What is Programmatic Advertising and How Does it Work?

Do you know that 65% of marketers said that they spend a chunk of their advertising budget on programmatic advertising, as far back as 2016 (yes 2016 is ‘far back’ because everything is always racing in technology)?

You may not know jack about programmatic advertising but then you will agree that everyone wants to favourably position his or her business, both the top dogs and the underdogs.

Quite interestingly, programmatic marketing proves itself, on a daily basis, as the way forward since there has been a mass departure from traditional marketing as we have always known it. This means that to stay relevant in the game, you have to keep learning about the latest trends and how to maximise them.

In this vein, we have taken the time to break down this seemingly difficult concept into simple and relatable terms. Highlighting what programmatic advertising entails, what you stand to gain by buying into it and practical tips for effective utilization, this article is one of the resources you need so as to learn how to clinch a favourable spot for your business.

About programmatic advertising

Programmatic advertising, also known as programmatic display advertising, is an automatic process of planning, buying and selling ad inventory. Ad inventory is an online space available for advertisements on digital media. Before advertising was programmatic, it was done manually.

In purchasing manual orders, advertisers were in contact with a sales team for:

  • Requesting for proposals: It is a document that solicits proposal in procurement of online ad space
  • Bidding: It is an offering of certain price at an auction
  • Quotation: It is an estimated price deal for displaying online ad
  • Human negotiation: It is discussion regarding sale and purchase of online ad space aimed at reaching an agreement

However, with programmatic advertising platform, a software is used for purchasing digital advertising. Programmatic then allows for preparing insertion order (IO) or an ad tag, with the help of the software.

IO, or an insertion order, is a written authorization to publish/display an ad. Generally, it includes,

  • info regarding date of insertion
  • number of insertions in a specific period
  • ad format and size
  • ad placement, that at the header, side, bottom or over the content

In practical terms, it is a purchase order. It is issued through an ad agency or a media representative.

This prior to programmatic was a labor-intensive task. Nevertheless, the new system can efficiently take care of routine tasks like:

  • Distributing insertion orders to publishers
  • Tracking and record keeping of ad tags

However, humans will sit back and reflect on:

  • Optimizing customized and sophisticated campaigns
  • Planning strategies for scaling

How does programmatic advertising work?

Once an ad is bought with programmatic advertising,  the algorithms evaluate user analytics, on the following basis:

  • Behavior
  • Engagement level
  • Social engagement
  • Location
  • Time per visit

This data helps the system in planning and determining what ad content is relevant to a particular user. Accordingly, the ad is displayed as an impression on the page. The aim of the ad is to attract user to click on it.

For instance, a user is scanning some blog related to “baby food”.  The ad tech system evaluates the user and displays an ad related to “offers on baby food item” or “baby food pouches”.

Thus, by targeting ads to specific users, programmatic advertising can increase efficiency of an ad campaign.

Example of Programmatic Advertising 

Let’s consider the following scenario: 

A company wants to sell designer wear for women. It hires a programmatic advertising platform that can identify consumers by factors like: 

  • Gender
  • Age group (18-35)
  • Interests
  • Shopping habits
  • Behaviours (read fashion blogs at late night)
  • Device(laptop/smartphone/table)

The platform uses real-time data to analyze and identify the most suited audience for the campaign. Personalized advertisements will then be displayed based on the unique interests and behaviour of the consumers.

Digital ad inventory is bought through an auction on whatever is available across different platform.

By the use of AI (Artificial intelligence), the performance is highly optimized and meaningful insights are generated. 

In a study done by the popular internet market research company Statista, it was revealed that the global programmatic display advertising spending has reached 105.95 billion U.S. dollars in the year 2019.

The amount is expected to hit 147 billion U.S. dollars by the year 2020.

Source: Statista

How does programmatic advertising work?

programmatic advertising

Once an ad is bought with programmatic advertising then the algorithms evaluate user analytics, on the following basis:

  • Behavior
  • Engagement level
  • Social engagement
  • Location
  • Time per visit

This data helps the system in planning and determining what ad content is relevant to a particular user. Accordingly, ad is displayed as an impression on the page. The aim of the ad is to attract user to click on it.

For instance, a user is scanning some blog related to “baby food”.  The ad tech system evaluates the user and displays an ad related to “offers on baby food item” or “baby food pouches”.

Thus, by targeting ad to specific user, programmatic advertising can increase efficiency of an ad campaign.

Programmatic advertising vs. Real Time Bidding (RTB)

There is a huge difference between programmatic and real time bidding (RTB). RTB as the name suggests is a process that allows ad space to be bought and sold on per-impression basis. It one of the several ways for purchasing space in an online world.

It is facilitated by an ad exchange, DSP and SSP.

  • DSP: Demand side platform (DSP) allows advertiser to access ad inventories cross digital environments.
  • SSP: Sellers and media owners who have inventories to sell use supply-side platform or SSP
  • Ad exchange: Ad exchange sits between the two – DSP and SSP. Buyers bid for available inventory that matches the criterion in their DSP. Bid with the highest price win and thus the ad is served.

