In a digital marketing landscape filled with jargon, programmatic advertising continues to claim the “buzzword blue ribbon” when it comes to acronyms, unclear language, and generally hazy definitions/understandings of actually-very-straightfoward concepts.

So there’s no time like the present to take a clarifying look at how programmatic advertising works — to take stock of its current influence and to forecast its future effect.

Programmatic Defined

First, let’s define what programmatic is. Simply put, programmatic advertising uses software to buy and sell digital advertising. It’s the automation of campaigns triggered and deployed according to a set of rules applied by software or algorithms. This is in contrast to the “manual” buying and selling of ads via phones and fax machines. Without getting too technical, anytime a machine is used to purchase and deliver a digital ad, it’s considered programmatic. Though programmatic advertising is often associated with online media, it can also be sold across various types of platforms such a mobile, TV, radio etc.

Why use Programmatic Advertising?

Programmatic matters to marketers because of efficiency.

Before the advent of programmatic, digital ads were bought and sold by humans. This was a time consuming process and it often meant a lot of back and forth between companies. There was also human error to factor into the equation. Furthermore, in the early days of digital advertising, marketers tried to apply traditional buying and selling methods to the new media, which wasn’t always the most efficient way to do business. To buy/sell a digital ad, there was often a multi-step process with a lot of back and forth between buyers and sellers. Digital advertising needed a new approach to buying and selling of ads. Programmatic removes the human element from the buying and selling wherever it can to make the process faster and more efficient.

Benefits of Programmatic for Advertisers (Ad Buyers):

  • Greater marketplace transparency and efficiency
  • Lowered transaction costs
  • Access to more opportunities to place ads
  • Higher potential for better targeted reach
  • Scalable and less labor intensive
  • Potentially more cost effective in the long term

Benefits of Programatic for Publishers (Ad Sellers):

  • Augmented control of supply, yield and pricing
  • Lowered transaction costs
  • Access to more opportunities to sell ads
  • Increased opportunities for potentially more relevant advertising
  • Scalable and less labor intensive
  • Potentially more cost effective in the long term

How Programmatic Works

Let’s use a fictional company, Gus’ Guitars, as an example. Maybe their online advertising is not really targeting the right consumer; in fact, their display ads for collectable vintage guitars are often seen on publisher sites whose main audience are salt water aquarium hobbyists. Not to say that there aren’t any salt water aquarium owners who play guitar – it’s just not precise audience targeting. Gus’ Guitars turn to programmatic so they and engage a programmatic marketing platform to indentify online consumers. This programmatic platform is able to indentify consumers by demographics, geography, interests, behaviors and type of device they shop online with. The programmatic platform will use real-time data to identify the best online audience for a display ad. Furthermore, the platform can buy digital ad inventory through an auction, one impression at a time or though building direct relationships with publishers that have the right audience. Now display ads for Gus’ Guitars appear on music-related sites such a guitar magazines, guitar blogs, etc.

Through real-time ad exchanges, buyers analyze each ad impression in real-time, determine its value and bid accordingly. This precision also enables buyers to pay higher prices for inventory they want thus, increasing their targeting at scale across multiple publisher sites in one efficient way. And this is done in real-time, automatically and during the ~200 milliseconds it takes to serve ad space to users.

Is Programmatic the same as Real-Time Bidding?

No, real-time bidding is the same thing as programmatic. When you hear about programmatic, you often hear about real-time bidding (RTB) and ad exchanges. In short, real-time bidding is ad inventory bought and sold on a per-impression basis, via programmatic instantaneous auction, similar to financial markets. Though real-time bidding falls under the programmatic umbrella, not all programmatic is RTB. Programmatic ads can also be sold at pre-negotiated rates to prove that not all programmatic is the same as real-time bidding.

Top Misconcpetions About Programmatic

As covered in the section above, programmatic is not always synonymous with real-time bidding though real-time bidding is subset of programmatic. There are other misconceptions about programmatic.

  • Programmatic is Machines Replacing Humans
    This is not the machines rising up and taking over. Humans still play an important role in the successful execution of programmatic advertising. Optimizing campaigns, building partnerships between advertisers and publishers, planning strategies are all done by real humans so don’t worry about any robots taking over.
  • Programmatic is not for premium inventory
    Many people think programmatic is just for remnant “leftover” inventory. But there are all kinds of ad inventory being sold programmatically today. There is a shift towards premium inventory proves that programmatic buying is becoming more valuable
  • Technology is too Complex
    Though there might be a steep learning curve to fully understanding programmatic, you can tap into the benefits by partnering with an advertising technology company that specializes in programmatic. These companies are dedicated to educating the industry about programmatic and often publish papers, hold webinars, speak at industry events to help bring a greater understanding over programmatic.

Why Should We Care about Programmatic? 

According to eMarketer, Spending on real-time bidding (RTB), which accounts for about half of US programmatic ad buys, grew 76.5% in 2013. eMarketer predicts that it will increase 43.4% in 2014 to total $4.86 billion.

Meanwhile, according to a recent AOL survey says 86% of agency executives and 76% of brand marketer execs say they’re using programmatic buying for display ads.

As the research shows, there is a rising shift towards programmatic advertising within the industry. Is the future of digital advertising programmatic? Perhaps. There’s always, it seems, an emerging platform just around the corner that may or may not drastically change the way we do business.   Programmatic advertising is not always the best solution for a brand’s marketing needs; however, it certainly pays to keep abreast of programmatic trends.  The IAB maintains an excellent programmatic overview, while Ad Age just posted a video on programmatic to its “Explain it Like I’m Eight” educational series.

In a world where trade magazines routinely run stories with titles like “Programmatic Buying Still a Mystery to Most Marketers,” we hope you’ve found this post helpful in sorting the substance out from beneath the smoke and mirrors.