What is Programmatic Advertising? The Ultimate Guide (2020)

Last updated on March 5th, 2020

The numbers don’t lie. In 2018, 80% of digital display marketing in the US was done via programmatic advertising.

So why, exactly, do marketers turn to programmatic for their display campaigns, and what is it really?

What is programmatic-cover

To put it short, programmatic advertising is a way to automatically buy and optimise digital campaigns, rather than buying directly from publishers.

It’s designed to replace human negotiations with machine learning and AI-optimisation.  The goal is to increase efficiency and transparency to both the advertiser and the publisher.

This is done through real-time auctions where ads are bought at the same as a visitor loads a website.

If you’re interested in learning a bit more about programmatic and how it works – this article is for you!

Programmatic advertising ecosystem
The Programmatic Ecosystem

Who uses programmatic?

Programmatic advertising exists in a wide range of digital channels, including display, mobile, video and social.

Traditional offline channels are well way on their way to become digitized too.

We’re starting to see out-of-home channels advertise programmatically through digital screens on bus stations, shopping malls, and billboards.

Previously, programmatic has been reserved for larger budgets and media agencies, but the rapid rise of self-service tools (like Match2One) gives smaller brands increased access to the technology and offers them the ability to compete with larger brands without going through expensive middlemen.

Definition of Programmatic Advertising

The use of Artificial Intelligence and machine learning to buy advertising in real-time, instead of going through human negotiations and pre-set prices.

A brief history of display advertising and the rise of programmatic

The first-ever online ad ran all the way back in 1994 on what is now Wired Magazine, but was then HotWired.com, and featured a banner from AT&T.

This display ad was revolutionary in its time but would today be considered bad practice. Here it is:

The first banner ad from at&t
You tried to click it – didn’t you?

In these early days of digital marketing, ads were traded in much the same way you’d buy a regular magazine ad.

Salespeople would reach agreements with advertisers to place a banner on a website for a specific time period. This meant the same banner was always displayed, no matter who visited the site.

The first central ad server, which allowed salespeople to sell ads on multiple websites, was created in 1995.

This meant you could, for instance, choose to show your ads across multiple news websites owned by the same company.

One of the first ad servers was DoubleClick, which was purchased by Google in 2007 for $3.1 Billion.

It’s still active today but has now been merged with Google’s marketing brand Google Marketing Platform.

Doubleclick ad server

In the early days, the number of publishers grew quicker than the number of advertisers – meaning there were more websites available than people willing to advertise on them.

This left publishers with an oversupply of ad space, and large quantities of unsold inventory.

Available ad space vs publishers
Available Ad Space vs. Advertisers

As a solution to this, ad networks were created. They are platforms that pool unsold ad space from several publishers and make it available to advertisers at a discounted rate.

Sort of like shopping from the discount bin at the store.

Premium inventory was still handled manually on a case-by-case basis, but the leftovers were auctioned off to the highest bidders.

The problem with this approach was targeting.

If you chose to advertise on a large publisher’s website there was no way of knowing who saw your ads.

Products aimed at an audience of, say, people over the age of 50 could just as well be shown to 25 year-olds.

This brought on the birth of Real-Time Bidding (RTB) – the first real instance of programmatic advertising.

To learn more about Real-Time Bidding, keep reading!

What is Real-Time Bidding (RTB)?

RTB is a way of buying and selling ads through real-time auctions, meaning transactions are made in the time it takes to load a webpage; around 100 ms.

Real Time Buying Process
The RTB process. Ads are traded in 100ms.

It works like this:

As a visitor enters a website, a request is sent to an ad-exchange with information on the website along with visitor data.

This information is then matched against available advertisers and a real-time auction takes place between the advertisers that match the criteria.

For instance, let’s say you visit a website that sells organic dog food, but you don’t make a purchase. Later you visit your favorite news site, and suddenly you see ads about organic dog food everywhere!

These ads are placed in front of you with the help of Real-Time Bidding.

The company selling dog food has simply stated: “I want to show my ads on these websites – but only to visitors who previously visited my site and didn’t make a purchase.”.

During the time it takes you to load the website an auction takes place between the organic dog food brand and everyone else who’s also interested in showing you ads.

The winning bidder gets to display its ad to you on the publisher’s website.

Historically, advertisers would place ads on websites they believed matched their target audience – so a company selling motorcycle helmets would maybe single out blogs about motorcycles, and manually buy placements on these sites.

