Ask Me Anything (AMA), Digital Marketing Strategies, Online Advertising
by Ivan Jimenez

How does programmatic advertising work?

Programmatic advertising is a way of automating the buying and selling of digital ad space.

This allows advertisers to reach their target audience with greater efficiency and accuracy.

In this beginner’s guide, we will explain how programmatic advertising works, the key players involved, and the different types of programmatic advertising.

How Programmatic Advertising Works

Programmatic advertising works by utilizing data-driven insights and algorithms to automate the buying and selling of digital ad space.

This involves a series of steps:

  1. Advertiser Sets Up Campaign: An advertiser creates a campaign and sets specific targeting criteria such as demographics, interests, and location.
  2. Demand-Side Platform (DSP): The advertiser’s campaign is then submitted to a demand-side platform (DSP). The DSP is a technology platform that allows advertisers to purchase ad space in real-time auctions.
  3. Ad Exchange: The DSP submits the campaign to an ad exchange, which is a marketplace where publishers can sell ad space to advertisers. The ad exchange matches the advertiser’s targeting criteria with available ad space and serves the ad to the selected audience.
  4. Supply-Side Platform (SSP): Publishers use a supply-side platform (SSP) to manage and sell their ad inventory. The SSP works with the ad exchange to sell ad space to advertisers.
  5. Ad is Served: Once the ad is selected, it is served to the selected audience and the advertiser is charged for the impression.

The entire process happens in real-time, which is why programmatic advertising is often referred to as “real-time bidding” or RTB.

Key Players in Programmatic Advertising

There are several key players involved in programmatic advertising:

  1. Advertiser: The company or organization that is advertising its product or service.
  2. Demand-Side Platform (DSP): The technology platform that allows advertisers to purchase ad space in real-time auctions.
  3. Ad Exchange: The marketplace where publishers can sell ad space to advertisers.
  4. Publisher: The website or app that displays the ad.
  5. Supply-Side Platform (SSP): The technology platform that allows publishers to manage and sell their ad inventory.
  6. Data Management Platform (DMP): A technology platform that collects and manages data on user behavior and interests, which can be used to target ads more effectively.

Types of Programmatic Advertising

There are several types of programmatic advertising, each with its own unique features:

Real-Time Bidding (RTB): The most common form of programmatic advertising. Advertisers bid in real-time auctions for ad space on a publisher’s website or app.

Programmatic Direct: Advertisers can purchase guaranteed ad space directly from a publisher using programmatic technology. This allows advertisers to bypass the auction process and secure ad space for a specific time period.

Private Marketplace (PMP): A private marketplace is a programmatic ad exchange that is only available to select advertisers and publishers. This allows for greater control over ad inventory and targeting.

Automated Guaranteed: Automated guaranteed is similar to programmatic direct, but the ad inventory is pre-negotiated between the publisher and advertiser. This allows for more control over ad inventory and targeting.

Contextual Advertising: Contextual advertising targets ads based on the content of a website or app. For example, an ad for a camera may be displayed on a photography website.

Examples of Programmatic Advertising

Here are some examples of programmatic advertising in action:

  • A user visits a travel website and searches for flights to a specific location. Later that day, the user sees an ad for a hotel in that location while browsing another website. This is an example of targeted advertising based on user behavior.
  • An advertiser creates a campaign targeting users interested in fitness. The campaign is submitted to a DSP, which matches the targeting criteria with available ad space on various publisher websites and apps. The DSP then bids on ad space in real-time auctions, and the winning bid serves the ad to the selected audience. This is an example of real-time bidding.
  • A publisher wants to sell ad space directly to an advertiser for a specific time period. The publisher uses programmatic technology to negotiate the terms of the agreement and secure the ad inventory. This is an example of programmatic direct.

Takeaway

Bottom line, programmatic advertising has revolutionized the way advertisers buy and sell digital ad space. By utilizing data-driven insights and real-time auctions, programmatic advertising allows advertisers to reach their target audience with greater efficiency and accuracy.

Understanding how programmatic advertising works, the key players involved, and the different types of programmatic advertising is essential for anyone looking to utilize this powerful marketing tool.