The rise of the AI-charged, customer-centric approach
Every marketer aims to connect with customers in a way that feels relevant. Even the “Mad Men” at Sterling Cooper knew that no matter how brilliant the creative, strategic placement is the only way an ad gets seen by the intended audience.
But advertising isn’t what it used to be. There’s more competition than ever to reach consumers whose plugged-in savvy raises the stakes for brands to resonate with their increasing niche interests.
With the advent of programmatic advertising, brands can now automate media transactions, allowing publishers to measure the attention they generate in real-time.
Programmatic advertising is truly customer-centric, with ever more intelligent, tailored, and potentially personalized messages delivered at the right time to the right people. In this guide, we’ll share a comprehensive introduction to the programmatic ecosystem, breaking down all of its key components and how they relate to one another. You’ll walk away with a more confident understanding of this complex topic, and the insights you need to add a programmatic strategy to your digital marketing toolkit.
What is programmatic advertising?
Programmatic advertising uses algorithms to automate buying and selling of online advertising in open and private digital marketplaces.
AI and machine learning segment audience data and handle the placement, auction, and sale of digital ad impressions in real-time.
Using targeting tactics like keywords, geolocation, and website cookies, advertisers only pay for ads delivered to the relevant audience at the right moment in their customer journey.
Before programmatic advertising, the media buying process involved creating relationships with publishers to negotiate ad inventory.
The dawn of digital advertising can be traced back to a single pixelated rectangle. In 1994, AT&T placed the internet’s first banner ad on the online magazine HotWired, the predecessor to WIRED.
But beyond its mind-blowing (by today’s standards) click-through rate of 44%, there was no way to measure the ad’s effectiveness in reaching relevant customers. The same ad was displayed no matter who visited the site.
Manual media placements limited the opportunities for truly targeted communications. Over the past 20-plus years, the Interactive Advertising Bureau (IAB) has found that “programmatic advertising has become a key element in most digital ad budgets for its scale and efficiency in targeting and placing digital advertising.”
Mediums and formats
There is a growing range of options for programmatic advertising, including:
- Display ads: the most traditional form of programmatic advertising that includes banners, search, and classified ads. Based on user data, display ads can be dynamically optimized with updated or even personalized content.
- Video ads: with more than 40% more hours streamed on mobile in 2020 than the previous year, video ads are a high-growth market. Options include in-stream, which plays before, during, or after video content within the app’s native video player.
Outstream ads, on the other hand, are placed within a body of text and only play on-scroll when fully visible.
- Native and Social ads: placed directly into your feed, these ads blend seamlessly into the content or context, and in many ways, are indistinguishable from a post from within your personal network.
Currently, television and voice-activated devices present new and unique opportunities for brands to explore programmatic placement.
Networks like Google and Netflix are building the infrastructure to support programmatic TV. And while Siri or Alexa-activated voice browsing, as well as connected TVs and streaming apps, are becoming a common sight, Google already offers programmatic audio ads.
Mobile is the new orange – In-app programmatic advertising
Given that the average consumer spends 3 hours and 35 minutes per day engaging with mobile apps, it’s worth taking a closer look at the specific considerations of how programmatic advertising in mobile apps actually works.
Where web-based ads work within search, banners, videos, and classifieds, in-app ads have other formats for display slots, size requirements for viewability, and minimum display times.
Common formats are bottom-locked banners, which offer greater reach, and interstitials that pop up in the user journey, like between levels of a game, enabling full-screen focus.
Rewarded ads are a way of integrating into a gaming context where viewers can advance after viewing an ad. Also, while ad-blockers are now built-in to certain browsers, in-app ads are not (yet) vulnerable to ad-blocking software.
According to App Annie’s State of Mobile 2021 report, mobile ad placements grew 95% year-over-year in the US since 2019. A separate report indicates that mobile programmatic advertising is expected to represent more than 80% of global digital ad spend by 2023.
Social, news, and gaming apps have some of the highest mobile user penetration, and offer strong potential for return on investment (ROI) in in-app programmatic advertising.
Benefits of programmatic advertising
According to Statista’s programmatic advertising worldwide outlook, global programmatic ad spend reached an estimated $129 billion in 2020, with spending set to surpass $150 billion by 2021.
This sustained growth comes down to three straightforward advantages that programmatic offers above and beyond traditional media buying:
- First, programmatic acknowledges that brands no longer have one-size-fits-all messaging. It empowers them to create sophisticated niche audience segmentation across demographics like age, gender, or geography, as well as behaviors like media consumption.
- Second, programmatic enables brands to tailor and send differentiated and relevant messages per multiple segments simultaneously, exponentially increasing their scale and reach.
- Finally, brands only pay for impressions delivered to the right people at the right time, which results in more efficient ad spend and the ability to measure an ad’s effectiveness with real-time reporting.
Overall, programmatic offers marketers an opportunity to adopt the test-and-learn mindset of Silicon Valley. With immediate and measurable results, programmatic enables nimble campaign fine-tuning and supports continuous optimization.
How to buy media placements with programmatic advertising
The traditional media buying process of writing RFPs and managing publisher negotiations created a lot of waste and potential for human error in the advertising value chain.
Programmatic advertising works on a Cost Per Impression model, more commonly referred to as CPM (Cost Per Mille), which is the price per 1,000 ad impressions.
During this process, ad inventory is traded in an Open Marketplace (OMP) on digital platforms that operate much like a stock market; multiple buyers compete for impressions in a real-time, unreserved auction, with no one buyer taking priority. The winner is decided based on whoever bids the highest.
