Programmatic Advertising: What Is It & How Does It Work?

by Frankie Karrer

13 Min Read

It might sometimes feel like it’s impossible to keep up with the ever-changing world of advertising. And one of the areas that has seen the most growth over the last few years is programmatic advertising.

But what is programmatic advertising and how does it work? Let’s get started by covering the programmatic advertising definition.

What is Programmatic Advertising?

Programmatic advertising (also known as programmatic media buying) is an automated process of buying and selling digital ad spaces in real time using complex algorithms. Advertisers can precisely target specific audiences and demographics, improving the efficiency and effectiveness of the advertising campaign.

Programmatic vs Display Ads

Display ads refer to a specific ad format (such as banners or rich media), while programmatic advertising is the automated method used to buy and place those ads.

In short, display is the “what,” and programmatic is the “how.”

Programmatic vs Digital Advertising

Digital advertising encompasses all marketing efforts that use an electronic device or the internet, including display ads, social media, and email marketing, allowing brands to connect with a broad audience online.

Programmatic advertising is simply a subset of digital advertising that automates the decision-making process of ad placement.

Benefits of Programmatic Media Buying

So now you may be wondering, “Why is programmatic advertising important, and is it effective?” Programmatic advertising has several benefits, including:

1. Efficiency

Programmatic advertising enables advertisers to reach their target audience more efficiently by automating the ad-buying process. It allows for real-time bidding, meaning advertisers can bid on ad impressions in real time, ensuring that they reach the right audience at the right time.

2. Cost Effective

Programmatic ads are cost-effective, as advertisers only pay for the impressions that their ads receive. Additionally, programmatic advertising allows advertisers to target their audience more effectively, which can reduce wasted ad spend.

3. Targeting Capabilities

Programmatic advertising offers advanced targeting capabilities, allowing advertisers to reach their desired audience based on factors such as demographics, location, interests, and behavior. This ensures that ads are delivered to the right people, which increases the likelihood of conversion.

4. Data-Driven Insights

Programmatic media buying provides data-driven insights that can be used to optimize campaigns in real time. Advertisers can use data such as impressions, clicks, and conversions to adjust their targeting and bidding strategies, resulting in better campaign performance.

5. Scalability

Programmatic advertising is highly scalable, as it allows advertisers to reach a large audience across multiple channels and devices. This makes it ideal for advertisers looking to expand their reach and grow their business.

Programmatic Advertising Platforms

There are several components involved in the programmatic media buying process, which we’ll discuss below.

Demand-Side Platform (DSP)

A Demand-Side Platform (DSP) is an automated buying platform where advertisers can purchase digital ad inventory. Advertisers who use a DSP will buy ad impressions from an ad exchange for a predetermined bid price. Demand-side platforms can be used to purchase inventory across digital, mobile, and Connected TV.

Supply-Side Platform (SSP)

The other side of a programmatic transaction is a Supply-Side Platform (SSP), which allows publishers to add their inventory to an ad exchange. Publishers will set a floor price, also known as the minimum amount the inventory can be sold for to still make a profit.

Ad Exchange

This is where DSPs and SSPs can buy and sell ad inventory, respectively. This marketplace is available to everyone from a small business to an agency and offers inventory for display, mobile, Connected TV, and more. An ad exchange makes it easier for publishers to list their ad space, and for advertisers to ultimately buy that inventory, all without having to contact each other directly.

Learn More: DSP, SSP, and Ad Exchange: What’s the Difference?

Ad Network

An ad network compiles advertising spaces from various publishers and makes this inventory available to advertisers. This enables advertisers to efficiently locate suitable placements across numerous websites simultaneously, while publishers gain access to a wider array of potential advertisers.

Learn More: Ad Network vs Ad Exchange: What’s the Difference?

Data Management Platform (DMP)

A Data Management Platform (DMP) is a technology used in programmatic advertising to collect and manage large sets of audience data from various sources, including online behavior, demographics, and purchase history. The platform helps advertisers and publishers understand their audience better and make informed decisions about which ads to deliver and when to deliver them.

Customer Data Platform (CDP)

A Customer Data Platform (CDP) is a software solution that collects, organizes, and unifies first-party customer data from multiple sources to create a single, comprehensive customer profile. Marketers use CDPs to enhance audience segmentation, personalize campaigns, and improve targeting across digital advertising channels.

Real-Time Bidding (RTB)

Real-Time Bidding (RTB) is an automated auction process where advertisers bid on individual ad impressions in milliseconds, ensuring the highest bidder wins the placement. Unlike header bidding, which allows multiple demand sources to bid simultaneously before calling the ad server, RTB operates impression by impression, optimizing ad delivery in real-time.

