How Does Programmatic Advertising Work?

So, how does programmatic advertising work anyway?

This is a pretty comprehensive guide for updating what you know.

This is a great post for marketers who need clarity on some key inner-workings, or for brand advertisers who want to brush up on their programmatic terminology.

It’s also perfect if you’ve never investigated programmatic marketing before, and your curiosity level is peaking like a whistling stovetop kettle from the sixties.

Here’s your chance to get the authentic, no-holds-barred, clean and simple scoop on how programmatic advertising really works.

• A Brief Introduction to Programmatic Advertising
• The Programmatic Advertising Process
• How Programmatic Advertising Works From Start to Finish
• The Elements of Programmatic Advertising
• Artificial Intelligence and Machine Learning
• Optimizing Your Campaigns With Real-Time Bidding
• Using Data in Programmatic Advertising
• Targeting and Relevance in Your Ad Campaigns
• The Creative Side of Programmatic Campaigns
• Achieving Campaign Goals With Programmatic
• Sharing How Programmatic Advertising Works
• TL;DR – What Have We Learned

Digital ads are everywhere.

On connected TV, your favorite blog, your Facebook page, your search engine – they’re even in every app on your phone. Back in the 70’s, people were exposed to about 500 ads a day.

These days, the average American sees between 4000-10,000 ads daily. That’s an ad every 15 seconds, if you’re counting.

A lot of these ads don’t work. According to eMarketer, about one-fourth of all advertising budgets are wasted. As a result, marketers are constantly trying to optimize their ad spend.

The most advanced way to do this is with programmatic advertising.

Definition:

Programmatic advertising is the automated buying and selling of digital ad space on the internet.

In other words, digital ads are automatically traded through software.

It’s mostly done in real-time using an auction-style system – but this varies. If you want more context, do head over to our first post, “What is Programmatic Advertising?“

It was a time consuming and clunky process. As more and more people joined the online revolution, publishers selling ad space became a dime a dozen and a lot of them got stuck with unsold inventory.

It was inevitable that a better system would be created to solve this issue.

When clients are curious about how the process goes, they usually ask something like –

“How does programmatic advertising work… from the beginning? Let’s say I see an ad online…how did that happen from a programmatic perspective?”

Here’s what typically happens:

Target User

Supply Side Platform

These SSPs are automated software systems that use algorithms to communicate data to exchanges and Demand Side Platforms (DSPs).

The publisher’s SSP recognizes that a new target user has landed on its website – it pings the ad exchange with a request for an ad to fill their available ad space.

Ad Exchange

The exchange receives the prompt from the publisher’s SSP, and sends a request for bids to a huge amount of registered demand side platforms (DSPs).

*Ad exchanges aren’t the same as ad networks, but they do work together sometimes.

Demand Side Platforms

They do this using unique software that automates the process.

Once the bid request is received by the DSPs, a real-time auction happens.

Real-Time Auction

Using their own proprietary algorithms, the DSPs will understand what the bid opportunity is worth to their clients. Their interest level is aggregated into a bid amount, which is then communicated to the ad exchange.

Ad Exchange

Target User

That advert is immediately placed in the open ad space on the website. The mission is for this highly targeted ad to achieve its advertising goal – catch the attention of the right user at the right moment.

This entire programmatic advertising process happens in one tenth of a second. Wow!

The programmatic ad process allows advertisers to control who sees their ads, lets publishers and their SSPs sell the exact amount of available inventory – and it puts super-relevant ads in front of the consumer.

Programmatic advertising is one of the most intelligent, evidence-based systems we’ve been able to create in the marketing niche so far. Using data and proprietary algorithms, we can drastically improve the impact of an advert – which increases sales.

With programmatic technology, advertisers are able to show the right advert, at the right moment, to the right target user.

It’s an optimized process that uses several modern elements to produce improved results for the advertiser, the publisher and the consumer involved.

This kind of digital advertising is deliberate and it’s based on big data.

People on both ends of buying and selling in this case use software to crunch enormous amounts of data, make sense of it, and then use it for better decision-making.

Programmatic advertising works across a wide variety of advertising platforms.

In a recent Nielsen CMO Report, about half of all marketing executives agreed that programmatic advertising was extremely, or very effective.

The two core technologies impacting programmatic advertising are artificial intelligence and machine learning. If you don’t know what they are, you’re always going to be scratching your head about how programmatic display ads work.

Let’s get some clarity on how these work in advertising.

What is Artificial Intelligence (AI)?

So, AI integrates non-human intelligence into a system that has already been designed for a purpose. AI in its simplest form is just a set of algorithms.

Collected together we call these neural networks – but essentially, they’re just math formulas, calculations and problem solving operations.

Loads of AI algorithms are capable of learning from data, and these are the ones called machine learning algorithms.

