Programmatic display advertising automates the buying and selling process of ad spaces by employing cutting-edge technology like AI and machine learning. It can improve efficiency and effectiveness by streamlining processes and guaranteeing that ads are seen by the most relevant people.
This article explains what programmatic display advertising is, its benefits, challenges and the future outlook!
Definition of Programmatic Display Advertising
Before understanding programmatic advertising, it’s necessary to understand the general concept of digital media buying.
Digital media buying refers to selecting and buying ad space on digital platforms (e.g., websites). It includes 3 distinct methods: manual, direct, and programmatic:
- Manual deals involve individual negotiations and hands-on bid management on ad exchanges. The publisher sets prices and selects bids, and advertisers personally bid and manage their ad placements through platforms like Google Ads.
- Direct deals occur when publishers negotiate one-on-one with advertisers to agree on ad rates and specific run times, often securing premium pricing for their inventory.
- Programmatic deals automate the process, leveraging artificial intelligence (AI) and real-time bidding (RTB) algorithms on supply-side platforms (SSPs) to sell ad space to the highest bidder, maximizing revenue and efficiency in selling ad impressions.
In essence, programmatic advertising is the automated method of buying and selling digital advertising space. This technology allows real-time transactions, making the process more efficient and scalable.
It enables publishers to effectively monetize their digital content, while advertisers can more accurately and efficiently reach their target audiences.
What does programmatic mean?
The word “programmatic” in advertising refers to the automated, algorithm-driven method of buying and selling ads, which is executed according to a predetermined plan and through the use of computer programs.
According to the Cambridge dictionary, the word programmatic has 2 meanings:
- “happening or done according to a plan or using a particular method”
Firstly, programmatic advertising happens according to a planned method. It involves setting up campaigns with specific parameters (e.g., target audience, bid price, and ad placement) that are then executed automatically.
This planned and methodical approach is a core aspect of programmatic advertising. It relies on predefined rules and strategies to determine where and when ads are displayed.
- “using or relating to computer programs”
Secondly, programmatic advertising is heavily reliant on computer programs. It uses sophisticated algorithms and software to automate the buying and selling of ad inventory in real-time.
This automation is made possible through the use of DSPs, SSPs, and ad exchanges, all of which are software solutions that facilitate the various transactions involved in the display of digital ads.
Traditional vs. programmatic advertising
Unlike traditional advertising methods that focus on securing specific ad spots, programmatic advertising prioritizes reaching the target consumer wherever they may be online.
Marketers need to define their target audience, set their budget in terms of CPC or CPM, and provide the creative material for the ad. The AI system then takes over, using data and algorithms to place ads in front of users who match the defined user profile, optimizing the ad spend and targeting efficiency.
Additionally, the terms programmatic and display refer to two different aspects of digital advertising. Programmatic refers to how ads are purchased and placed, whereas display is the format of the ad and where it appears.
Some programmatic ads are display ads, and some display ads are programmatic.
Whatsoever, you can place display ads manually rather than programmatically. You can programmatically purchase types of ads other than display ads, such as search ads.
Key components of programmatic display advertising
Programmatic advertising is a complex ecosystem and it operates with the synergy of 5 key components:
|Demand-side platforms (DSPs)||Platforms that advertisers use to automate the purchasing of digital ads. Advertisers input their ad campaign criteria into the DSP, the DSP then uses algorithms to bid on ad spaces across various publishers’ properties in real-time, ensuring that the advertiser’s ads are displayed to the right audience at the right time and price.|
|Supply-side platforms (SSPs)||Publishers use SSPs to manage and monetize their online content. An SSP lists the publisher’s available ad inventory. It presents it to potential buyers, aiming to get the best possible price for each ad space by making it available to a wide pool of advertisers. This is where the publisher’s digital space, such as website banners, video ad slots, or app spaces, is offered up for bidding.|
|Ad exchanges||They facilitate the auctioning process where DSPs bid on behalf of advertisers for the ad inventory supplied by the SSPs. The ad exchange uses complex algorithms to run these auctions in milliseconds, determining which ad will fill the available slot on the publisher’s property based on the highest bid and the best match for the publisher’s criteria.|
|Ad servers||Once an ad has been purchased through the DSP and SSP via the ad exchange, it must be delivered to the user. This is where ad servers come in. They are responsible for the technological aspects of ad serving, ensuring that the correct ad is displayed to the right user, tracking its performance, and collecting data for reporting purposes.|
|Data providers||These are the entities that supply the data that powers the targeting capabilities of programmatic advertising. They provide detailed information about potential audiences, such as demographics, interests, behaviors, etc. This data is crucial for advertisers to target their desired audience effectively and for publishers to attract ads that are relevant to their audience.|
How Programmatic Display Advertising Works?
