What is Programmatic Advertising—and Should You Be Using It?

We all know the basic rules of real estate. There are sellers, and there are buyers. There’s land or a house or some other valuable structure, and someone owns it and wants to sell it. You can spend the time to find, haggle, and purchase the land yourself. You can undertake all the risks and work out all the financials and sort through paperwork and details on your own. It’s a big task, and a bigger ask. But it’s done every day.

Of course, if you want it to be easier and more secure, with better options presented to you, you can consult with a realtor. They act as an intermediary platform, connecting potential buyers with potential sellers. You’re probably asking what this has to do with advertising or digital media. After all, we can’t live inside a computer, so what use is land here?

Turns out, the internet is positively filled with real estate. 

But not for you or for me. For ad space.

Whenever you’re on a website, social network, or any other digital service, you’ve surely noticed it’s filled with ads. You can hardly scroll without seeing them. Often, you might find it eerie how much they appeal to you on a personal level. How do they know so much about you and what you want? How do these ads show up and appeal to you on this level? It’s like they watched your surfing and made ads just for you (they did—more on that below).

What you’re seeing is the digital real estate of programmatic advertising. The space for ads is the real estate, the company is the buyer, and the ad-serving platform is the realtor. Ad-serving platforms exist to automate the process of selling ad space with digital buyers. It’s called programmatic because it’s defined by a program, or in this case autonomously in the computer or software. With so much real estate online and so many buyers and sellers, the old method of human-to-human ad sales like RFP (request for proposal) ad process would take an infinite amount of time, be wasteful and inefficient, and not show ads to people based on their personal searches and history.

Here’s how this works.

First, you visit a website. Then, the website owner puts an ad impression up for auction. Advertisers bid for this impression, the highest bid wins (some things never change), the ad is shown (or served) to the viewer. And, if everything goes right, the searcher clicks on the ad and is taken to the company’s page. If everything goes really right, then the searcher converts into a customer by buying a product from the advertising company’s site or business.

All of this, by the way, is done in seconds.

You can see how, in the past, this system would’ve never worked. Time on sites and the instant gratification we associate with a seamless online experience would preclude anything more than a few seconds of delay. The ad needs to be shown quickly, within seconds. The searcher needs to see it without necessarily realizing it’s happening. It can’t disrupt their experience too much or they’ll get annoyed and leave; but it also can’t be too short and leave no impression at all.

Here’s a peek under the hood at how this happens.

At the end of the day, there are two parties involved in programmatic ad transactions: buyers (advertisers), and sellers (publishers). Each side has their own digital platform to facilitate the transaction for an ad exchange. Publishers, or site owners, platform owners, etc., use a supply-side platform (SSP) and advertisers use a demand-side platform (DSP). The DSP enables advertisers to buy ad impressions on websites, usually by targeting certain audiences as segmented by key demographics (age, gender, race, etc.). When an advertiser enters bids for ad space to the DSP, the DSP automatically sorts ad impressions based on the preset data, or audience targeting preferences.

There are multiple subtypes of programmatic advertising, such as real-time bidding (RTB) or static auctions. A static auction involves bulk buying ad space for thousands of potential ads upfront. RTB enables individualized bidding for ad impressions, which is a far more intricate and targeted method that segments audiences like a razor. There are also direct types of programmatic advertising buys, like buying guaranteed ad impressions from certain publishers, websites, or other digital spaces.

Ads are served to web users based on numerous factors, in particular their personal search histories (as recorded by cookies), expressed interests or public likes, or other accumulated data. There’s been a lot of debate in the media lately about the nature of personal data and how our profiles are reflected. But for the purposes of programmatic advertising, such personal data is essential to making sure ads are served to the most likely customers. If the system was perfected and worked exactly correct, you’d only see ads that are 100% tailored to you—and consequently, you’d want to see them. The system is still young enough that it can evolve and make this happen, with more practice and refinement.

The benefit for publishers and websites is that money exists for your space. If you have a successful website that is well-viewed and trafficked each month, then you can sell digital real estate and monetize your efforts. When you refine pages with SEO, for instance, you make your site show up better in search, allowing more visitors, and thus greater value to your pages for advertisers. The benefits are distinct and fairly classical, related closely to the economy of attention that originated in newspapers and eventually radio and television.

