimize ads based on real-time data. Sometimes this is a service the DSP offers or coordinates on behalf of the agency/in-house team. The core concept is to keep the target audience engaged with fresh ads, instead of showing the same ad over and over again.

Retargeting

Retargeting technology uses tracking data to identify users that have already visited, for example, a landing page. These users then get targeted with ads based on their behavior on the landing page.

Media Planning & Attribution

Media planning technology helps agencies/in-house teams (or their trading desks) plan their media mix. This technology allows them to wrap their heads around which ads go where, when and why.

Attribution technology answers the question of what leads users to take action. This informs media planning and buying quite a bit and includes categories like call attribution (what ad did they see that got them to call?), location attribution (what ads drove foot-traffic?), multi-touch attribution (what touch-points did the user see before converting?), etc.

Ad Servers

Ad servers make instantaneous decisions to determine which ads are served where. This is the technology that actually places the ad in front of the user.

 

 

Middlemen & Others

A catchall group of every type of programmatic technology and service that doesn’t directly fit within advertiser/buy-side or publisher/sell-side.

Tag Management

Tags track user behavior and inform media planning & attribution, retargeting, and others. There can be a lot of tags depending on the campaign, so tag management technology comes in to sort it all out.

DMPs and Data Aggregators

Data Management Platforms (DMPs) are basically data warehouses. They’re platforms dedicated to ingesting, aggregating and presenting raw data in a way that’s useful for advertisers, publishers and just about anyone else.

Data Suppliers

The companies that collect data and sell it. Pretty straightforward (for once).

Measurement & Analytics

Analytics companies are solely dedicated to tracking metrics and performance. This includes companies like Nielsen, who created TV ratings back in the day.

Verification & Privacy

Companies that specialize in inventory and ad placement verification work to minimize fraud, protect user privacy, and provide a third-party, unbiased view of metrics. Essentially, this is the technology that keeps bad actors and fraud in check.

Media Management Systems & Operations

These are companies that specialize in helping others navigate this whole programmatic marketing ecosystem. This includes media deployment, aggregating data from all other categories, consultation on scaling teams and more.

 

Supply-Side

Also known as publisher-side, this is the technology that publishers use to get their inventory into the programmatic marketing marketplace.

Ad Networks

Ad networks aggregate and package inventory from publishers to help them monetize content. These networks may align with certain themes (such as interests or age ranges), traffic quality, or certain ad formats (e.g., in-app advertising and mobile programmatic vs desktop).

SSPs

Supply-Side Platforms (SSPs) give publishers a central place to package their ad inventory and receive revenue. DSPs help agencies buy, SSPs help publishers sell.

Ad Servers

Ad servers make inventory available to sell through ad networks. It’s what publishers use (sometimes facilitated by SSPs) to manage where, when and how their inventory shows up.

 

Advertising Exchanges

A sort of middle ground between the two sides, an ad exchange is the technology that facilitates the buying and selling of inventory. They manage the complicated bidding processes between DSPs and SSPs that determine which ads go where, when and how much is spent.

 

One Important Note

Applying definitions like this is like trying to his a moving target. Even outlining the rough history like we did above is difficult.

The digital advertising industry is constantly in flux with big acquisitions, bankruptcies and new technology. The overall trend is towards consolidation.

DSPs are developing ad exchange capabilities. Speculation of recent SSP consolidation, like Telaria + Rubicon might look at buying a DSP to create a closed loop across the ecosystem. And don’t get us started on third-party cookies.

So, use this as guide as an introduction to the concepts, not a surefire prescription of the digital marketing and programmatic landscape.

What are the different types of programmatic advertising?

So now you have a rough lay of the land. What are the different types of auction that make this all work?

 

Real-Time Bidding

We touched on this a little bit already, but people often confuse programmatic buying with Real-time bidding (RTB), which is just one way to buy inventory.

RTB is, well, the process of bidding on inventory in real time (again, read our “What is Real-Time Bidding?” article for more).

The RTB process is completely automated by the programmatic ecosystem we outlined above. One type of RTB (that’s often used synonymously) is Open Exchange, which is essentially a free-for-all. Just about any buyer or seller of ad inventory can participate.

Beyond this, there are different types of bidding we can get into (like header bidding), but that will make this article even longer. Overall, in general, when using RTB, the highest bidder will get the ad placement the publisher puts out for sale. It only takes a fraction of a second for all of this to take place, hence the “real time” in Real-time bidding.

 

Private Marketplace

Private marketplace (PMP) advertising is a type of RTB that’s much more exclusive. It’s a private marketplace to sell and bid on ad placements in real time.

The process for PMP advertising starts with a publisher or group of publishers setting up a private deal with a select group of advertisers and marketers. Where Open Exchange is a free-for-all, PMP essentially sets boundaries before the the real-time bidding starts.