How Does Programmatic Advertising Work?

To break programmatic down into simpler terms, advertising usually involves two parties: the advertisers who want to run an ad, and the publishers who own the platforms and websites where those ads can be run. Here’s how it all comes together:

Publishers List Inventory – Publishers make their ad space available through a supply-side platform, setting floor prices and listing inventory on an ad exchange or ad network for advertisers to bid on.
Advertisers Set Up Campaigns – Advertisers use a demand-side platform to define budgets, audience targeting, and bidding strategies, often leveraging audience insights from a data management platform or customer data platform to refine their approach.
Real-Time Bidding (RTB) – When a user visits a website or streams content, the ad exchange triggers an automated auction, allowing multiple DSPs to bid on the available impression within milliseconds.
Winning Bid Is Selected & Ad Is Served – The highest bid that meets the publisher’s criteria wins, and the ad is instantly displayed to the user.
Performance Is Tracked & Optimized – Advertisers use DSP analytics and real-time reporting to measure performance, refine targeting, and optimize future bidding strategies for better results.

Programmatic Marketing Best Practices & Strategies

Now that you understand the benefits of programmatic advertising, it’s time to explore how you can get started running ads through programmatic.

Here are 10 fundamental strategies and best practices to consider when you’re kicking things off.

1. Define Clear Campaign Objectives

Establish specific goals, whether it’s brand awareness, lead generation, or direct conversions. A well-defined objective helps optimize bidding strategies, targeting, and creative execution.

2. Leverage First-Party Data

Use data from your website, CRM, and customer interactions to refine audience targeting. First-party data ensures higher accuracy and relevance, leading to better ad performance.

3. Utilize AI-Powered Optimization

AI-driven tools can analyze campaign performance in real time and adjust bids, placements, and targeting automatically. This improves efficiency while reducing wasted ad spend.

4. Implement Audience Segmentation

Break down your audience into smaller segments based on demographics, behaviors, and interests. This allows for more personalized messaging and higher engagement rates.

5. Prioritize Brand Safety

Use supply-side controls, blocklists, and premium inventory sources to prevent ads from appearing on low-quality or inappropriate content. Brand-safe placements protect reputation and improve campaign effectiveness.

6. Test and Iterate Ad Creatives

A/B test different ad formats, visuals, and messaging to identify what resonates best with your audience. Continuous creative testing helps improve engagement and conversion rates over time.

7. Optimize for Cross-Device Reach

Ensure your programmatic campaigns are optimized for mobile, desktop, and Connected TV (CTV). A seamless cross-device strategy improves user experience and maximizes reach.

8. Use Real-Time Reporting and Analytics

Monitor performance with live dashboards that track impressions, clicks, and conversions. Real-time insights allow for quick adjustments to improve results.

9. Balance Open Market and Private Marketplace Deals

Open exchanges offer broad reach, but private marketplaces (PMPs) provide access to premium inventory with less competition. A mix of both ensures quality placements and scalable reach.

10. Continuously Refine Targeting Strategies

Regularly analyze audience insights and adjust targeting criteria based on performance data. Refining targeting over time improves ROI and prevents wasted ad spend.

Measuring Programmatic Ads

Programmatic ads can be evaluated using various metrics, each corresponding to different campaign goals. Here’s a breakdown of the most common marketing metrics used:

Goal: Increase Brand Awareness

Impressions: The total number of times the ad was displayed.
Reach: The number of unique viewers exposed to the ad.
Frequency: The average number of times the ad was shown to each viewer.

Goal: Drive Engagement

Click-Through Rate (CTR): The percentage of impressions that resulted in a click, indicating the ad’s effectiveness in encouraging users to take action.
Engagement Rate: For interactive ads, the percentage of users who interacted with the ad beyond just clicking (e.g., hovering, expanding).

Goal: Generate Leads

Conversion Rate: The percentage of users who took a specific action (like filling out a form) after clicking the ad.
Cost Per Lead (CPL): The cost of acquiring a lead, calculated by dividing the total cost of the campaign by the number of leads generated.

Goal: Boost Sales

Return on Ad Spend (ROAS): The total revenue generated from the campaign divided by the total ad spend.
Cost Per Acquisition (CPA): The cost of acquiring a customer, not just a lead, through the campaign.

Goal: Improve ROI

ROI (Return on Investment): Measures the profitability of the campaign, calculated by (Revenue – Cost of the campaign) / Cost of the campaign.
Customer Lifetime Value (CLTV): An estimate of the total value your business can expect from a single customer account.