Their banner ads would then be displayed to all visitors of that website, regardless of whether they’re relevant customers or not.

Real-Time Bidding allows for better and quicker targeting, enabling ads to be bought and sold on a per-case basis, meaning only visitors who are in your target audiences will be subjected to the ad.

For instance, a user might have previously visited a site that sells motorcycle helmets, and would, therefore, be a more relevant target for a helmet ad.

The advertiser would then increase the bid for these visitors, perhaps even outbidding large multinational brands. This type of real-time media buying was the beginning of programmatic technology.

Is Real-Time Bidding a form of Programmatic Buying?

Yes, RTB is a form of programmatic advertising, but not all programmatic uses Real-Time Bidding.

Programmatic vs RTB
Not all programmatic is RTB, but most of it is!

Programmatic is simply a way to automate ad buying, and RTB is one way this can be done.

Even though roughly 90% of programmatic buying goes through Real-Time Bidding, there are other ways of programmatic advertising, namely;

  • Programmatic Direct
    • A way to buy a guaranteed amount of impressions on specific sites.
    • Usually used for large “premium” formats like full-page takeover ads
    • Often involves a fixed-price agreement rather than an auction
  • Private Exchange buying (PMP)
    • An invitation-only marketplace where one or a select number of publishers invite specific advertisers to bid on their inventory space.
    • Used as a way of bypassing ad-exchanges altogether, where your buying platform plugs directly into the publisher’s inventory.
    • An auction usually takes place, but the terms of the deal are pre-negotiated, creating a more manual environment than regular RTB.

So what exactly is the difference between RTB and Programmatic?

Real-Time Bidding is just one part of the programmatic advertising ecosystem.

It’s a way of auctioning out ad space on a case-by-case basis rather than a carpet-bombing approach where everybody sees the same ad.

For a programmatic system to work properly there needs to be other key components in place.

On the advertiser’s side, this would be a Demand-Side Platform (DSP), connected to a Data Management Platform (DMP).

Suppliers (publishers) use a Supply-Side Platform (SSP) to distribute their available inventory across one or multiple Ad-Exchanges.

That’s a lot of terms to keep track of, but don’t worry. If you keep reading you’ll find out what they mean!

What is an Ad Exchange?

An Ad Exchange is where publishers meet advertisers and agree on a price to display their ads.

It functions much like the trading floor of a stock market, but for digital display advertising.

Nowadays, most ad exchanges operate through real-time auctions, where an ad purchase is made at the same time as a visitor loads a website.  

What is an ad exchange
How an ad exchange works

The ad exchange sits in the middle of the programmatic ecosystem and is plugged into a Demand-Side Platform (DSP) on the advertiser’s side and a Supply-Side Platform (SSP) on the publisher’s side.

ad exchange role in programmatic
The role of an ad exchange in the programmatic landscape

What is the difference between an ad network and an ad exchange?

An ad network is a platform that’s connected to a certain number of websites, and offers inventory for advertisers on those sites, whereas an ad exchange is a trading floor where advertisers can buy ad space from multiple ad networks.

Ad exchange vs ad networks
The ad exchange connects to several ad networks.

Ad exchanges have traditionally been used as a way for publishers to auction off unsold inventory to the highest bidder, after having sold their premium inventory manually.

You’d simply throw your leftover space in a pool of other leftover space and hope someone bought it.

The rapid growth of programmatic ad buying has increased the relevance of ad exchanges, since most advertisers have seen the benefits of better targeting and real-time auctions.

Top ad exchanges 2019

There are numerous ad exchanges for publishers and advertisers to connect to. These are the biggest ones:

Mobile Ad Exchanges

Nowadays most ad exchanges also handle mobile inventory, since mobile is such a large part of the digital advertising landscape – but there is one Twitter-owned platform that focuses exclusively on in-app advertising.

This platform is called MoPub.

Ad exchange vs DSP

An ad exchange needs data to know which bidders qualify for certain websites and audiences.

This is handled by Demand-Side Platforms (DSP’s) and Supply-Side Platforms (SSP’s).

A DSP is what advertisers use to let an exchange know what they have to offer.

Read on to learn more about DSP’s.

What is a Demand-Side Platform (DSP)?

A demand-side platform is a tool or software that allows advertisers to buy ad placements automatically.

