What is programmatic ad buying in Digital Marketing?

“Programmatic” ad buying typically refers to the use of software to purchase digital advertising, as opposed to the traditional process that involves RFPs (Request for Porposals), human negotiations and manual insertion orders. It’s using machines to buy ads, basically.

Why does programmatic advertising matter?

Efficiency. Before programmatic ad buying, digital ads were bought and sold by human ad buyers and salespeople, who can be expensive and unreliable. Programmatic advertising technology promises to make the ad buying system more efficient, and therefore cheaper, by removing humans from the process wherever possible. Humans get sick, need to sleep and come to work hungover. Machines do not.

So robots are replacing people?

Great. Yes and no. Technology is being used to replace some of the more menial tasks that humans have historically had to handle, like sending insertion orders to publishers and dealing with ad tags, but they’re still required to optimize campaigns and to plan strategies. Programmatic technology will probably mean fewer ad buyers in the world, but it could also allow both marketers and sellers to spend more of their time planning sophisticated, customized campaigns instead of getting bogged down in bureaucracy.

Is programmatic buying is the same as real-time bidding, then?

No, it’s not. Real-time bidding is a type of programmatic ad buying, but it isn’t the only one. RTB refers to the purchase of ads through real-time auctions, but programmatic software also allows advertisers to buy guaranteed ad impressions in advance from specific publisher sites. This method of buying is often referred to as “programmatic direct.”

Is programmatic “the future of ad buying”?

Probably, yes. It’s impossible to tell what portion of advertising is now traded programatically, but it’s definitely on the rise. Some agencies now say they’re eager to buy as much media as possible through programmatic channels, and some major brands have even built out in-house teams to handle their programmatic ad buying as they spend more of their marketing budgets that way. At the moment, it’s mainly online ads that are traded programatically, but increasingly media companies and agencies are exploring ways to sell “traditional” media this way, including TV spots and out-of-home ads.

What is Real-time bidding ?

Real-time bidding refers to the buying and selling of online ad impressions through real-time auctions that occur in the time it takes a webpage to load. Those auctions are often facilitated by ad exchanges or supply-side platforms.

So how does it work?

As an ad impression loads in a user’s Web browser, information about the page it is on and the user viewing it is passed to an ad exchange, which auctions it off to the advertiser willing to pay the highest price for it. The winning bidder’s ad is then loaded into the webpage nearly instantly; the whole process takes just milliseconds to complete. Advertisers typically use demand-side platforms to help them decide which ad impressions to purchase and how much to bid on them based on a variety of factors, such as the sites they appear on and the previous behavior of the users loading them. Zappos might recognize that a user has previously been on its site looking at a specific pair of shoes, for example, and therefore may be prepared to pay more than Amazon or Best Buy to serve ads to him. The price of impressions is determined in real time based on what buyers are willing to pay, hence the name “real-time bidding.”

Why does it matter?

Historically, advertisers used websites as a proxy for their ads. If they wanted to reach sports fans, they would buy ads on a sports-related site, for example. The advent of RTB has enabled them to target their ads to specific users instead, per the Zappos example above.

RTB is the same as programmatic advertising, right?

Wrong. RTB is a type of programmatic advertising, but not all programmatic advertising uses RTB. Some “programmatic” or technology-driven ad platforms let publishers sell their inventory in advance for a fixed price, as opposed to auctioning it off. This is sometimes referred to as programmatic direct or programmatic guaranteed.

Why is real-time bidding good for advertisers?

Efficiency. Thanks to real-time bidding, ad buyers no longer need to work directly with publishers or ad networks to negotiate ad prices and to traffic ads. Using exchanges and other ad tech, they can access a huge range of inventory across a wide range of sites and cherry-pick only the impressions they deem most valuable to them. That cuts down the number of impressions wasted on the wrong users but also minimizes the need for costly and unreliable human ad buyers.

I’ve heard RTB is screwing publishers. Is that true?

Some major publishers are wary of RTB because they feel it enables advertisers to pay them less for their inventory. Increasingly, however, they’re becoming more comfortable with it as exchanges and supplyside platforms enable them to control the minimum prices at which their inventory is sold, often called price floors. This enables publishers to open their ads up to an auction, but to set a reserve price that must be met in order for a transaction to take place.

What is an ad exchange?

An ad exchange is a digital marketplace that enables advertisers and publishers to buy and sell advertising space, often through real-time auctions. They’re most often used to sell display, video and mobile ad inventory.

Who buys from ad exchanges?

Virtually anyone can buy from an ad exchange provided the ad exchange allows it. Advertisers and agencies typically use demand side platform or their own bidding technologies to do so, but ad networks and other entities also buy ads from exchanges.

But how do they do that?

Basically, an ad exchange is just a big pool of ad impressions. Publishers tip their ad impressions into the pool hoping someone will buy them. Buyers then pick which impressions they wish to purchase using technologies like demand-side platforms. Those decisions are often made in real time based on information such as the previous behavior of the user an ad is being served to, time of day, device type, ad position and more.