Programmatic advertising is a technology that enables advertisers to automatically target audience. The audience is ‘selected’ because of certain metrics that are obtained through algorithms.

It is not necessary that advertisers who employ programmatic make use of RTB to purchase.  They can buy inventory space in “traditional way” but utilizing programmatic technology. This process has been termed as Programmatic Direct.

What is programmatic direct?

Programmatic direct utilizes one-to-one interaction, that is, between advertiser and publisher. It is very much like the conventional buying of ad inventory. However, software is added into the system.

In here, terms and conditions of media-campaign is previously decided by the advertiser and publisher. Finally, AdTech platform is used for automating the delivery and tracking of the campaigns.

What is programmatic TV advertising?

As the name suggests, programmatic TV advertising is technology enabled data-driven method of buying and delivering ads against TV content.

Television media alone is a huge market. In 2018, $84 billion was the TV ads spend in the US. Television ad business on “connected TV” is running programmatic ads.

By “connected TV” we mean, watching TV content over internet.

Consumers are using content at their own leisure and choice of device. Netflix and Amazon are giving direct-to-consumer services. This has drastically changed the consumer expectations around ads. Eventually, this could pose a threat to traditional ad-break model.

Hence, advertisers have started targeting ads through programmatic TV advertising platform.

Although, programmatic TV advertising is still in its infancy but it is growing steadily. Currently, 44% advertisers are doing programmatic TV.

What is programmatic native advertising?

Native programmatic advertising is native advertising but with a technology backup, that enables advertisers to make native ads even more relevant.

Native advertising means, ads within a content. They look like part of the editorial flow. Generally, they are placed on social media feeds or are under ‘recommended’ section.

Native ads are super compelling, specially the pictorial part, hence, people tend to click on it easily. As per statistics, spending on native advertising in the United States was $21 billion in 2018.

These ads give good result cross mobile devices. As per BI Intelligence, native ads will account for 63% of mobile ad revenue by 2020, up from 53% in 2016.

What is programmatic video advertising?

Programmatic video advertising uses algorithms to deliver video ads in existing creative video content.

Currently, advertisers are leveraging on three different types of video ads. They are:

  • Instream video ads:

They are delivered ‘before’ or ‘in-between’ video content. With an enabled “skip” option, they usually consume 15 to 30 seconds.

  • Outstream video ads:

They do not require video players to run. They are positioned inside article content. They appear somewhere in the page break of an article.

  • In-banner video ads:

These ads are displayed in an ad format, which means, they are integrated with video. In-banner video ads are quite popular specially on 970×250 video billboards. Billboard is one of the most prominent and most visible placements within the publisher’s page.

Demand for programmatic advertising videos is going up. According to statistics, by 2019, 77% of all US digital video ad dollars will move programmatically.

Why use programmatic advertising?

Programmatic is an efficient way for running advertising campaign. Here are some pointers that prove it is the future of programmatic ad buying.

  • Next-gen ad system: Relying on algorithms for determining ad spends and getting full- fledged tracking report with deep insights for every impression is a winning game for advertisers.
  • Overall efficiency: It is one of the most optimal ways of running every campaign. Programmatic helps in sending right message, at the right time with the right format. Thus, the technology helps in using the budget in the most efficient manner.
  • Some free time: Once the tags are entered into the system, advertiser needs to sit back and track each campaign. Simultaneously, he may think of launching new campaigns and ways to expand it.
  • Micro targeting uber-segmentation: By planning and micro targeting uber-segmentation, we are talking about Big Data repository.

It is beyond human limitation, to dig deep into every rows and columns of data to get into the countless data points. This kind of rendering is only possible through high-level planning and processing done by algorithms.

Technology behind programmatic advertising comes in as a very handy tool as it can easily crunch through such information.

For instance, if an advertiser wants to run localized aggressive campaign, an automated system can handle that for you. You just have to select the parameters, like:

  • Age
  • Gender
  • Income
  • Location (in this case, it will be local)

Only small, well-defined subset of the market will see the ad.

  • Wider audience pool: Programmatic accesses digital properties cross screens. It not only caters to web media houses but in gaming apps as well. Thus, you can target ads to wider audience pool.
  • In touch with customer’s journey: Programmatic advertising enables you to target audience through multiple digital devices.

Brands can reach their consumers:

  • while their they accessing their laptop or desktop and
  • When they switch to their tab or mobile device

Since, programmatic advertising does not allow the ad to lose track cross devices. This gives an upper edge to an advertiser to reach to its audience more discreetly.

Drawbacks of programmatic advertising and how to surmount them

Inasmuch as programmatic advertising is great and all that, it is being run by machines and that often means that certain things can end up where they should not. Let’s explain.