Historically, as more and more publishers offered advertising possibilities online, advertisers needed a way to manage placements and purchases automatically rather than dealing with salespeople and trading desks.

Many found these manual methods both expensive and unreliable – and DSP’s (like Match2one) help solve that problem.

How does a DSP work?

An advertiser signs up with a DSP, that in turn is connected to an ad exchange.

The ad exchange is where the actual buying and selling of ads and inventory takes place.

DSP Ecosystem
The DSP ecosystem

When a visitor reaches a website that’s connected to the ad exchange, an auction signal is sent to the exchange.

The exchange then asks the DSP if the advertiser has any ads that might fit the placement.

If it does, the DSP sends a signal to enter a real-time bidding auction together with other advertisers to compete over the placement.

The winning bidder gets to show his ad to the website visitor.

This is the foundation of programmatic advertising on the advertiser’s side.

What is the difference between a DSP and an SSP?

A DSP and an SSP simply connect to different parts of the programmatic ecosystem.

A Demand-side Platform (DSP) is the advertiser’s tool to help organize ad-buying – while a Supply-Side Platform (SSP) is what publishers use to connect their inventory to ad exchanges.

Mobile DSP

Most DSP’s today can handle both mobile and desktop inventory. There are ad formats that do very well both on mobile and traditional displays.

You can learn more about the most popular banner formats in this post, but the main one to keep in mind is:

  • 300×250 Medium Rectangle Ad
300x250 medium rectangle banner
300×250 Medium Rectangle Banner

This one banner size makes up 40% of all display advertising impressions and works well both on mobile and desktop.

Is Google Adwords a DSP?

Technically, yes, Adwords (or Google Ads as they’re now called) is a type of Demand-Side Platform – but it’s only limited to Google’s inventory.

Even though the Google Display Network has access to a large percentage of the world’s websites, there are places where they have no reach.

One of the main benefits of using a 3rd-party self-service programmatic DSP is you get access to inventory that isn’t covered by Google’s ad network.

Facebook display ads, for instance, are not part of Google’s ad inventory.

This means if you run your campaigns through the Google Display Network they will not be displayed on Facebook.

As an advertiser you’d generally want to have access to as much inventory as possible.

Especially when running programmatic advertising campaigns, since this increases your chances of finding profitable placements.

With Match2One you get access to the Google Display Network – but also other ad networks like AppNexus, that might find you more profitable placements.

What is a Supply-Side Platform (SSP)?

In much the same way advertisers use Demand-Side Platforms to manage their programmatic ad buying, publishers use a Supply-Side Platform to manage their display space.

What was previously a manual process where each publisher would have salespeople responsible for reaching out to advertisers and selling ad space has now been automated by Supply-Side Platforms.

The SSP connects to an ad exchange and tells it what kind of inventory is available – and through Real-Time Bidding this inventory is automatically auctioned off to the highest bidder.

SSP Supply Side Platform
The Supply-Side programmatic ecosystem

Of course, a DSP’s job is to buy programmatic ad space as cheaply as possible from publishers, but an SSP has the opposite function – selling ad space for the highest possible price.

An SSP can connect to several different ad exchanges in order to maximize the publisher’s exposure to potential buyers.

Through an SSP a publisher can also control inventory in a more efficient way; you can set minimum prices and dictate specific buyers or specific channels.

Which are the top SSP’s in 2019?

Many DSP’s also manage Supply-Side Platforms. These are the top 10 SSP’s on the market right now, according to g2crowd:

  1. AerServ
  2. Appnexus
  3. DoubleClick for Publishers
  4. BrightRoll Ad Exchange
  5. MoPub
  6. OpenX
  7. ONE by AOL
  8. PubMatic
  9. Rubicon Project, For Sellers
  10. ADYOULIKE
  11. SmartyAds SSP

Ad exchange vs SSP

SSP’s are, among other things, used to distribute inventory across multiple ad exchanges – so a publisher connects his website to an SSP and tells it I have these placements and formats available, and the SSP connects that inventory to one or several ad exchanges.

How much does an SSP Cost?

All Supply-Side Platforms charge their own commissions, and many have add-on services that cost extra.

An average fee would typically be around 10-20% – with additional charges for things like Data Management Platforms and programmatic functionalities.

It’s important to know what you want to get out of your SSP before committing to one. Do you need programmatic features? What kind of targeting options do you want?