So why do ad exchanges matter?

Exchanges enable advertisers to easily buy ads across a range of sites at once, as opposed to negotiating buys directly with specific publishers. It’s a more effective and efficient way to buy and sell advertising.

Wait, isn’t that what ad networks do?

Well, yes. But ad networks typically aggregate inventory from a range of publishers, mark it up and sell it for a profit. That’s their business model. Ad exchanges are supposedly more transparent than networks because they enable a buyers to see exactly what price impressions are being sold for. In fact, many ad networks now buy their inventory from exchanges, and as a result, some say DSPs resemble ad networks more than exchanges.

What’s a private exchange?

Private exchanges are used by publishers to more carefully control who can buy their inventory, and at what price. Instead of throwing its ad impressions into an “open” exchange and letting anyone buy them, a publisher might instead wish to offer them to a handful of its favorite advertiser clients, or an agency it has a close relationship with. It might also wish to cut off access to networks and other third parties that could sell those ad impressions.

What’s the difference between a supply-side platform and an exchange?

Not much. The technologies are similar, but they’re used for slightly different things. Publishers typically use SSPs to “plug in” multiple exchanges, as opposed to working with just one. It’s a way to open their inventory to as many potential buyers as possible, in the hope that more competition for their ads will result in them selling for higher prices. Just as ad exchanges aggregate impressions, SSPs are used by publishers to aggregate exchanges.

Who powers these exchanges?

Major ad exchange operators include Google, The Rubicon Project, OpenX, AppNexus and Yahoo. Various ad tech companies offer publishers the ability to create private exchanges.

Who polices them?

It is a little bit. Exchange operators are responsible for the impressions they allow into their marketplaces, they allow access to buyers. The problem is that billions of ad impressions flow through exchanges every day from millions of publishers, so it’s almost impossible to keep to track of who’s selling and buying what. That means buyers can never be exactly sure where their impressions might show up. And sellers can never be entirely sure who’s buying them.

What is a data management platform?

In simple terms, a data management platform is a data warehouse. It’s a piece of software that sucks up, sorts and houses information, and spits it out in a way that’s useful for marketers, publishers and other businesses.

In theory, DMPs can be used to house and manage any form of information, but for marketers, they’re most often used to manage cookie IDs and to generate audience segments, which are subsequently used to target specific users with online ads. With the rise of ad tech, advertisers now buy media across a huge range of different sites and through various middlemen, including DSPs, ad networks and exchanges. DMPs can help tie all that activity and resulting campaign and audience data together in one, centralized location and use it to help optimize future media buys and ad creative. It’s all about better understanding customer information.

A DMP is used to store and analyze data, while a DSP is used to actually buy advertising based on that information. Information is fed from a marketer’s DMP to its DSP to help inform ad buying decisions, but without being linked to another technology, a DMP can’t actually do much. On the publisher side, DMPs can also be linked to supply-side platforms and other technologies that can help them sell their ads for more. In those cases, the DMP is storing publisher information on its readers.

Why are DSPs and DMPs separate, then?

Like many areas in advertising technology, the lines between DMPs and DSPs are beginning to blur. A growing number of DSP providers now offer their clients DMP technology too. Those companies say it’s easier and more efficient for marketers to use one platform instead of two. The counter to that argument is that standalone DMPs make marketers’ data more portable, making it easier to feed into a wide range of DSPs.

Who uses DMPs?

Agencies, publishers and marketers all use DMPs. Agencies use the technology to collect and analyze the data collected from their client campaigns, which is sometimes pooled across multiple clients to create vast and rich datasets. In an attempt to take closer control of their data, some clients have begun licensing their own DMP technologies and managing those platform themselves. Meanwhile, a growing number of publishers are also making use of the technology as a way to help them better understand their reader information and extract more value from it as a result. Think of how The Wall Street Journal’s user information is valuable for an financial-services ad campaign targeting high-net-worth individuals.

What are the major DMPs?

Vendors that sell DMP technology to the digital media world currently include Adobe, Krux, Lotame, Aggregate Knowledge, BlueKai, CoreAudience, Knotice, nPario and X+1. Some of those providers also offer DSP technology.

What is a supply-side platform?

A supply-side platform is a piece of software used to sell advertising in an automated fashion. SSPs are most often used by online publishers to help them sell display, video and mobile ads.

A supply-side platform is basically the publisher equivalent of a DSP. Where DSPs are used by marketers to buy ad impressions from exchanges as cheaply and as efficiently as possible, SSPs are designed by publishers to do the opposite: to maximize the prices their impressions sell at. Similar technology powers both SSPs and DSPs.

How do SSPs actually work?