For advertisers, the benefits are equally pronounced. Once, advertisers were bound by the old dictum that half of your marketing budget was wasted—and nobody knew which half it was. You’d pair possibly relevant ads with possibly relevant publications, or come up with ads and show them to the widest audience possible to ensure possible conversion of at least a few of them (think the Super Bowl approach). Television networks broadcast shows for free and paid for it all by selling ads. You got programming for the price of a few ads about toilet paper, car insurance, medicine, or beer. It was buckshot advertising. You’d make something good, show it to as many people as possible, and hope for enough new customers to justify the cost of making the ads.

Programmatic advertising changed it all. It was intended to take the guesswork out of advertising. The web is visited by billions of people, with millions of searches a day. There are nearly a trillion websites, all competing for attention. With so many people online, it was an obvious marketing goldmine. A TV show might be watched by 10 million people one night, but Facebook alone has two billion users. Your odds of showing ads and having a good return were much higher—with a catch. Everyone else wanted it, too. Advertisers had to find a system that would segment audiences and sort by relevance, eliminating wasteful spending. Once could spend millions of ad dollars on the internet and hit no one if done wrong. But done right might finally end the dictum of the unknown half.

Programmatic ads reach more people. They also have broader transparency for both the DSP and SSP crowds. You can see tracking, audience demographics, metrics for ad response, and how individual ads and placements fare. You can tweak and modify, if needed. You get insights on turnover and ROI instantly. You can accurately gauge the success of a campaign at scale in real time. You can know where your money is going and what it’s bringing back to you. If it’s working, you can spend more and increase your revenue. If it’s going out but not coming back in, you can let it go and not waste any more money on it.

It’s common to hear marketers and advertising firms talk about key performance indicators (KPIs) and in particular click-through rate (CTR) as the main KPI. Since many types of programmatic ad platforms, such as Google Ads, rely on pay-per-click, where you allocate money based on how many people click a served ad, the CTR is often denoted as the main metric of success. But it isn’t the whole story. The internet is filled with click fraud, robo-clicks, and a lot of lurkers who click on accident or just want to see more but aren’t going to buy. The real metric for success is how many of those clickers actually buy what you’re selling. Success is measured by how much product you sell relative to your ad spend, much like in classical advertising (told you some things never change). So when designing a programmatic campaign, aim for the right target. Monitor CTR, but be aware it’s only a piece of the process.

All this being said, you likely want to know: is programmatic advertising right for you?

It may be a copout answer, but it really comes down to your goals and your budget. Programmatic isn’t right for everyone; many will have success with it where others will only pour good money after bad. We’ll walk through a few factors to consider.

What are you trying to do with your advertising campaign? Do you have an ecommerce site and want to grab more attention and sell more product? Programmatic might help you stand out from the massive digital commerce crowd. There are a lot of buyers online—and almost even more sellers. Getting beneficial attention from the right people can be a real hurdle. But programmatic advertising, with its specified targeting, audience and demographic breakdowns, and highly efficient automated process can deliver the results you need without a lot of potential waste and overhead.

If you’re a smaller company with a hyper-localized focus or a niche item, the type of wide-scale programmatic ad programs common to larger brands probably won’t pay off. But specified ads with niche appeal could benefit from a geographically or audience bound segmentation method. No matter what size of programmatic advertising campaign you’re considering running, focusing on high quality creative, essential, relevant keywords, and highly accurate audience information will save you lots of time, money, and heartache.

If you have a mid to large size marketing budget and want a smart way to spend it, programmatic advertising is a boon. If you don’t have much of a budget, there are more beneficial paths to success. With other types of programmatic ads, like video ads, native ads, and interactive ads or augmented reality (AR), the model for experimentation is robust. You can fit it into most marketing mixes, but determining where or if it fits is as much an art as designing the ad itself.

Ultimately, one other thing never changes: great ads appeal to people across the board. Poor quality content will be ineffective no matter how much money you spend on it. But truly great content can reach people like nothing else. In marketing and advertising, creativity is rewarded. Quality message that truly speaks to your target is rewarded by way of conversions. No matter what you do, be creative. Be independent. Know your brand, and don’t be afraid to take a chance to expand that brand with new technologies for reaching your customers.