Once you know what you need – start shopping around from the list above!

What is a Data Management Platform (DMP)?

A data management platform is used to collect, store and sort information.

In programmatic, DMP’s are most often used in combination with a Demand-Side Platform on the advertiser’s side – or a Supply-Side Platform on the publisher’s side.

What is a DMP
A DMP connects to a DSP and feeds it data

In order to properly target ads to specific visitors, a DMP needs to be in place to sort and segment incoming cookie data.

DMP vs DSP

To take full advantage of the many benefits of programmatic advertising, a Demand-Side Platform needs to be connected to a Data Management Platform.

The DSP is what handles the actual buying of ad space, whereas the DMP is used to sort data and fuel ad-buying decisions.

A DMP on its own is basically a file cabinet with information on users, and if it’s not connected to a DSP it can’t do much.

Likewise, a DSP on its own cannot make informed decisions on where to buy ad space.

They both need to exist in the ecosystem.

Many Demand Side Platforms now integrate DMP solutions directly into their tools, in order to offer advertisers a more complete solution.

Match2One is both a DSP and a DMP in one, meaning there is no need for 3rd party data management software.

The main benefit of an integrated Data Management Platform is the access you get to programmatic targeting options.

Below you’ll find more information about what kind of targeting is available with your programmatic advertising campaigns.

What is Programmatic Targeting?

There are a number of ways you can choose to target your ads with programmatic advertising, to achieve better accuracy and results.

These are the most common ways advertisers use to target their ads:

  • Contextual Targeting
    • Contextual targeting aims to show ads based on the context of a website. For instance; a fashion brand might choose to be seen on Vogue Magazine’s site, but a company selling financial services may have better luck with Forbes.
  • Keyword Targeting
    • A type of contextual targeting that focuses on serving ads based on specific keywords. For instance, if you sell bicycle spare parts you could supply a list of keywords based around that subject. You might want to be seen in articles mentioning cycling or bicycle safety, but not motorcycle gear or electric bicycles.
    • Your list of keywords is matched to the keywords used in the article to provide the best match for your ads.
  • Data Targeting (Audience Targeting)
    • Ads can also be shown based on user’s cookies rather than the context of a website – meaning that a user who’s previously visited your financial services site could be served an ad for your brand even if they’re visiting Vogue next, since they have already shown an interest in what you’re offering.
  • Geo-Targeting (Location-Based Targeting or Geo-Fencing)
    • Brands use geo-targeting to reach customers that are relevant to their locality. If you run a physical clothing store in Paris, it might not make sense to show ads to people who are based in Rome.
    • For international brands or online services, geo-targeting can be used to serve language-specific ads tailored to audiences in a certain country.
  • Retargeting
    • On average 2% of visitors convert when they visit your site. Retargeting is aimed at bringing back the other 98%.
    • Whenever a potential customer visits your site a cookie is placed on their computer. This information can later be used to target ads to this specific person, increasing the chances of them returning to buy from you.
    • Retargeting is a highly efficient way of re-engaging people with your brand since they already have a relationship with you.

How much does programmatic advertising cost?

Programmatic is typically traded on a CPM basis, meaning cost per 1,000 ad impressions.

CPMs can range wildly based on the quality of the list and the level of targeting.

The higher the quality of inventory, or the more specific you want to be in your targeting, the higher the price.

Prices also vary by industry, device, format, and placement on the page.

On average, programmatic CPMs range around $0.50 to $2 CPM.

This is a huge cost benefit compared to human-driven trading, which normally sees prices around $10+.

That’s x5 the price!

So, programmatic can help you stretch your limited ad budgets 10 to 20 times further.

The low cost of programmatic offers an enormous benefit for small businesses with limited marketing budgets.

What’s next for programmatic advertising?

The final part of this article looks at the future of programmatic.

For a broader view of marketing trends in the near future, you can have a look at our top 17 digital marketing trends for 2019.

There’s a lot happening in programmatic right now, and many ad-tech companies are taking advantage of advances in Artificial Intelligence to help marketers achieve their goals.

Here are some of the trends we’re seeing right now.

Self-Service Platforms

Programmatic self-service platforms make it easier for smaller brands to compete with companies with larger budgets.

Programmatic ad-tech for SMB’s is a rapidly rising trend in the advertising industry. It’s opening up a whole new dimension that’s previously been largely inaccessible for smaller companies.

