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The Beginner’s Guide to Programmatic Advertising

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By Stephan Miller - Guest Contributor

Published
8 min read
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Curious about programmatic advertising? Find out what it is and how it works.

If you’re a marketer, you’ve probably heard the term programmatic advertising, an increasingly popular way for businesses to attract more customers.

The numbers back this up. According to a 2021 report, over 91% of digital ad spending will be spent on programmatic advertising by 2023.[1] That comes to over $133 billion in advertising dollars and beats the numbers from a similar report from only two years before.

These numbers increased for various reasons. The digital ad market recovered from the pandemic more rapidly than expected, and programmatic advertising is also making inroads into more channels, including social media and audio. Plus, more programmatic ad firms are filing public reports than ever, which makes for more accurate stats.

Chances are that your competitors have already taken advantage of what programmatic advertising offers, while you are left still wondering what programmatic advertising is.

Don’t worry—we’ve got all the details you need to get started.

What is programmatic advertising?

Programmatic advertising is the process of using software to purchase digital advertising. Traditional advertising methods require requests for proposals, tenders, quotes, and more. But with programmatic advertising, an algorithm handles most of the necessary steps by replacing human-powered negotiations with machine learning, AI decisions, and other algorithmic processes.

Brands and agencies use a demand-side platform (DSP) to determine which impressions to purchase and how much they will pay. Publishers use a supply-side platform (SSP) to sell their ad space. When a visitor lands on a page, the data from both platforms is used to determine which ads will be served in real time.

What is a demand-side platform (DSP)?

A demand-side platform (DSP) is software that handles the ad-buying side of programmatic advertising. Businesses enter bids into a DSP for display, video, mobile, and search ads, and the platform determines when and where ads will be served.

Demand-side platforms help make the ad-buying process more efficient and cost-effective. A DSP connects to an ad exchange, where advertisers bid on ad impressions on publishers’ websites. A centralized ad exchange makes it possible for businesses to purchase ad space from a wide range of publishers through one interface, while targeting specific users based on factors such as location, browsing behavior, and demographics.

Real-time auctions are sometimes used to set the cost of those impressions. Since impressions are awarded to the highest bidder, there is no need for a human salesperson to negotiate with customers. As a visitor loads a web page on a publisher’s site, a script on the site determines if they fall within the audience targeted by an advertiser and sends an ad request to the publisher’s supply-side platform (SSP).

What is the difference between a demand-side platform and an ad network?


DSPs are similar to ad networks because they provide publishers with an array of inventory and many options for targeting ads, but there are distinct differences between the two technologies.

An ad network is an intermediary between advertisers and publishers. Publishers and advertisers must have an account, and the ad network marks up the media they sell. A DSP allows publishers to connect to several ad exchanges, which charge a simple fee for handling transactions.

A DSP provides transparency. Advertisers know exactly which publishers they are purchasing ad space from and can bid on the price. With an ad network, the details of the ad space being purchased are often masked, and a flat CPM is applied.

What is a supply-side platform (SSP)?

On the publishing side of the programmatic advertising equation is the supply-side platform (SSP), also known as a sell-side platform. This technology helps publishers manage the supply and distribution of their ad inventory.

With an SSP, publishers can list their ad inventory on multiple ad exchanges to reach a wide range of advertisers using DSPs. An ad exchange is where SSPs and DSPs meet. This ensures that publishers can maximize the price of their ad impressions by making them available to many potential buyers.

When an SSP submits ad space to an exchange, DSPs evaluate and buy impressions on behalf of businesses based on specific attributes of the ad space (such as where they are served and to whom).

Along with giving publishers more potential ad buyers, an SSP gives publishers granular control over their ad space and its pricing. Publishers can set a price floor on ad space (a minimum price), and customize their price floor for specific ad buyers or channels. For example, new buyers could get a lower price on ad space as an introductory deal.

Publishers can also choose which advertisers and types of ads will be allowed on their websites.

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An ad exchange is where DSPs (buyer side) and SSPs (seller side) meet

What is a data management platform (DMP)?

A data management platform (DMP) is stand-alone software that organizes and stores audience data collected from online, offline, and mobile sources. This data is used to build customer profiles to drive advertising initiatives. Programmatic advertising platforms use these anonymized customer profiles to refine personalization, targeting, and content customization.

Many DSPs integrate DMPs or DMP functionality into their software because a DMP provides advertisers and brands with a better understanding of their customers.

