INDUSTRY FUNDAMENTALS: UNPACKING PROGRAMMATIC ADVERTISING
Published on April 22, 2020
Since the dawn of digital advertising, the way we buy and sell media has evolved. From the emergence of the first ad servers such as DoubleClick in 1996, we saw full-blown ad networks and ad exchanges from 2007 to 2010 that signalled the era of programmatic as we know it today. Spurred on by large tech companies such as Google, Microsoft, and Yahoo!, softwares that offered real-time bidding (RTB) capabilities began to fill the industry ecosystem.
Since then, greater emphasis has been placed on automation and data to better target advertisements to the right audience and programmatic advertising has graduated from being an experimental technology to become an essential tool in your arsenal as a marketer.
According to a forecast by Publicis Groupe’s Zenith Media, roughly 69 percent of digital advertising is bought and sold programmatically—and by the end of 2020, programmatic media spend is estimated to rise to a staggering US $127 billion! These numbers are indicative of just how vital programmatic advertising is to the digital marketing ecosystem.
To help you get up to speed, this blog will shine a light on everything you need to know about programmatic advertising.
What is it exactly?
When most people think of programmatic advertising, RTB is in fact what comes to mind. Let’s clear this up: RTB is only one form of programmatic buying. Simply put, RTB works just the way it sounds: in real time. Here, publishers engage with buyers through an auction system where they can monetise available ad space on their websites in a mere few seconds. In this system, advertising inventory is bought and sold on a per-impression basis.
If we zoom out a little, programmatic advertising simply describes the automated buying and selling of online ad space through the use of data-driven software. To help break this down, here’s a handy guide of all the different parties involved in the programmatic ecosystem.
- Advertisers: Those who want to buy ad space on the internet and represent the interests of brands who want to engage with their target audiences.
- Ad Servers: A technology that makes near-instant decisions about what ads should be shown on the website then serving them to the consumer. It also collects data regarding impressions, clicks, and other metrics so that advertisers can monitor the performance of their campaigns. Essentially advertising delivery & monitoring software
- Trading Desk: Operated by media agencies, a trading desk is essentially a team that handles the planning, buying, managing, and optimising of programmatic advertising campaigns. This allows advertisers to buy media at a lower price rather than handling their campaigns in-house.
- Demand-Side Platforms (DSP): DSPs are software companies which make purchasing decisions and choose ad space based on a given advertiser’s budget and targeting parameters. DSPs purchase media from publishers via supply-side platforms (SSPs) and ad exchanges.
- Ad Exchange: A computerised auction house, where advertisers and publishers buy and sell ad space through real-time auctions on a digital marketplace.
- Supply-Side Platforms (SSP): SSPs are software companies that act as the sellers for the publisher and media owners, letting advertisers know the characteristics of their website/app, audience classification, content and ad spaces.
- Publishers: The website owners with digital space to sell.
While traditional advertising purchases involved extensive processes such as requests for proposals and cost negotiations, programmatic advertising relies on algorithms to handle the sale and placement of digital ad impressions—in a mere fraction of a second. Programmatic advertising also incorporates traffic data and online targeting methods to serve impressions more accurately, efficiently, and at scale, which means better ROI for advertisers and publishers alike.
So how does it work?
There are multiple ways in which programmatic advertising can play out, but in its simplest form, ad space is purchased either through reserved deals (Called Programmatic direct or Preferred deals) or sold through a digital auction. Here’s an overview of the average programmatic buying with a DSP and SSP involved:
- A viewer clicks and lands on a website or an app triggering the automated buying process to start
- The website/app publisher puts the ad space for buying on their supply-side platform (SSP)
- Once the SSP receives the information on the ad space, they analyse the viewer’s cookies or device ID to determine factors such as their geography, demographics, interests, pages being viewed & technology being used (mobile, laptop or tablet + wifi or mobile data)
- The DSP assigns a value to the ad impression based on the website and viewer’s characteristics and makes a bid
Despite the many steps involved, the entire process happens in milliseconds, all while the page is loading for the user. Essentially, the programmatic platform collects user data such as demographics, interests, and browsing behaviour by analysing cookies or device IDs to pick out online audiences that would most benefit from seeing that particular ad. This way, the ad is better targeted and its impact is optimised.
The pros of programmatic
As one of the greatest advancements in the digital advertising ecosystem, programmatic advertising provides a host of benefits that were previously unimaginable for advertisers and publishers alike:
- Reaching the right audiences at the right time: With RTB, advertisers can gain a realistic sense of the traffic passing through a website at any given time. Aided by cross-site tracking and knowledge of the average visitor, they can strategically place their campaigns with greater assurances that they’re targeting the right people with the right messages and at the right time.
- Cost-efficient personalisation: Efficient programmatic ad buying rests on having a better understanding of consumers at your fingertips—if you want to target users with a specific interest, using a specific device, and located in a specific country, programmatic can help you do that. This ensures that advertisers aren’t letting their dollars go to waste with poorly targeted campaigns, and consumers are given relevant messages based on their profiles and preferences.
- Algorithmic automation: As an algorithmic form of ad buying, programmatic can allow for greater levels of automation, removing the need for human intervention. By setting parameters—be it for your target audience profile or your budget—you can sit back and let the campaign run on its own.
Navigating the challenges
Despite its benefits, however, programmatic advertising is far from perfect. In the wake of heightened data privacy regulations and significant infrastructural changes to today’s web browsers, programmatic is now seeing a fair number of drawbacks:
- The perils of non-compliant personalisation: RTB came under fire in 2019 for being non-privacy compliant under GDPR. In its report, the UK’s Information Commissioner’s Office (ICO) highlighted that many existing RTB systems fail to guarantee that individuals have security of their personal data and how it is being used.
- Cookies are crumbling: In January 2020, Google announced that it would be phasing out support for third-party cookies on Chrome by 2022, following in the footsteps of Mozilla Firefox and Safari. This effectively marks the end of cross-site tracking which is essential to programmatic ad placements.
- Bombarded by bots: A study by the Association of National Advertisers (ANA) revealed that programmatic ad buys displayed higher levels of fraud when compared to other forms of digital advertising and the advertising industry overall could lose approximately $7.2 billion globally to bots.
Looking to the future
In the face of ever-evolving challenges and an increasingly fragmented market, programmatic advertising has to continue to adapt to the changing landscape and provide new opportunities to tap into data and increase efficiency. Amid increased concerns surrounding fraud and brand safety, firms have looked to new solutions enabled by emerging technologies to potentially rise to the challenge.
The use of blockchain, for one, has shown some promise in addressing concerns about fraud, transparency, and inefficiency. For example, blockchain pilots like Project Proton were designed to introduce transparency and accountability to the advertising supply chain ecosystem. Aided by smart contracts—self-executing agreements that behave in accordance to pre-encoded terms—Project Proton is able to automate settlements to ensure that only verifiably fraud-free and brand-safe ads are paid for, making the potential savings in advertising dollars a huge benefit for both advertisers and publishers.
As the industry progressively shifts towards a model of greater accountability, transparency, clarity, and openness will be the cornerstone of programmatic technology in the future. The brands that realise this in time will stand to gain the most treasured asset—customer loyalty and trust.