In the 10+ years since the birth of programmatic advertising, it has truly delivered on its promise to become the future of advertising. 85 percent of digital display advertising in the US was transacted through programmatic technology in 2020. This figure is forecasted to grow to 86.5 percent in 2021, despite the economic downturn resulting from the coronavirus pandemic.
This blog post explains what programmatic advertising is, and how it works.
What is programmatic advertising?
Programmatic advertising definition: This is the automated process of buying and selling ad inventory online. Programmatic advertising connects publishers – websites with advertising space (ad inventory) to sell, and advertisers – those who want to acquire the ad space to promote their business.
This used to be a manual process that involved human negotiations, requests for proposals, and manual insertion of orders. Right now, the process has been automated, and the whole transaction happens in milliseconds. Multiple ad formats and advertising channels can be accessed programmatically, thanks to the different programmatic platforms that have built up their database and inventory.
The programmatic advertising process starts when a visitor lands on a website. An automated bidding process is launched to serve ads to this user. The publisher lists the ad space available for this viewer on the supply-side platform (SSP), letting advertisers know the characteristics of the user and the ad space to allow them to place their bids.
Figure 1: Programmatic advertising ecosystem. Source – On Audience
Next, the corresponding DSPs (demand-side platforms) review the information provided by the SSP and act for the advertiser to place a bid for ad placement. The SSP analyzes bids from multiple DSPs and picks the winner that secures the ad inventory for promoting their brands.
Although it looks like a long process, everything happens in less than 100 milliseconds. Once the impression is sold, it’s sent to the publisher’s site to be displayed. The process is repeated whenever a viewer lands on the website.
We’ve explained the process in detail on our blog, Your Guide to Programmatic Advertising.
With programmatic advertising explained, let’s now examine the platforms that play a crucial role in the programmatic process.
What are DMPs?
A DMP (data management platform) is a software that stores and sorts incoming cookie data and creates audience segments to run highly targeted ad campaigns. Both advertisers and publishers use DMPs to inform and improve both manual and programmatic ad buying processes.
In the programmatic ecosystem, DMPs help improve the functionalities of DSPs and SSPs by providing additional information about users. This makes for enhanced ad targeting capabilities, allowing publishers to increase their ad revenue and advertisers to earn more clicks from visitors who are interested in their products/services.
DMPs can be used to store first, secondary, and third-party data, but most focus on third-party data. They consolidate this data into a centralized platform. Advertisers on the DSP side can use the data when buying ad impressions. Publishers on the SSP side can also access it to help them achieve their high-value goal of attracting targetable audiences. DMPs help publishers gain valuable insights about their audiences which not only allows them to sell their ad inventory more effectively but also learn more about the needs and interests of their viewers or readers.
While DMPs can provide useful customer insights, publishers shouldn’t be misled into believing that they are the only source of valuable user data. This is because most publishers have their own data reserves that are often under-utilized for ad sales purposes.
What are DSPs?
In digital marketing terms, DSP stands for demand-side platform. This is an application that enables advertisers to purchase ad impressions. It serves as an interface that connects advertisers to the programmatic advertising ecosystem and helps them buy ad inventory from that ecosystem.
The services advertisers gain from DSPs include the ability to:
- Perform real-time bidding on the available ad inventory
- Define target audiences
- Establish ad budgets
- Track ad performance
- Control frequency capping
DSPs connect advertisers to the programmatic ecosystem in the following ways:
Ad exchanges: DSPs are connected to ad exchanges to enable advertisers to buy impressions from ad networks and publishers that connect to the ad exchange using an SSP (supply-side platform). Programmatic transactions between the publisher and the advertiser are facilitated by the ad exchange in an ‘open market’ without involving intermediary parties.
SSPs: DSPs can connect directly to one or more SSPs. This connection allows advertisers to buy ad space without the involvement of an ad exchange.
DMPs: Data management platforms (DMPs) provide supplementary audience data to DSPs. This data allows DSPs to establish more accurate targeting criteria before placing bids on the available ad inventory within the ecosystem.
DSPs store user profiles and third-party data and combine this information with the bids from advertisers. The DSP decides which ad to serve when visitors land on web pages. It considers the bid made, the cost to the advertiser, and the content of the ad.
The pixels that publishers have on their websites also provide audience data to allow customer segments to be created. DSPs receive this data and analyze it carefully to ensure it makes the right bids on behalf of the advertisers.
By working with DSPs, advertisers benefit from accurate ad placement, while publishers benefit by selling their ad inventory to the highest bidder. When the DSP and ad exchange decide on the winning bid, this information is communicated to the SSP immediately.
What are SSPs?
According to marketing terms 101, SSP stands for supply-side platform. Publishers use SSPs to connect to the programmatic advertising ecosystem and help them sell their ad inventory to advertisers.
SSPs hold the publisher’s inventory which, in this case, is space on their website that would host the advertisement. After everything is agreed with the ad exchange, the publisher adds a pixel code to track visitor behavior. SSPs are programmed to maximize the value publishers receive from ad impressions.
The services offered to publishers by SSPs include the ability to:
- Show their available ad space to relevant advertising entities
- Automatically sell available ad space to the highest bidders
- Create guaranteed deals and other specific agreements with specific advertisers
- Understand the rules that involve how advertisers bid on ad inventory
- Configure bidding options such as price floors to optimize their website revenue
- Manage various aspects of their ad inventory from a single interface
You should note that while using an SSP to sell ads is highly effective, it is less lucrative than in an instance where an advertiser strikes a direct deal with an advertising partner. However, the amount of time saved by leveraging programmatic advertising makes up for the loss of ad inventory value by allowing publishers to sell more ad inventory that would otherwise go unsold.
With that said, here are the different ways SSPs allows publishers to connect to the programmatic ad ecosystem:
Ad Networks: SSPs connect publishers to Ad Networks to allow them to showcase their ad inventory to numerous ad listings that are accessed by a large number of online advertisers. Ad Networks don’t trade this inventory programmatically but rather allow for increased exposure to enable publishers to secure trade deals with advertising partners.
Ad Exchanges: By connecting to an ad exchange, a publisher can sell remnant inventory programmatically. This enables publishers to earn revenue from ad inventory that would otherwise go unsold.
DSPs: SSPs can also connect directly to DSPs used by different advertisers, allowing publishers to sell their inventory through various programmatic methods.
DMPs: Just like DSPs, SSPs also connect to data management platforms to associate their inventory with third-party data to improve the likelihood that a publisher’s ad inventory meets the advertiser’s specification.
Statistics reveal that programmatic advertising is the way to go when it comes to digital advertising. From the programmatic advertising explained section, it’s clear that this form of media buying makes it easy for publishers to list available ad inventory and advertisers to secure prime advertising spots for promoting their brands.
But as much as the whole process is automated, there’s still a lot you need to do to ensure your ads are shown to the right audience. The team at Growth Marketing Genie can help. We are a programmatic advertising company that understands the programmatic ad ecosystem. We will streamline your digital advertising process and help you get value for money for your ad dollars.
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