Programmatic Advertising Made Simple: A 5-Minute Overview

April 02, 2024 - by
Programmatic advertising

On the internet, programmatic ads are everywhere. Odds are, you've already seen a few hundred today, given that—of the 1,622 ads that internet users encounter daily—98% are digital, and 90% of those are programmatic. And more specifically, programmatic video ad spend is expected to reach $96.98 billion by 2025, according to eMarketer. Programmatic ads are the lifeblood of the internet as we know it—without them, very few websites would be able to offer their content to readers for free.

So it’s worth asking: what is programmatic advertising, exactly? It's fairly simple: in basic terms, programmatic advertising is the automated process by which marketers buy advertising space on websites. In theory, it's designed so that marketers can serve their ads to the exact right user at the exact right time (and for the best price). Because the process is automated, it allows marketers to place ads at a scale and with a precision that would be impossible otherwise.

As it happens, 'programmatic advertising' is in fact a catch-all term for four very different types of advertising: open auction, private marketplace, preferred deal, and programmatic guaranteed. Each of these has its own strengths and serves its own unique purpose. For a better understanding of how exactly programmatic advertising works, it's worth examining them one-by-one.

Open auction (aka real-time bidding, aka RTB, or open exchange)

This is the form of programmatic advertising that people are likely to be most familiar with—it's programmatic advertising in its purest and most traditional form. Here, the floor-price for each ad is set by the publisher, and marketer demand determines the final price, with the space going to the highest bidder.

Though widespread in the early days of programmatic advertising, the open auction method has become somewhat less popular in the years since. Part of this has to do with brand safety: because anyone can participate, publishers are sometimes unaware of what they're accepting to display on their website. And the open auction method has burned marketers, too, who have wound up with something that wasn't what they thought they were paying for.

Private marketplace (aka PMP or private exchange)

This is the "open auction" method but with a velvet rope and a bouncer at the door: it works essentially the same way, but in this case, there are restrictions on who can actually participate. Only vetted advertisers—usually invited by publishers, but sometimes after applying—are let through the door.

The benefits of this, in terms of brand safety and ROI, are clear—and so it's no surprise that, in 2020, ad spend in private exchanges eclipsed open auctions for the first time.

Preferred deal (aka programmatic non-guaranteed, or unreserved fixed rate)

Forget the velvet rope and the bouncer—preferred deal is more like a 1-on-1 meeting. Here, premium inventory is offered by the publishers at a pre-negotiated, fixed eCPM (or effective cost per mille) price. It's a bit more expensive than open auction advertising, but many would argue it's worth it—as the ad space being offered is typically of a higher quality.

Programmatic guaranteed (or automated guaranteed)

In a sense, programmatic guaranteed is an automated, scaled-up version of advertising as it used to exist in the days of newspapers and magazines. Here, a price is negotiated between publishers and marketers for a pre-set quantity of impressions.

Of the four types of programmatic advertising discussed here, this is the newest, and the one with the most industry momentum behind it. Its newfound popularity is a direct outgrowth of some of the limitations of other kinds of programmatic advertising, which are worth exploring at greater length. These include:

  • Fraud
    Fraud has plagued the programmatic advertising industry from roughly day one, and while many efforts have been made to combat the problem in the years since, it still remains a significant issue. Often, they'll find that a video ad they were told was very successful was barely seen by anyone; worse yet, they'll sometimes find that a video ad they've paid for was never run at all. And that's not to mention the persistent and as-yet unfixed problems of bot traffic and stolen data.

  • Data quality
    Data quality has always been an issue in the world of programmatic advertising, but it's becoming more acute by the day, with third-party cookies soon to be phased out of Google's Chrome browser and Apple requiring users to opt in to have their data collected. While some first-party solutions have proved promising so far, the question of how marketers will navigate data quality moving forward remains very much unanswered.

  • Tech requirements
    Today, there are literally thousands of marketing tools and platforms targeting different users and categories. Getting a handle on the complicated programmatic landscape as it currently exists—without getting burned by bots or fake traffic—can be a heavy burden for many marketers.

  • Brand safety
    In general, programmatic ads present a brand safety risk to both marketers and publishers. Because both parties are often in the dark—with marketers not knowing where their ads are ending up, and publishers not knowing what kind of ads they’re getting—the risk of a brand safety incident remains relatively high.

It’s important to note that all four aforementioned challenges within the programmatic advertising ecosystem are significantly diminished when working with a trusted technology partner. For programmatic video specifically, it’s crucial to find an online video platform (OVP) like EX.CO that can ensure video inventory is always brand-safe and guaranteed to be free of fraud.

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