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What Is Programmatic Advertising?

Programmatic advertising refers to the use of automated marketing technology (MarTech) in order to purchase and sell ad space for digital media advertising purposes.

This automated technology differs from traditional means of digital advertising—particularly manual methods that require evaluation before purchase—and allows users to let algorithms perform the bulk of the heavy lifting, using data insights to determine the best use of a marketing budget.

In this blog, we’re going to go over what exactly programmatic advertising is, why it’s important, and how it’s used by organizations of all sizes today.

Programmatic Advertising Explained

Programmatic advertising can broadly be defined as automated media buying.

There are, however, several accompanying processes and terms associated with programmatic advertising that help define the different aspects involved in the process as a whole.

Programmatic media buying comes in three categories:

  • Real-time bidding (RTB): RTB is open to any advertiser or publisher and refers to a practice in which the prices of ad space are determined through real-time bids from advertisers. This is considered one of the most cost-effective ways for paid media advertising.
  • Private Marketplace (PMP): These differ from RTB in that only invited advertisers can place bids on ad space. As far as publishers are concerned, this allows them to be more discerning in who buys media space on their websites.
  • Programmatic Direct: This refers to when publishers do not use auctions to sell their ad space, instead selling media inventory at a fixed cost to advertisers.

Roughly 90% of programmatic buying goes through Real-Time Bidding.

In addition to these different types of media buying, there are several components that are used in the facilitation of these trades. These are:

  • Sell-side Platform (SSP): SSPs allow publishers to sell display, mobile, and video ad impressions to buyers in real-time.
  • Demand-side Platform (DSP): This kind of software facilitates advertisers to buy media space across platforms.
  • Ad exchange: A demand-side platform (DSP) and sell-side platform (SSP) will connect to an ad exchange, allowing advertisers, agencies, and publishers to buy and sell digital media space. An ad exchange effectively functions as a trading floor go-between for advertisers and publishers, where prices are agreed for the value of ad space.

What Is Programmatic Advertising? | Global programmatic advertising spending from 2017 to 2021

Relevance of Programmatic Advertising Today

Programmatic advertising, as with other forms of automated technology frequently used across all lines of business today, such as robotic process automation (RPA) for workflows and machine learning (ML) for the purposes of data analysis, is becoming more relevant as companies look to increasingly leverage automated technology in their workflows.

Marketing and advertising are no different in this regard, and efforts to automate working processes associated with them have seen an enormous boost in popularity.

More than half of marketers (56%) think the MarTech industry is evolving faster than their companies’ use of marketing technology.

Why Is Programmatic Advertising Widely Used?

At the heart of every digital innovation initiative that seeks to leverage automation, the ultimate goal is to improve efficiency, thus inducing cost-savings and better use of labor, in addition to benefits that result in a greater return on marketing investment spend.

In the case of programmatic advertising, automation is used to match the most appropriate publishers with the most appropriate advertisers.

For publishers, this means hosting media from advertisers who are on-brand.

For advertisers, this means publishing their digital media on websites that will provide the largest audience and the biggest bang for their buck.

For a producer of cooking utensils, for example, an audience from a food blog website will be far more receptive than a travel blog.

The sheer millions of websites that exist today make it simply impossible for advertisers to effectively vet publishers manually, and so programmatic advertising is favored by the vast majority of businesses today.

By the end of 2021, 88% of all digital display marketing in the US was spent through programmatic advertising.

Digital Marketing and Advertising for Businesses In 2022

Digital marketing is an essential tool for organizations of virtually all sizes in today’s market.

While marketing has been trending towards a far greater emphasis on digital versus traditional marketing for a number of years, the COVID pandemic sped this process up to a large degree, with companies recognizing the need to use digital ads—predominantly Google and Facebook ads—to perform outreach to their target audiences.

This has particularly been the case in terms of buying media space for local ads—necessary for local businesses that have been hit hardest by pandemic restrictions and a decline of traditional brick-and-mortar stores.

Digital advertising on websites is the today the dominant form of ad spend worldwide, with digital ad spend accounting for a whopping 61% of total media ad spend in 2021. By 2024, this figure is expected to have reached 68% and has seen double-digit growth for much of the last decade.

Are Google and Facebook Enough for Your Business? 

For many organizations, they may be wondering if Google Adwords and Facebook Ads are enough for the digital marketing needs of their company.

Google and Facebook ads make up around 55% of the entire digital ads market.

These two platforms serve as examples of programmatic advertising and represent over half of the entire digital ads market (inventory).

What should be made clear, however, is that Google and Facebook alone will not cover every base that may be necessary for a business in its digital marketing needs, as there is still half a market aside from these two giants that can be advertised with.

In short, if organizations want to access the widest inventory possible for the placement of their digital ads, they will need to branch out from Google and Facebook.

For organizations that want to engage with a wider market than these two providers of programmatic advertising alone, there are several other platforms that can be used for their advertising needs.

What Are the Advantages of Programmatic Advertising?

As far as advertisers are concerned, there are several benefits that can be realized from using programmatic advertising platforms for digital media campaigns.

These are:

  • Scalability: Programmatic advertising can be scaled in real-time, allowing marketers to increase their budget (and ad space purchased as a result) with ease.
  • Flexibility: Depending on a number of mitigating factors, such as target audience, locale, and other demographic stipulations, campaigns can be changed on a dime and ad inventory on different websites can be bought in real-time if it’s more appropriate.
  • Improved targeting: Programmatic advertising allows organizations to tailor their campaigns using information that provides for highly-focused ads that target extremely particular audiences.
  • Better ROI: Because the process is automated and campaigns are more scalable, flexible, and targeted, businesses receive a far better return on their investment than previously possible.

How Is the Cost of Inventory Space Determined?

The cost of ads purchased by advertisers from publishers is determined by a number of factors which can vary significantly.

These factors are:

  • Industry type
  • Mobile or website ad space
  • Format of digital ad
  • Placement of advertisement on page

Should Organizations Use Programmatic Advertising for their Campaigns?

For the majority of organizations today, platforms that use programmatic advertising will provide the best return on investment for their digital media campaigns.

Companies have for a long time been shifting towards these types of platforms precisely because of the benefits they can provide—largely as a result of the large marketplace for inventory that can be accessed and the ability to more effectively target prospects.

Bottom Line

Programmatic advertising refers to automated platforms that connect publishers and advertisers to find the best match for paid media campaigns.

This form of advertising has seen a huge rise in investment in recent years, particularly as organizations look to streamline their budgets and focus their digital technology investments on other aspects of marketing—like tools such as customer relationship management (CRM) and marketing automation platforms.

For companies that are yet to invest or only use Google Adwords and Facebook Ads, it’s worth considering if campaigns would be better served through the use of programmatic advertising.

Impact provides marketing services and strategy to businesses, using marketing technologies that provide the best value for money and campaigns that work. For more information, take a look at our managed marketing services now.