Machine learning is a branch of artificial intelligence, and when applied in a system – it allows that system to learn and improve from experience, without human intervention.

So – it’s a type of algorithm that learns things.

How Does Artificial Intelligence Work in Advertising?

Artificial intelligence in digital advertising has shaped the modern programmatic landscape.

AI shows up throughout the programmatic process, but the area you should care about most – is with your DSP or demand side platform.

AI helps your DSP serve highly relevant, targeted messages to your consumers, on the right platforms, at the best times possible. Using the huge amount of data available, the AI has insight into what to do, based on predictive models – that amount to better choices for your ads.

The AI works blindingly fast (it’s a machine after all) – which is how real-time bidding is possible.

So it’s the AI that makes it possible for your ads to be targeted, relevant and automated! It’s software that intelligently buys and sells your ads, better and faster than any human could.

Bids are made for impressions, which are bought and sold at these auctions. One impression (CPI) means that the ad has been displayed once on the website.

The fact that software automatically bids based on its AI and machine learning capabilities, is what makes RTB innately programmatic.

This is a highly optimized process that streamlines results for both advertisers and publishers.

It drives the entire process!

But where does this data come from and how is it used?

Data Management Platforms

There are some great DSPs like War Room’s Kedet, which helps advertisers use important data along with their advertising strategies and technology, to strengthen ad campaigns.

DSPs and SSPs tap into data management platforms (DMPs) that collect big data from a vast array of sources, then store and organize it so that insights are at the ready for advertisers.

In a recent report from Salesforce where 900 advertisers were surveyed, there is an average of 5.4-6.2 data sources being used by digital advertisers to inform their software and various strategies.

Data comes from a range of sources:

• Digital and Search Data
• Ad Serving Data
• CRM Data
• Social Media Monitoring Data
• Mobile / Geolocation Data
• Syndicated Media Measurement Data

First Party Data

First-party data is widely accepted as the highest value form of data. It includes information from advertiser analytics, search, display and email campaign data, transaction data, CRM data and of course – cookie-based data.

When your consumer accepts cookies from a website for example, they’re giving that website permission to track, record and analyze everything they do on the site.

This gives advertisers a better idea what the consumer is searching for, so that ads can be tailored to their unique behavioral preferences.

• Cookies help with retargeting
• Storing user preferences
• Record user activity
• Store stateful data (like what you’ve added to a wishlist or cart)

A lot of first party data is used to figure out demographic details like age, gender, location, interests and general behavior.

The accuracy of this data is hands-down the most important thing to advertisers. A recent survey had 84% of respondents say that accuracy was critical to purchasing decisions.

Second Party Data

A good example is a company that sells cars, buying profile data from a company that sells car accessories. The two have similar customers, and insights can be gained through these sorts of cross-market investigations.

Third Party Data

There are several targeting strategies that are used to get advertisers results online.

Let’s briefly explore a few, to give you context.

Contextual Targeting

Retargeting

That’s why you’ll notice products you’ve clicked on, looked at, or put in your shopping cart following you around the internet.

Audience Targeting

If you’re a fashion advertiser, and your main demographic is unmarried, 25 year old, cat enthusiasts who love shoes – this kind of targeting is highly effective for your cat-styled shoe advert.

Geotargeting

Website / App Targeting

Programmatic creative refers to data-informed, software-assisted adverts that are made to be extremely relevant for consumers.

It makes sense that in order to really reach and convert consumers, the ads themselves have to be as optimized as the targeted delivery process. After all, it’s the message that converts people.

Intelligent creative adapts and becomes personalized to the individual who is viewing it – taking advantage of those machine learning algorithms we learned about earlier.

The insights gleaned from the customer, become part of the creative brand message.

In one study from , 42% of advertisers said they were currently using AI-driven dynamic creative (a type of programmatic creative) in their marketing campaigns.

Partnering with the right DSP is why this is so important. Your agency will help you understand what your goals are, and how to achieve them using programmatic means.

Different goals will result in your agency creating different programmatic creative, and picking the right strategies to target your relevant audiences.

Key performance indicators can then be assigned to your goal, to measure outcomes.

Using set inputs, your programmatic advertising team will then automate the process of placing your ads, in real time. The longer you run ads, the more you will learn – and sell.

Programmatic advertising works to streamline your advertising campaigns from day 1. Using AI, big data and real-time bidding, your ads will outperform anything that could be achieved manually.

Programmatic isn’t some far off future concept, it’s happening now. The sooner your company jumps on board and partners with the right agency, the better.

Your ad results will improve over time, due to machine learning and AI technology. That’s how programmatic advertising works.

When first learning about automation, you may have a lot of questions about the technology. Hope this guide gave you some insight on how the system works!

Are you looking for a programmatic advertising partner?