Programmatic display advertising refers to using this automated technology to buy and display ads on websites, apps, and other digital platforms.
Ads are shown to users based on various targeting criteria (e.g., demographics, behavior, interests) ensuring that the ads served are relevant to the users who see them.
This method is highly efficient, as it allows for RTB and placement, meaning that ad inventory is bought and sold on a per-impression basis as a user is loading a webpage. This efficiency leads to better performance of the ads and can result in a higher ROI for marketers.
Demand-Side Platforms (DSPs)
Demand side platforms (DSPs) enable advertisers to purchase, manage, and optimize online ad campaigns across multiple publishers’ websites from a single interface. Through DSPs, advertisers can target specific user groups based on criteria like location or browsing history, ensuring ads reach the most relevant audiences.
The platform also aids in setting ad content, managing bidding for ad placements in real-time auctions, and achieving cost-effective advertising by determining the best value ad impressions.
How do advertisers use DSPs to buy ad impressions?
Advertisers input specific criteria such as demographic details, interests, and behaviors to identify their target audience. The DSP then uses RTB to automatically place ads where they’re most likely to be effective, all within the constraints of the advertiser’s budget.
This process is data-driven and occurs in milliseconds, ensuring that advertisers can compete for premium ad impressions without manual negotiation, thus optimizing their ad spend and maximizing ROI.
Supply-Side Platforms (SSPs)
A supply side platform (SSP) is used by publishers to sell their ad inventory to advertisers across various ad exchanges, maximizing their ad revenue.
Contrary to DSPs that advertisers use, SSPs cater to publishers.
They play a crucial role in the advertising ecosystem by facilitating real-time bidding (RTB), which allows multiple advertisers to compete for ad impressions instantly.
SSPs use machine learning to optimize revenue, ensuring the highest-paying ads are selected. They also support header bidding, letting publishers present their inventory to numerous demand sources simultaneously.
Additionally, SSPs provide features like setting minimum price thresholds (price floors), controlling which advertisers can display ads (using whitelists and blacklists), ensuring ad quality, and offering detailed analytics on ad performance and sales.
How publishers sell ad space using SSPs?
An SSP lists a publisher’s available ad inventory and showcases it to potential buyers, maximizing the chances of selling it at the best possible price. Through the SSP, publishers can set floor prices and they can specify which types of ads or advertisers are acceptable, maintaining the integrity of their site.
The SSP facilitates auctions for the ad impressions, often in real-time, aligning with the DSPs on the buyers’ side. It ensures that the ad space is filled efficiently, with content relevant to the publisher’s audience, safeguarding the user experience while optimizing revenue.
Real-Time Bidding (RTB)
Real-time bidding is a process where ad impressions are bought and sold through automated auctions in real-time.
Compared to traditional advertising, which involves manual negotiations and preparations, RTB uses algorithms to instantly optimize the purchase and sale of ad impressions. This ensures publishers maximize their revenue from each impression while advertisers reach their most relevant audience.
While RTB offers benefits like precise targeting and efficiency through data-driven decisions, traditional advertising methods prioritize broad reach, specific ad placement control, and are more familiar to many advertisers.
Ad exchanges are digital platforms that connect advertisers and publishers who want to buy and sell their ad inventory. Ad exchanges use RTB technology, and they are designed to make the buying and selling of online ads more efficient.
How do ad exchanges facilitate the buying and selling of ad space?
Ad exchanges automate the transaction of ad space, providing publishers with access to a wide array of buyers and allowing advertisers to purchase targeted ad impressions, all within a system that operates in real-time to match supply and demand efficiently.