Goal: Optimize for Quality Traffic

Bounce Rate: The percentage of visitors who navigate away from the site after viewing only one page, indicating the relevance and engagement of the landing page.
Pages per Session: The average number of pages viewed during a session, reflecting the depth of engagement.

What Platforms Sell Programmatic Ads?

Several platforms sell programmatic display ads, each with its own features and benefits. Here is a list of some examples:

SmartyAds
TubeMogul
Simpli.fi
MediaMath
Pubmatic

How Much Does Programmatic Advertising Cost?

Like most other forms of advertising, the cost of programmatic advertising will vary based on how many impressions are traded and the quality of those impressions. Programmatic advertising is usually traded on a CPM basis (that is, cost per 1,000 ad impressions).

Here are the primary factors most likely to influence campaign costs:

Ad Format & Placement – High-impact placements such as native and interactive ads typically cost more than standard display ads due to higher engagement potential.
Audience Targeting & Data Usage – The more refined your targeting (e.g., firmographics, intent data, or ABM lists for B2B), the higher the cost per impression.
Bidding Competition & Demand – Ad costs fluctuate based on competition for premium inventory, with highly sought-after audiences and time slots driving up bids.
Campaign Duration & Frequency – Running ads for an extended period or increasing ad frequency per user requires a larger budget to maintain reach and visibility.
Buying Method & Platform Fees – Costs vary depending on whether ads are purchased via real-time bidding (RTB), private marketplace (PMP) deals, or direct programmatic buys, each with different pricing structures and platform fees.

Programmatic Advertising Examples

Programmatic advertising comes in many shapes and sizes. Here are a few of the most common examples:

Real-Time Bidding (RTB) for Display Ads: Advertisers use automated software to bid on ad space on websites in real time, aiming to show their display ads (like banners) to a specific audience based on demographics, interests, or browsing behavior.
Programmatic Direct for Premium Inventory: A publisher agrees to sell a specific amount of ad inventory at a set price directly to an advertiser through automated tools, ensuring the advertiser gets guaranteed placement and impressions on high-quality sites without going through the auction process.
Programmatic Video Ads on Connected TV (CTV): Advertisers automate the buying of video ad slots on streaming platforms and services, targeting audiences watching content on connected TVs based on specific viewer data, such as viewing habits or demographic information, to maximize engagement and reach.

Are Facebook Ads Programmatic?

Yes, Facebook Ads can be considered programmatic advertising. Facebook uses an automated auction system called Facebook Ads Manager to sell ad inventory to advertisers. Advertisers can target their ads based on user data collected by Facebook, such as demographics, interests, and behavior.

Are Google Ads Programmatic?

Yes, Google Ads are programmatic. Google Ads uses automated technologies to facilitate the buying and selling of advertising inventory in real time, allowing advertisers to bid on ad space through an auction-based system. This means that the ad-buying process is automated and data-driven, which is a key characteristic of programmatic advertising.

Are YouTube Ads Programmatic?

Yes, YouTube ads are also considered programmatic as they are bought and sold through automated bidding processes and are targeted to specific audiences using data and algorithms. YouTube’s programmatic advertising is facilitated through Google Ads and the Google Marketing Platform.

Are Amazon Ads Programmatic?

Yes, Amazon Ads are programmatic. Amazon Advertising provides programmatic advertising solutions for display, video, and audio ads through the Amazon DSP (Demand-Side Platform), which allows advertisers to buy and manage ad inventory across multiple platforms and exchanges in real time.

Programmatic Ads With Performance TV

Want the efficiency of programmatic advertising without the uncertainty of open exchanges? MNTN’s platform automates the buying process while ensuring your OTT advertising campaigns only run on premium streaming networks. That means precise targeting, real-time optimization, and full transparency—so every dollar drives measurable results.

Here’s what you get with MNTN Performance TV:

Premium CTV Inventory – Secure guaranteed placements on top streaming services, avoiding low-quality programmatic inventory.
MNTN Matched – AI-driven targeting pinpoints high-intent viewers, ensuring your ads reach the right audience at the right time.
Verified Visits™ Attribution – Ties ad views directly to site visits and conversions, providing clear performance insights.
Automated Optimization – AI continuously refines your campaign to improve efficiency, engagement, and ROI.
Reporting Suite – Access real-time data on performance and audience behavior to optimize your strategy with confidence.

Make programmatic work for you—run smarter, high-impact TV advertising campaigns with MNTN’s self-serve software—sign up today.

Programmatic Advertising: Final Thoughts

Ultimately, programmatic advertising and media buying are making it easier than ever for advertisers to easily reach their target audiences by automating the ad buying process. And by working with a platform like Performance TV, you can go one step further and serve your ads on the powerhouse channel of Connected TV.