CPMs may be higher here, but the brand safety and protection against ad fraud is much better than the Open Exchange RTB environment. Recently, eMarketer reported that private marketplace spending will surpass open exchange in 2020. You’re only going to see more and more PMP deals take place.

eMarketer: PMP Spending Outstrips Open Exchange

PMP Spending in 2020 via eMarketer. Source >

Programmatic Direct

Programmatic direct combines programmatic ad buying with the old way of doing things. It’s a direct deal between the publisher and the advertiser.

The programmatic direct process usually starts with a publisher reaching out offering premium ad placements to an advertiser. By the end, the two parties will agree to a fixed CPM and number of impressions.

This is the big difference between PMP and Programmatic Direct. Both parties agree to a fixed CPM, whereas in PMP (because it’s a type of RTB), the CPM can fluctuate based on demand, inventory quality of traffic and a bunch of other factors. When using Programmatic Direct, the publisher will also guarantee a certain amount of impressions (at that set CPM) over a period of time.

Programmatic technology still automates the rest of the work, but it’s all in accordance with the real-world agreement struck between the advertiser and the publisher. Overall, it’s a much more hands-on process.

What’s the impact of programmatic advertising?

As with just about everything else in the information age, automating the process of advertising has made things a lot easier, but it’s also made things a lot more complicated.

Let’s explore why.

 

Automation

As we explained earlier, programmatic media buying effectively cut out an entire chunk of the advertising industry. It made the whole process of ad buying move at light speed, rather than regular people speed.

Alongside the immediacy of modern internet communication, the onus was put on agencies and marketers to move faster than ever before. For better or worse, the decision-making process of how the creative looks, where it gets placed, when it gets placed there and how it gets reported on happens in a fraction of the time it used to.

If you’re interested in the role of artificial intelligence in all this, read our article Advertising AI Isn’t What You Think It Is.

 

More Data

In addition to moving fast, advertisers and marketers had an entire world of possibilities revealed to them thanks to all the real-time data. Everything from retargeting technology, digital out-of-home ads, behavioral targeting, multi-touch attribution, and more.

The big debate this brings to the fore is between first-party data and third-party data. In other words, data you own outright versus data you buy (another oversimplification, but it works in the context of this article). Much of the industry is based on the latter, but this raises a whole host of privacy concerns and more.

 

Complexity

True cross-channel advertising was finally made possible thanks to programmatic marketing technology. But, as great as that is, when you mix multiple channels with the mountains of data associated with each, along with all the new technology being developed, it’s a lot to manage.

So, more and more solutions popped up to help advertisers and marketers manage all this. Then solutions to help them manage those solutions popped up. And on and on. This is the reason why the Display LUMAscape graphic became so massive and convoluted.

 

Accessibility

If you stick to one channel (like Facebook, or Google) it’s never been easier to reach a mass audience. Any mom and pop shop can spend money on Facebook and have their ads served to millions across Facebook, Instagram and more.

The democratization of advertising is great when you don’t have the cash to hire a big agency. But from a user experience perspective, there isn’t a whole lot of quality control. Enter annoying, intrusive ads that make things harder for everyone in the digital advertising industry.

 

There is a lot more we can discuss on the impact of programmatic advertising, like its role in propagating clickbait, spreading disinformation and even propping up fake newspapers. Fraud is a real part of this business and it’s important to talk about, but we just don’t have the space in this article to do it justice.

The other elephant in the room is privacy and data protection. This is a very hot topic with the Cambridge Analytica Scandal, Google’s sharing of private photos, CCPA, GDPR, Apple’s ITP, and more. Again, too much to cover here, but it’s very real and it’s only going to gain in prominence.

But enough of that, what’s next for programmatic advertising?

What’s the future of programmatic advertising?

Hard to say, but overall the industry is maturing and programmatic ad spending is skyrocketing. One good example of this is the death of the third-party cookie.

But first, a brief history of what a cookie is. Cookies were invented to make online shopping carts function better. Some enterprising minds in digital marketing realized they could use this to track users and serve them tailored ads.

Fast forward to today and much of the digital marketing industry is based on this technology, particularly a type of cookie called third-party cookies. Despite this, in January 2020, Google dealt the death blow to third-party cookies by announcing that Chrome will no longer support them. And so, a retrofitted technology that propped up much of the industry will go away in two years.

What does this mean? The programmatic industry will have to innovate solutions based on relevance (not necessarily personalization) and contextual targeting. The result will be tools that actually fit the digital advertising industry’s needs. But, that’s still a couple years out.

Apply this concept to the protection of user privacy, fraud and many of the other problems plaguing the digital advertising industry and you’ll see that it’s going through a growth period.

There will be mistakes, there will be failures, but by the end the digital advertising industry will become a fully functioning mature entity that works better overall within the next decade.

 

 

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