Well, like everything in ad tech, it’s complicated. The simple answer is that SSPs allow publishers to connect their inventory to multiple ad exchanges, DSPs, and networks at once. This in turn allows a huge range of potential buyers to purchase ad space — and for publishers to get the highest possible rates. When an SSP throws impressions into ad exchanges, DSPs analyze and purchase them on behalf of marketers depending on certain attributes such as where they’re served, and which specific users they’re being served to. The idea is that by opening up impressions to as many potential buyers as possible — often through real-time auctions — publishers can maximize the revenue they receive for their inventory. Because of this, SSPs are sometimes referred to as yield-optimization platforms.

Why do SSPs matter?

Increasingly, marketers don’t want to pay costly human ad buyers to negotiate with salespeople over media pricing. They’d rather use technology to purchase their ads more efficiently. The problem for publishers, however, is that this programmatic selling risks driving the value of their inventory down. SSPs were created in part to help combat this and also to help publishers more efficiently aggregate and manage their relationships with multiple networks and ad buyers.

In addition to opening up inventory to a large range of potential buyers, SSPs also offer the ability for publishers to set “price floors,” which dictate the minimum prices for which their inventory can sell to specific buyers, or through specific channels. Some publishers would rather run house ads than sell impressions for next to nothing, for example, while others might be willing to sell ads to a new advertiser for less than an existing one, as a way to introduce them to their site. SSPs can also be used to dictate which advertisers can and can’t purchase inventory.

What about human sales teams?

Absolutely. SSPs are most often used to sell inventory that human sales teams have failed to sell. Increasingly, however, media owners are using the data collected from their SSPs to determine whether human salespeople or programmatic trading returns the greatest margins, and to make business decisions based on that information. Some publishers are also beginning to use SSPs to traffic campaigns sold direct by their salespeople. In that instance, an SSP isn’t involved in the sale of the inventory, but simply helps in the serving and tracking of it.

What are demand-side platforms?

A demand-side platform is a piece of software used to purchase advertising in an automated fashion. DSPs are most often used by advertisers and agencies to help them buy display, video, mobile and search ads.

Historically digital ads were bought and sold by human ad buyers and salespeople, who are expensive and unreliable. DSPs help make that process cheaper and more efficient by removing humans from parts of the process, as well as the need to negotiate ad rates and to manually fax ad insertion orders.

How do they actually work?

It’s complicated. The short version is that DSPs allow advertisers to buy impressions across a range of publisher sites, but targeted to specific users based on information such as their location and their previous browsing behavior. Publishers make their ad impressions available through marketplaces called ad exchanges, and DSPs automatically decide which of those impressions it makes the most sense for an advertiser to buy. Often the price of those impressions is determined by a real-time auction, through a process known as real-time bidding. That means there’s no need for human salespeople to negotiate prices with buyers, because impressions are simply auctioned off to the highest bidder. That process takes place in milliseconds, as a user’s computer loads a webpage.

Isn’t that what ad networks do?

Yes, to an extent. DSPs incorporate much of what ad networks have previously offered, including access to a wide range of inventory and targeting capabilities. But DSPs say the advantage of using their offerings instead of ad networks is the ability to buy, serve and track ads using one central tool, and to optimize campaigns more easily as a result. It’s all about the data, they say. Ad networks typically mark up the media they sell, too, whereas DSPs started life charging a simple fee for facilitating a transaction.

DSPs are replacing ad networks?

Sort of. The days of the traditional ad network model might be numbered, but that doesn’t mean ad networks are dead. In reality, the lines between ad networks and DSPs are simply disappearing. Threatened by the rise of DSPs and ad exchanges, almost all ad networks now offer some sort of DSP-like product or real-time bidding capability. Meanwhile, many companies that started life as DSPs are beginning to look a lot like ad networks, buying up inventory, repackaging it, and reselling it to advertisers at a premium. According to many in the industry, DSPs are simply the next generation of ad networks.

If DSPs are buying ads now, what does that mean for human ad buyers?

It means there will be fewer of them. Publishers are making more of their inventory available through exchanges, and many advertisers would rather purchase ads using DSPs because it’s more cost efficient to do so. However, human input will always be required to help optimize campaigns and formulate ad strategies. It’s at the transactional level that fewer humans will be required.

So DSPs are replacing agencies, then?

According to some, yes. DSPs now frequently work directly with advertiser clients, effectively replacing agencies when it comes to buying media. Clients report that they still look to agencies for strategy and consultancy but are beginning to look to other third parties, including DSPs, to help them actually purchase their ads.

What are the major demand-side platforms?

Vendors that currently sell DSP technology include Google’s Invite Media, MediaMath, Turn, DataXu, X+1, and many others. Some DSPs are focused on specific channels, such as mobile or video. Some agencies operate their own buying platforms, often knows as trading desks, using technology licensed from some of the companies above.

Tag: ad exchange, Real-time bidding, programmatic ad buying, data management platform, demand-side platform