In-house Revolution

With self-service platforms, brands are finding ways to take their programmatic ad buying in-house rather than going through media agencies or other middlemen.

In fact, as many as 45% of brands did their programmatic buying themselves in 2018 – and this number is predicted to climb to 62% by 2022.

Programmatic inhouse prediction
60% of brands are predicted to take their programmatic advertising in-house by 2022

Conclusion

The future is bright for programmatic advertising and right now is an excellent time to get in on a rising trend.

Accessibility has never been better, especially for smaller brands, and hopefully, this article has given you a better view of what it’s all about.

If you’re excited to try programmatic and see what it can do for your display campaigns, Match2One is an excellent place to start!

We offer a self-service programmatic platform with no minimum spend and you can be set up with your campaign in minutes.

Just follow this link and get started today.

Are you going to try programmatic in 2020? Leave a comment below!

Don’t forget to share this article if you know someone who might be interested in learning more about programmatic!

Check out our customer stories to learn how others have achieved success in their advertising with Match2One.

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Ola Rask

Ola Rask

Head of Operations at Match2One - with a passion for engaging and well-designed content.

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23 comments

Borja says:

So clearly and comprehensively explained, chapeau!

NAZI says:

this is the first and probably my last one to understand programmatic advertising.
Great job done on the article!

Heather Long says:

Fantastic and well-explained article. Thank you!

Rahul says:

Hi,

Good Post!. Thank you so much for sharing this post, it was so clear and easy to understand.

Brian Nagele says:

Awesome stuff. Please keep writing more things like this. I really like the fact you went so in depth on this and really explored the topic as much as you did. I read a lot of blogs but usually, it’s pretty shallow content. Thanks for upping the game here!

Rasto says:

Thank you for this article.

I have been curious about UBEX AI ad platform and this article helped me to better understand, how programmatic ads working.

All information in one place – thanks again.

Rasto

Oshin Kamble says:

Hey,

Great article.
Loved the details.

Sameen Gul says:

Excellent article, simple and easy to understand. Thank you

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sandeep singh says:

nice blog and very easy to understand your blog keep sharing these type of blogs

Sudhamshu says:

Brilliant! Loved the way you explained.

Luis says:

Congrats to your post. You explained it very easy

Deepak Agharkar says:

This is a brilliant piece of explanation and was really helpful to gain some basic insight on how things work in a digital environment . It clearly indicates that there is more bang to your advertising media buck in the Digital arena

Ombre Digital says:

Ola, this is honestly one of the most informative articles we’ve ever read on programmatic and it broke out every aspect in lamens terms, especially why DMPs and so important in the cycle. We knew of the importance of the DMP on the buy side, but never on the sell side, so this was a good note to include.

If we had to include one thing in this model, it’s the consideration of programmatic direct vs. direct ad buys and how they fit in (although that might complicate things). Even with the rise of programmatic and all it’s wonderful excellence, there still is a market for direct ad buys with major publishers for premium inventory.

As a digital agency for smaller fashion brands, direct buys are out of reach, but if there was an opportunity to have premium pre-bid inventory on large sites like Vogue or Runway at programmatic type budgets, we would not pass that by.

Ola Rask says:

Hi,
Thank you for the great comments!
I appreciate the note about direct ad buys. It gave me some ideas for a follow-up to this article 🙂

Match2One was actually founded exactly because of what you’re describing – for companies who don’t have access to direct-buy. Our platform has access to premium inventory like Elle and Vogue, no matter which budget you’re on.

We’d love to help you get set up if you’re interested. Just reach out in the chat and someone will be in touch 🙂

Thanks and happy holidays!

Pradyuth Dutta says:

Very well explained. Nice and Informative Article.

Pradyuth Dutta says:

Nice and Informative Article

Angelique says:

Very informative and simple explanation to a complex topic. Thank you very much for posting this.

malika says:

Thanks for sharing good .

seoindiarank says:

Wow, amazing I saw the article with execution models you had posted. It was such informative. Really it is a wonderful article. Thank you for sharing and Please keep update like this type of article because I want to learn more relevant to this topic.

sanya says:

woah.. i didnt have any idea about these.. display screens is innovative and this article is helpful.

julesjohn says:

Hi!

I literally had wonderful time reading all of these details.
Good Post! Thank you so much for sharing this pretty post, it was so good to read and useful to improve my knowledge about video advertisement.