Many advertisers have highlighted certain things that they battle with such as:

  • Ad blockers: Most internet users complain about how the ads pop up and so have resorted to using ad blockers. 47% of marketers complain about this problem. 
  • Fraud: At times, marketers pay for programmatic ads but the publishers fail to fulfil their end of the bargain. This is why you should work with only trusted sites.
  • Privacy issues: Privacy concerns have arisen as programmatic ads are based on individual internet users’ information.
  • Questionable sites: At times, brands have complained that their ads appeared on sites or content that went against their core values. This is why when using platforms like DSP, the advertiser should make use of blacklists to screen out certain categories of sites and whitelists to state their preferred site categories.

Considering these issues, advertisers will have to adopt methods that will not be considered as intrusive. Already, certain publishers have begun barring internet users with ad blockers from visiting their sites but a more sustainable approach is advised. Advertisers should ensure good planning and that they properly tailor their content so that only those who might be interested will be retargeted by the ads.

Important trends

Faster reporting times and endless data is only the tip of iceberg when dealing with programmatic advertising. Technology cross internet is moving very fast. Time is right to adopt it at the earliest else we might leave the most important information, that is, our customers data on the table.

Let’s take a peek into the current statistics, after all, the numbers speak for themselves.

Companies that have successfully used programmatic advertising.

Let us take a closer look at some of the notable campaigns for programmatic advertising.

1. Missing people

This British charity foundation is one of the best examples of effectively utilising programmatic advertising. The foundation needed to extend its reach and impact for finding missing kids across the UK.

Missing people” have used over 10 million pounds of donated digital display to get an extended reach.

What is Programmatic Advertising and How Does it Work? 1
Source: Mising people

Programmatic advertising helped to display messages that are relevant in the area where people live, thereby maximising the success rate.

It is realised that people are most likely to respond to a message that is important to the area where they live.

This strategy has enabled them to gain a response rate of 50 to 70 per cent.

2. Amanda foundation

The Los Angels based foundation set out to rehabilitate pets that were spending their last days at shelters across the area.

Amanda foundation tapped the power of programmatic advertising to target the users who were most likely to adopt a particular pet dog or cat.

programmatic advertising
Source: Amanda Foundation


Demographic data and browsing behaviour was used to target the viewers with the breeds of pets that they are most likely to adopt. 

For example, if a user is interested in a smaller dog breed, they will be targeted with the ads of American Hairless Terrier or Affenpinscher.

3. AirAsia – customer confidence

The company is an excellent example of its ingenious campaign combining CRM data with the programmatic campaign.

The process is often tiresome because for this to work,  organisations should make the data available across media and CRM departments, and restructure it to fit long-term customer value models.

The campaign was successfully carried on FaceBook in a year where the company has a difficult time in business.

Customer segmentation was done in three different ways:

  1. Those who have bought AirAsia ticket before the 2014 crash, but not after.
  2. Customers who have bought the ticket after the incident.
  3. Customers who personally liked to choose the service of AirAsia.

Following this, customers’ profiles were targeted on Facebook with different creatives. High-value customers were targeted with brand advertising, including video ads.

Frequent brochures were shown to the customers who have used the service previously, offering a discount to the route they have flown previously.

programmatic advertising
Source: Advertising.my

4. The Economist

The Economist used the power of programmatic advertising to grab the attention of new subscribers. The idea of their campaign was to convert the readers who are reluctant to try.

Advertisers used headlines and content from the newspaper to spark curiosity amongst the viewers.

Programmatic advertising

The advertising creative was built in real-time, matching the view profile and page context to the feed before displaying an appropriate ad.

The idea here was to target the right people in the right context.

The results of this advertising were stunning, helping them to gain thousands of new customers. The Economist won the 2016 DMAs for the best use of programmatic.

  • There were 350,000 new prospects.
  • 3.6M people were taking action.

5. O2

The telecom company O2 deployed programmatic advertising campaign to promote a TV commercial.

What is Programmatic Advertising and How Does it Work? 2
Source: telecoms

The company targeted thousands of user through a personalised campaign with the help of user data. Advertisers from O2 created 1,000 versions of the video ad for promotions.

The results were mind-blowing having a 128% increase in click-through rate compared to a “normal” generic video ad.

Programmatic Advertising: The Takeaway

Media buying through programmatic channels is on rise. Major brands, digital media and multimedia houses, have created in-house teams to handle their programmatic ad buying.

So, what is your take on programmatic advertising, I mean, what exactly are you looking for transparency?

Is there any parameter that is lacking in advertising and you want it for your programmatic marketing campaign?

How would you feel if you put your money into the programmatic system as see your campaign’s performance, right away?

Lastly, are you looking for hassle free time and more in charge of your digital advertising strategies?

Feel free to drop-in your pointers and we will take it from there.

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Alvin is the Founder and CEO of MobileAds.com. He is a go-getter, and adventurous guy who believes in working smart to gain success in his business ventures and in life. He also founded RichMediaAds.com and MobileLanders.com.