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

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

11 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, where advertisers can precisely target specific audiences and demographics, improving the efficiency and effectiveness of the advertising campaign.

Programmatic vs Display Ads

Programmatic and display ads are often used interchangeably in digital advertising conversations, but they refer to different aspects of online advertising.

  • Display ads, simply put, are a type of online advertising that comes in several forms, including banner ads, rich media, and more.
  • Programmatic advertising, on the other hand, is a method of buying and selling these display ads, among others like video, native, and audio ads.

The key difference between the two is that display ads are the format of the ad, while programmatic advertising is a method of buying those ads.

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:

  • 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.
  • Cost-effectiveness: 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.
  • 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.
  • 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.
  • 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.

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. Like with other methods of advertising, through programmatic advertising, publishers will sell their inventory and advertisers will buy that inventory and place ads on the publisher’s site or platform.

But rather than requiring the two parties to interact directly, programmatic media buying takes this human-based system and turns it into a software process that occurs in milliseconds. This makes buying and selling ads more efficient and cost-effective through an ecosystem of platforms and algorithms.

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. Ad exchanges make 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. 

Data Management Platform (DMP)

A 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.

Real-Time Bidding (RTB)

Real-Time Bidding (RTB) is a type of programmatic advertising process by which ad impressions are bought and sold. When an ad impression loads on a users’ device, an auction takes place where the advertiser willing to pay the highest price will win the ad space. This all takes place in the time it takes for a web page to load.

Private Marketplace (PMP)

A private marketplace gives publishers more control over who can buy their inventory than an ad exchange. Rather than letting anyone bid on their ad space, publishers use a private marketplace to offer that inventory to a select handful of their preferred clients or agencies.

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

Programmatic Advertising Strategies for Success

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 seven fundamental strategies and best practices to consider when you’re kicking things off.

1. Understand Your Target Audience

Before setting up any campaigns, you need to clearly define and understand your target audience. This includes their demographics, interests, behaviors, and any other relevant information that can help you tailor your ads more effectively.

2. Set Clear Goals and KPIs

Have a complete understanding of your objectives and key performance indicators (KPIs) before starting your campaign. These will guide your strategy and help you measure your success.

3. Choose the Right Tech Partners

It’s important to choose the right Demand Side Platform (DSP) and other tech partners that align with your goals and have a strong reputation for quality and transparency.

4. Leverage Data

Programmatic advertising is data-driven. Make sure to leverage both first-party and third-party data to drive your targeting strategies, and continually refine them based on campaign performance.

5. Dedicate a Budget for Testing

As with any new marketing initiative, it’s important to reserve a portion of your budget for testing. This will allow you to experiment with different strategies, analyze the results, and optimize your campaigns accordingly.

6. Monitor for Ad Fraud

Ad fraud, including non-human traffic and click fraud, is a potential risk in programmatic advertising due to its automated nature. Actively monitoring your campaigns for irregularities and using sophisticated ad fraud detection tools can protect your advertising budget, uphold the integrity of your data, and ensure that your ads are reaching real, engaged users.

7. Cross-Channel Integration

Synchronize your programmatic campaigns across all channels for a seamless and unified customer experience. Coordinated messaging and branding across different platforms and touchpoints can increase overall brand recognition and boost the effectiveness of your campaigns.

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?

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

  • SmartyAds
  • TubeMogul
  • 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). So when determining costs, it’s important to be aware that the more selective you are about audiences and the more users that you seek to target, the more it will end up costing. However, as compared to past methods of buying and selling ad inventory, programmatic does end up being more cost-effective.

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

Now that you know more about the world of programmatic advertising, you may be wondering about MNTN Performance TV. Similar to a DSP, Performance TV works with quality SSPs to streamline the ad buying auction process, specifically for Connected TV ads. And there are a number of benefits to utilizing Performance TV:

Living Room Quality: As discussed above, not at programmatic ads are created equal. But with Performance TV, MNTN ensures something called Living Room Quality, meaning that any OTT ads that run through our platform are served on exclusive top-tier networks like ESPN or ABC. These ads are also non-skippable and high-definition, and are automated to be served on inventory that will drive the best performance.

Transparent Reporting: Performance TV also allows you to see detailed reporting that breaks down your performance into the metrics and KPIs that matter most to you. Unlike standard programmatic, which can often be very blackbox, we will provide you with a TV Network report—giving you insight into the publishers and channels that generated the best performance for your campaign. With this information, you’ll know for sure the kind of content your audiences are engaging with. MNTN also allows you to measure your CTV performance across the whole household. Verified Visits™ allows you to know for sure when someone sees your ad, what device they convert on, and whether your campaign was the reason why. 

Creative-as-a-SubscriptionTM: But what does trackable performance matter on a premier network if you don’t have a high-quality ad to run? Enter Creative-as-a-Subscription, or CaaS, which allows you to bundle your creative and media costs together in one easy package. This means that not only are you able to get custom, high-performing TV creative, but you can run them through a CTV campaign all for the same cost you would already be spending on media.

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.