This Real-Time Bidding (RTB) takes place behind the scenes in a fraction of a second, with powerful algorithms matchmaking ads to customers. Even though most programmatic buying goes through RTB, there are other types of programmatic dealmaking, namely:
Private Marketplace (PMP)
An exclusive, invitation-only RTB auction where publishers invite selected buyers to bid on their specific ad placements.
Private marketplaces offer the option to bypass open ad exchanges, with pre-negotiated deal terms.
By plugging directly into a publisher’s ad inventory, buyers can bid for placements based on targeting variables like audience data, content type, or a number of different impression attributes specifying when and where an ad is seen.
These types of deals are closer to the traditional media buying process, creating direct relationships between advertisers and publishers.
They are a way to buy a guaranteed number of impressions on specific websites or mobile apps, and tend to be structured with a fixed-price agreement rather than an auction.
This type of programmatic advertising is most common for “premium” display formats, like full-page takeovers. For such a high-cost investment, it only makes sense for advertisers to require guaranteed measures of knowing exactly who is seeing their ad, where, and in what context.
The programmatic advertising ecosystem: How does it work?
Today, the media-buying “trading desk” is increasingly being brought in-house rather than being managed by a hired advertising agency.
In order to know how these shifts will affect the way marketers engage with the programmatic advertising ecosystem, it’s helpful to have an overview of the players and their roles.
Programmatic advertising is a complex ecosystem of cooperative players directing the flow of data and transactions. Here’s a simple step-by-step breakdown of how it works:
- A visitor clicks on a website or a mobile app
- A request is sent to an ad exchange with information on the website/app along with opted-in visitor data (i.e., demographic, contextual, behavioral, device, ONLY if a user has given tracking permission)
- The website/app owner puts the ad impression up for auction on the Supply-Side Platform (SSP)
- The opted-in visitor information is then matched against available advertisers
- Advertisers on the Demand-Side Platform (DSP) offer bids for the impression
- The highest bidder wins the ad impression
- The ad is served on the website/app to the user
- Ideally, the user clicks on the ad and converts. If not, there may be retargeting tactics employed to nudge them toward conversion at a later time (i.e., “sticky” ads)
Let’s take a closer look at the individual players:
An ad exchange is essentially a digital “trading floor” where advertisers can buy space from multiple ad networks through a single platform interface.
Publishers who distribute digital publications—like the Thomson Reuters Corp. or Condé Nast—make their ad inventory available across one or multiple ad exchanges.
An ad network is an aggregator platform that pools unsold ad space from a number of publishers, and offers that inventory to advertisers at a set rate (often discounted). It’s important to note that ad networks do not operate programmatically themselves.
Supply side platforms (SSPs) helps publishers automatically and efficiently manage the selling of their inventory to multiple buyers in order to maximize their inventory yield.
The Demand-Side Platform for media buyers enables advertisers to purchase ad impressions on publisher websites/apps, made available via ad exchanges and networks.
A DSP needs to be connected to a Data Management Platform (DMP). The DSP handles the actual buying of ad space, whereas the DMP is used to sort data and fuel ad-buying decisions.
Technically, platforms like Facebook and Google Ads are a type of DSP exclusively limited to selling their own inventory.
Programmatic advertising in 2021 and beyond
Programmatic is poised for additional growth as mobile and digital video usage continues to rise.
Here’s what marketers need to be paying attention to when implementing programmatic advertising:
Regulatory shifts: the future of the regulatory environment continues to evolve. While dramatic changes to data privacy policies within iOS 14.5 were initially a cause for concern with advertisers who relied on rich user data for targeting, ATT opt-in rates have thus far been much higher than anticipated.
On the web front, Google’s recent announcement that it’s restricting ad targeting of users under 18, and the anticipated demise of cookie tracking mean that effective programmatic advertising will demand better, more transparent management of customer data.
Native contextual ads: with this regulatory uncertainty, native contextual ads, such as those integrated in social media feeds, are expected to increase in popularity.
These ads do not require cookies or customer data, so are fully GDPR compliant. Additionally, native contextual ads are designed to blend into a user’s content stream, appearing seamless and personalized.
Emerging technology: artificial intelligence, while already integral to the advancement of programmatic advertising, will continue to improve upon ad effectiveness as algorithms can predict customer behaviors in diverse contexts.
Additionally, expect blockchain technology to play a more significant role in reducing fraud and increasing data transparency.
Worldwide, programmatic’s share of digital ad spend has seen a 54% increase in the last five years.
Today, online ads dominate the programmatic marketplace, but the rise of Connected TV (CTV) and OTT (Over-the-Top) media like Netflix, Amazon Prime, and Disney+ have changed how we see and interact with advertising.
As a result, media companies and agencies are eagerly exploring new formats for data-driven buying and delivering programmatic’s highly targeted ads.
Programmatic technology has led to changing roles and shifting dynamics that have created redundancies and opportunities in equal measure.
While it may mean fewer “Mad Men” in the world, investing in programmatic will allow marketers and sellers to spend more time planning and optimizing sophisticated, customized campaigns.
Ultimately, effective programmatic advertising depends on the people behind the data patterns. According to an Accenture survey, “Brands that treat data collection and data strategy as part of the consumer experience can benefit from greater consumer willingness to share information.
Providing consumers with value for their data, ensuring that the brand won’t lose or abuse their data and recognizing consumers in a way that puts them at ease is all part of a better experience.”
Marketers who can strike a balance between data, creativity, and humanity, while ensuring the greatest success at winning customer loyalty in the long run.