Private ad exchanges offer even greater control by restricting sales to a select group of advertisers.
When users visit a publisher’s site, the ad exchange evaluates the available ad space as potential impressions and invites advertisers to bid on them.
- Advertisers specify the maximum price they are willing to pay per impression and can use detailed targeting criteria to reach their desired audience.
- Publishers retain control over which ads appear on their site and can set minimum bid prices to ensure they receive fair compensation for their ad space.
Ad exchanges vs. traditional ad networks
An ad network acts as the middleman, collecting and consolidating ad inventory from various publishers and then selling it to advertisers, often with a markup for profit.
On the other hand, an ad exchange is a digital marketplace that facilitates the direct buying and selling of ad inventory between publishers and advertisers, offering greater transparency by allowing buyers to see the prices at which impressions are sold.
Ad networks often source their inventory from ad exchanges, not as competitors but as intermediaries that add a layer of service and convenience, thereby complementing the ad exchanges’ functionality.
Benefits of Programmatic Display Advertising
Here are 10 benefits of programmatic display advertising:
- Increased revenue. By tapping into a global marketplace, publishers can maximize their ad inventory revenue through real-time bidding, which often leads to higher fill rates and better CPMs.
- Efficiency and automation. Programmatic advertising automates the ad selling process, reducing the need for manual sales efforts and allowing for more efficient and effective inventory management.
- Demand diversification. Publishers gain access to a wide array of advertisers from different industries, which can help diversify revenue streams and reduce dependence on a few large advertisers.
- Granular targeting. SSPs enable publishers to leverage data to offer targeted advertising options to advertisers, which can increase the value of their inventory.
- Control over inventory and pricing. Publishers can set floor prices and choose which ads appear on their sites, maintaining control over the quality and relevance of ads to their audience.
- Improved user experience. With the ability to control ad quality and relevancy, publishers can ensure a better user experience, which is critical for audience retention and engagement.
- Real-time insights. Programmatic platforms provide real-time data and analytics, helping publishers understand inventory performance and audience behavior to optimize their strategies.
- Reduced unsold inventory. Programmatic’s real-time nature means that unsold inventory can be reduced significantly, as ads can be sold and served the moment a user visits a page.
- Access to multiple ad exchanges and networks. Publishers can connect to multiple demand sources simultaneously, increasing competition for their inventory and the likelihood of higher bids.
- Brand protection. With programmatic advertising, publishers can use tools and filters to prevent ads from brands that don’t align with their values or that could damage their reputation from appearing on their site.
Challenges and Concerns in Programmatic Display Advertising
Programmatic display advertising faces hurdles such as navigating the complexities of consumer privacy laws, dealing with the transparency in the ad supply chain, and adapting to the evolving landscape of digital technology, including the phasing out of third-party cookies.
These challenges require advertisers and publishers to constantly adapt and innovate, ensuring that their programmatic strategies are not only effective but also compliant and transparent in an increasingly digital-first world.
Since Google Chrome is phasing out 3rd party cookies in 2024, it’s eminent that marketers will face a new challenge. This change highlights a shift in how user data is collected and used for ad targeting, potentially benefiting larger platforms with robust first-party data while posing significant challenges for smaller players.
Whatsoever, the industry is expected to innovate and adapt, with new solutions emerging to address these challenges.
Ad fraud generally involves falsifying the clicks or impressions an ad receives, thus generating extra revenue.
Marketers are concerned about paying for ad impressions that are not viewed by real humans but are instead generated by bots or through deceptive practices like ad stacking or ghost sites.
A study found that ad fraud will cost 84$ billion for marketers in 2023, which is 22% of all online ad spend. The possible solution lies in advanced technologies using machine learning and AI to detect and prevent fraud and human oversight to analyze and understand fraudulent patterns.
Publishers’ view over the ad supply chain is complex–there’s a long chain of intermediaries between the publisher and the final ad displayed on their site, which can lead to a lack of control over ad content, potential display of inappropriate ads, and consequent revenue or traffic loss.
A study on programmatic advertising, a market valued at $88 billion globally, shows significant transparency issues impacting efficiency and value. Involving 21 companies and analyzing $123 million in ad spend, the research highlights problems like information asymmetry and insufficient data access, leading to inefficiencies and wasted resources.