A DMP can collect data from web analytics tools, mobile analytics tools, your CRM, a point-of-sale system, social networks, and more. It then uses that data to build profiles of website visitors, which are used in programmatic algorithms to match ads to visitors that are most likely to convert.

For example, a user could be considered a “bicycle enthusiast” based on their history, and bike-related ads will be served, or a user could fit the profile of a 25- to 35-year-old parent and see another set of ads.

How does programmatic advertising work?

Programmatic advertising connects people who own websites with ad space to advertisers who want to buy that space. The difference between programmatic advertising and other advertising technologies is that this interaction occurs without manual negotiation.

Instead, software is used to match ad sellers with ad buyers, and ad buyers can bid on ad spots rather than going with a flat CPM across all impressions on a site.

Programmatic advertising happens at the intersection of DSPs, SSPs, and DMPs; each platform handles specific parts of the process to create a distributed, transparent ad network that maximizes both the price publishers can get for ad space and the ROI marketers get from their ad initiatives.

Let's take a look at how each of these platforms works together to execute programmatic advertising:

  • A publisher adds ad inventory to their SSP along with a price floor and other details.

  • The SSP shares information on the ad space with multiple ad exchanges.

  • A customer/marketer buying ad space finds this ad inventory in their DSP, which is connected to various ad exchanges.

  • A visitor lands on the publisher’s website. A script on the website analyzes the user’s cookie/data information, and sends user information to the SSP.

  • The DSP on the advertiser’s side then coordinates with the SSP and uses profile data from a DMP to determine the value of the visitor.

  • Based on the value of the visitor, the DSP submits a bid on the ad space to the SSP.

  • The SSP may receive multiple bids on the same ad space, so it picks a winner based on the highest bid.

  • The SSP delivers the ad so it can be served to the visitor.

The bidding process happens dynamically during the first seconds a visitor loads a page (based on how both the SSP and DSP are configured). A DMP allows the DSP to optimize ads for visitors based on anonymous profiles. Ad exchanges facilitate the process by connecting SSPs with ad space inventory to DSPs with ads.

Like all digital technology, programmatic advertising is always evolving. A driving force behind current changes in programmatic advertising is the need to find alternatives to long-used third-party cookies, which will soon be history. Participants in the programmatic advertising ecosystem are searching for solutions to prepare for this change, among others.

Artificial intelligence (AI) improves ad ROI

Artificial intelligence and machine learning technology can learn from and adapt future actions based on data patterns. This makes AI a perfect fit for the real-time environment of programmatic advertising.

AI can collect and store large amounts of data on website visitors and process it quickly. The machine learning models built from this data can optimize ad ROI, reduce ad spend, generate contextual ads, make user behavior predictions, and more.

Increased personalization

One application of AI in the programmatic advertising space is delivering ad content that is truly relevant to each user who visits a site. Using data from a DMP, marketing automation databases, and CRM software, AI can create personalized ads that matter to website visitors based on their past web behavior, transactions, demographic information, device type, and more.

In programmatic ad tech, this is called dynamic creative optimization (DCO). With DCO technology, advertisers can automatically optimize advertisements based on multivariate or split testing in real time and serve only those ads that are most likely to grab a visitor’s attention.

Prevention of ad fraud

Digital ad fraud has been a huge problem for marketers since the advent of digital advertising. And it isn't slowing down, with digital ad fraud predicted to cost businesses $100 billion in 2023.[2]

It also comes in many forms. In click fraud, fraudsters use bots to click ads repeatedly. Sometimes they will hide ads using pixel stuffing or ad stacking. Other times, they spoof a website’s domain so they can charge more for advertising.

Here again, AI comes to the rescue. By identifying patterns that indicate fraud, it can stop fraudulent activity in real time before it even happens.

Thinking about hiring an advertising agency for help running a successful ad campaign? Browse our list of top advertising agencies and learn more about their services in Capterra’s hiring guide.

Use programmatic advertising to strengthen your digital marketing strategy

By 2023, you won’t be able to use third-party cookies in your marketing efforts. Google has already announced that it will remove the ability to use them from its Chrome browser, and both Mozilla Firefox and Apple Safari have already banned them.

But first-party cookies aren’t going away, as they are considered necessary for website performance. This means you can track visitors to your website using cookies, and programmatic advertising will help you do that more effectively.

Explore demand-side platforms that can help your business' programmatic advertising efforts succeed.




Looking for Advertising Agency software? Check out Capterra's list of the best Advertising Agency software solutions.

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About the Author

Stephan Miller Headshot

Stephan Miller is a freelance writer and software developer specializing in software and programming. He has written two books for Packt Publishing.

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