MarTech Landscape: What Is Programmatic Ad Buying?

Maybe you are new to programmatic, or maybe you’ve been working in ad buying for years, but still can’t find a way to explain it in a way your parents could understand. Here we take an Intro 101 approach to programmatic as part of our MarTech Landscape Series.

One problem with the term “programmatic” is it’s come to encompass many things, and, like most things in ad tech, it’s bogged down in jargon. Fundamentally, programmatic is just software-driven technology to automate all or parts of the ad buying process.

There are really two main drivers for the growth of programmatic in recent years:

1. Ad Buying Efficiency: Programmatic uses software and technology to automate the ad buying and selling process with the speed and scale that humans can’t achieve manually.
2. Ad Targeting Relevancy: Programmatic offers advertisers the ability to incorporate large amounts of data, sometimes from multiple sources, to serve users with ads that are more likely to be relevant based on psychographic, demographic, behavioral and intent signals.

Let’s take each concept on its own:

Programmatic Promise #1: More Efficient Sales Process

First, efficiency. The traditional way of buying online ads, like print and TV, has been to deal directly with a sales person, negotiate terms such as price, audience targets, placements, and the number of impressions being bought, after which both parties sign an insertion order. Direct sales aren’t dead, as we’ll discuss more below, but technology can be used to simplify the process.

Programmatic Promise #2: Better Ad Relevancy

The real gold in programmatic is being able to couple automation with data for more precise ad targeting across thousands or millions of impressions to reach audiences based on their interests, behaviors, demographics and other individual characteristics. Instead of focusing solely on where an ad is placed, programmatic puts the emphasis on who sees the ad.

With programmatic technology, advertisers target audience segments most likely to be interested in what they’re selling (and may include retargeting). Bids for ad impressions are made in real time automatically when the system sees a cookie or mobile identifier that matches the targeting criteria set by the advertiser.

How Ad Targeting Data Gets Used

Where does this data come from? Websites and apps use cookies and/or identifiers like user login IDs to track visitor behavior, and that’s where social networks and publishers learn about keywords searched, types of content or videos consumed, and information included in a user’s social profile.

Advertisers have their own first-party data such as customer emails, types of products purchased, most recent purchasers, and average order value.

Then there is third-party data that comes from another source like data aggregators Acxiom, BlueKai, comScore, Datalogix, Experian, LiveRamp and Lotame. These companies have all kinds of purchasing, credit score, household income and other demographic data points of high interest to advertisers.

With programmatic, advertisers can target audiences using a mix of data sources at the time an impression becomes available. If the cookie or other identifier matches the advertiser’s targeting criteria, the ad buying system (a trading desk or demand side platform) will automatically bid on the impression.

Efficiency then comes back into play. As campaigns accumulate performance data, the systems learn which types of attributes as well as time of day, location and other dimensions perform best and make adjustments on-the-fly.

RTB vs. Programmatic Direct

In the early days, the term programmatic was used synonymously with real-time bidding (RTB), which — you guessed it — is technology-enabled bidding on ad impressions in real time. Auction-based RTB happens in two ways: on open ad exchanges or in private marketplaces.

Essentially any buying platform has access to open exchanges on which inventory from numerous sites is up for auction. However, buyers often only know the type or category of site they’re bidding on, not the individual sites. Publishers don’t typically make all of their inventory available on open exchanges. This is part of the reason why the RTB side of programmatic got a bad rap as only having access to remnant, low-quality inventory. These days, however, programmatic is being engaged to sell all types of inventory, including cross-device and mobile.

Fraud is still a very big issue, but efforts such as the ability for advertisers to bid on viewable impressions and fraud monitoring programs built into the programmatic buying process are part of the efforts to address the problem. There are also more controlled bidding environments for buyers and sellers such as private marketplaces.

Private marketplaces are invitation-only arenas in which one or a handful of publishers open a selection of inventory to a certain number of buyers. It’s still an RTB auction environment, but the buyer knows which site the ads will run on, and the publisher know which buyers’ ads will display alongside their content. A publisher also establishes pre-agreed upon pricing ranges with buyers before they enter the auction. The programmatic benefit is the use of data in targeting and the ability to buy impressions in real-time.

Most RTB buying is still done on open exchanges, but private marketplace sales are growing. And many exchanges now offer private marketplaces, including AppNexus, Google Ad Exchange, Kantar Media and MediaOcean.

Programmatic Direct is a way for publishers and advertisers to simplify the buying process of guaranteed and preferred ad inventory sold directly by the publisher’s salesforce while maintaining more control than RTB channels offer. There is no auction in programmatic direct sales.

There are typically two types of programmatic direct sales. Programmatic guaranteed deals are made for reserved inventory at a set price. Unreserved fixed rate deals give direct buyers first access to blocks of inventory at a set price.  In both cases the ads are then served and managed programmatically and come with all the benefits of programmatic targeting. In some cases the negotiations themselves are automated between the buyer and seller systems.

This being ad tech, there are now a ridiculous number of terms to describe nearly the exact same thing: Programmatic Direct, Programmatic Guaranteed, Automated Guaranteed, Programmatic Reserved, and Programmatic Premium are all relatively synonymous.

How Popular Is Programmatic?

According to eMarketer, 2015 is the year programmatic became the dominate way digital display ads were bought and sold in the US, topping 55 percent of ad buys. Google Ad Exchange and Facebook are the dominant programmatic display (and increasingly video) sellers.

Programmatic display is expected to grow 37 percent in 2016, eMarketer predicts, with spend increasing from an estimated $14.88 billion in 2015 to $20.41 billion in the US alone.