Made for advertising (MFA) websites account for 21% of impressions. Additionally, misaligned motives are noted, with advertisers often prioritizing cost over value. It’s suggested that adopting full path log-level data (LLD) analysis can significantly reduce the “unknown”, enhancing sustainability and efficiency in programmatic media buying.
In programmatic advertising the main contributor to carbon emissions are data centers. During the ad serving process, data goes from the advertiser’s server to the publisher’s server until it reaches the user’s browser.
Each step of this process results in energy consumption and carbon emissions.
For example, with 1 ad impression generating an average of 1g of carbon waste, the amount of carbon emissions caused by the web is estimated to be equal to that of the aviation industry.
In other words, if an ad campaign delivers 1 million impressions, it will emit the same amount of carbon as 1 round trip flight from Boston to London for 1 passenger.
A 2023 study from Scope3 found that 60% of carbon generated by programmatic advertising comes from “ad selection emissions” and can be attributed to the complex supply chain.
Brian O’Kelley, Co-Founder and CEO at Scope3, said: “By changing the way we configure the trillions of auctions that match advertisers with ad placements, we can dramatically reduce the energy consumption of the process. In doing so, we improve transparency, reduce privacy risk, and increase the proportion of spend in working media, without adverse revenue impact for publishers and no adverse performance or reach impact for buyers.”
The Future of Programmatic Display Advertising
We’ve covered the top 10 programmatic advertising trends for 2024 in one of our previous articles. Be sure to check it out, if you want to dive deeper into insights and predictions for the programmatic landscape in 2024.
Whatsoever, we’ll give you a small overview of what to expect:
- The phase out of third-party cookies and possible alternatives. This was especially highlighted at DMEXCO 2023 along with the emerging alternatives that are reshaping digital advertising.
- An increase in mobile and in-app advertising. As mobile usage continues to soar, it’s expected to see a significant uptick in both mobile and in-app advertising, which allows to tap into the ever-growing mobile audience
- More AR/VR advertising.
- A growth of programmatic in CTV advertising. Connected TV advertising is on the rise, leveraging programmatic technology to reach audiences through streaming and on-demand services.
- More in-game and live action video ads.
- Increase in the use of contextual targeting and retargeting. As advertisers seek more effective ways to reach their audience, there will be a greater emphasis on contextual targeting and retargeting, aligning ad content more closely with user interests and behaviors.
Programmatic display advertising represents a more automated approach for publishers in the ad tech world. It automates the buying and selling of ad space, utilizing AI and machine learning for efficient, real-time transactions. It streamlines ad operations and maximizes revenue opportunities by effectively targeting and reaching specific audiences.
Looking ahead, the future of programmatic display advertising promises further advancements in personalization and efficiency.
However, challenges such as maintaining transparency, adapting to privacy regulations, and navigating the phase-out of third-party cookies will require continuous innovation and adaptation by publishers to sustain and grow in this dynamic field.
What is the difference between programmatic and PPC?
Programmatic advertising automates the buying and selling of online ad space using AI and algorithms, targeting specific audiences across various platforms. PPC (pay-per-click), on the other hand, is a model where advertisers pay each time their ad is clicked, commonly used in search engine advertising.
How does programmatic advertising affect consumer privacy?
Programmatic advertising raises privacy concerns as it often involves collecting and analyzing user data to target ads effectively. With increasing privacy regulations, marketers must ensure data is used responsibly and transparently.
Is programmatic advertising only suitable for big brands?
Programmatic advertising is not limited to big brands. It offers scalable solutions suitable for businesses of all sizes, allowing smaller brands to target specific audiences efficiently.
How do I measure the success of a programmatic campaign?
Success in programmatic campaigns is typically measured through metrics like click-through rates (CTR), conversion rates, engagement rates, and return on ad spend (ROAS). Advanced analytics can also track brand awareness and audience growth.
Can programmatic advertising be used across different media, like TV and radio?
Yes, programmatic advertising can be used across various media platforms, including TV and radio, allowing for a more integrated and comprehensive advertising strategy.