Programmatic Advertising Explained

programmatic

Back in the old days of online advertising, you needed to buy chunks of space (impressions) from the publishers directly. Popular portal website such as AOL and Yahoo sold this space to advertisers and you would liaise directly with these publishers, organizing with them the material (the images & text) and the resulting cost. They would take your ads, put them on the website and your ad would be shown to everyone at the same time until your impressions that you had booked were used up.

It is rare for publishers to still operate exclusively in this way. Far more have since decentralized the media buying and selling process by utilizing the power of digital technology. They sell their ad space (inventory) directly to advertisers and sell the rest via ‘supply side platforms’. The market dictates demand and if the supply matches demand, there are bids on that space accordingly through programmatic systems which will help determine the final price of the ad and who gets to deliver the right ad at the right time to the right audience.

 

What is Online Programmatic Display Advertising?


Exploding in popularity, Programmatic is a method of automatically buying Advertising, where the term real time bidding (RTB) refers to a way of buying media programmatically, in real time on the open market. It is simply a feature present in nearly all digital advertising systems.

Evolution of the term

Most people now use the term ‘programmatic’ to encompass online display advertising in general as we are moving towards a future where even TV advertising will be bought programmatically. Typically the industry will use it to describe the online advertising marketplace, which is used intensively by large advertisers who have matching budgets. Most of these systems require a minimum monthly spend of $5000AUD upwards so this excludes a lot of smaller budget advertisers who will use brands like Adroll, Google Display Network and other similar systems to advertise online.

The definition of a Publisher

For the purposes of a digital discussion, this refers to the website or digital platform which is selling space to advertisers such as Fairfax or News Ltd. This can also be publishers who own apps such as Angry Birds, Skype, Soundcloud or Tunein Radio.

The definition of Media Buying?

It is complex job and there are a lot of people with full time titles of ‘Media Buyer’. When buying media, I’m buying the opportunity to advertise my good or service through a communication medium. This process is called ‘Media Buying’ because the advertiser is buying space from a the person selling (the publisher).

The definition of Inventory

Inventory refers to a reserved area on a publisher’s website or application which allows for external organisations to advertise their product or service. This inventory is usually a mix if three sizes, standardised by the IAB for compatability. You can see the guidelines here . There are also other standards mobile and apps but the main reason standards exists is to encourage enough supply in the market and a controlled system for a better experience for the end user.  In the middle of an online news article, promoted articles or a 5 second pre-roll video advertisement (before a video plays online), this inventory is priced, usually reflective of market demand and sold to advertisers wishing to advertise their product or service. How this inventory is sold and bought and how the final ad appears is where things get very, very complex.

How is Inventory sold?

In the digital world, inventory is generally sold via ‘impressions’.  The currency of online inventory is priced per CPM (Cost per thousand impressions). There are other ways to sell inventory, but for the purposes of this discussion we will talk about CPM.

An impression refers to a single instance of a user looking at content, say, on a news website. This is counted as one impression. If you refreshed the page or read the article again at a later point in time, an ad would be served again, thus two impressions. When this happens you’ll more than often notice that the ad could feature a different advertiser. Unless you’re being targeted via re-targeting/re-marketing, most sites will rotate between all the advertisers that are competing for the same ad space at that particular time.

Below is a screenshot from Google’s Display Network – See the Impressions (Impr) column on the right hand side. This person had bid $4.55-$5.55 per 1000 impressions.Many people do not realise that in Google’s Display Network, you do not pay via Cost Per Click as this is simply converted to a CPM bid automatically in their system.

Still Confused? This video might help

 

How Is Programmatic Media Buying Different?

The main difference between traditional media buying and programmatic media buying involves how the ad space is bought and sold.

In a traditional agency model, advertising agencies will usually partner with a media agency to allow them to buy large chunks of media inventory for their clients’ campaigns. This media agency will handle most of the planning and buying of ad space for them as this process can be quite technical and involves a working relationship with many contacts within the media industry.

These media buying organisations will buy a lot of inventory from publishers manually via IO’s (insertion orders) and brief creative advertising agencies on the ad formats purchased, who liaise with their client (the advertiser). Substantial commissions, rebates, perks and packages offered by the publishers can substantially distort the buying decisions of these media agencies. Due to the fact that media agencies are buying inventory at a wholesale, discounted retail rate, they make most of their profit on the discrepancy between the real cost and perceived cost of the media. Such large purchases would typically be negotiated directly with a representative of the publisher’s sales team allowing for a rate that could be quite different from what it would be available in a deregulated marketplace.

The problem with traditional media buying

Traditional media, especially Print and TV has always relied on metrics that have a large degree of error. For example, readership numbers are often used to measure the success of a newspapers or magazines (as opposed to circulation), but this does not mean they were all read by a human nor the degree to which each page was read. Similarly, TV program viewership relies on a very small sample dataset from OzTAM (which is then extrapolated into total population) and often doesn’t accurately measure whether the viewer is paying attention to the advertisements. While it is true that digital media suffers from a degree of non-human (bot) traffic, generally speaking the data are far more reflective of market demand. Furthermore, these values can be quite easily independently verified through 3rd party verification companies.

Understanding Ad Exchanges, Supply Side Platforms and Demand Side Platforms and Ad Servers

With programmatic media buying, there’s a separation between the sellers and buyers of the inventory.  Buyers and sellers interact via an electronic marketplace with intermediaries in between. Publishers will sell some of their inventory to a supply aggregation system called a Supply Side Platform (SSP). People wishing to by the space will send their requests via a Demand Side Platform (DSP) which forms a pool of demand.

The systems that connect this demand and supply are called Ad Exchanges. Whether or not your request to buy inventory is successful depends on your bid. Much like in an auction environment, you might bid a $5CPM to advertise to a particular group of internet users (an ‘audience’), but if someone else bids $6, they will win the right to advertise instead.

In reality, you rarely just buy advertising areas on websites, but rather audiences. Think of audiences like you would a reflection of your target market online. These are groups of users who match the target market for your product or service. These audiences are created via mixing publisher data and other third party data. These audiences are then made available for purchase via interaction with the SSP.

The advertising material or creative (images, text, videos etc) is uploaded and managed via an Ad Server.

 

Below we’ve listed some examples for your reference. It’s important to note however that some company groups will own and operate multiple brands that could operate as an SSP and Exchange for example.

What are some examples of Ad Exchanges?

  • ONE by AOL:Display/Video
  • Rubicon Project
  • AppNexcus, PubMatic
  • OpenX
  • FBX (Facebook Exchange)
  • The Double Click Ad Exchange
  • Spot Xchange
  • LiveRail
  • Adapt.tv

What are some examples of Demand Side Platforms (DSP’s)

  • Media Math
  • AppNexus
  • Double Click
  • The Trade Desk
  • Rubicon
  • Turn
  • DataXu
  • Rocket Fuel

What are some examples of Supply Side Platforms (SSP’s)

  • Double Click for Publishers (also an ad server)
  • Live Rail
  • OpenX

What are some examples of an Ad Server

  • Double Click Digital Campaign Manger (DCM)
  • Sizmek
  • Marin Software (they also offer a search network tool which they are more famous for)
  • Media Math Terminal One (again they are mainly a DSP)
  • Bonzai (basic ad server)

 

What is the difference between an open and private marketplace Exchange?

Some publishers, especially larger ones wish to restrict the sale of their inventory to certain buyers and exclude others. Selling inventory on the open market for anyone to purchase sometimes has its commercial limitations. For this reason the publisher will set up their own private advertising exchange. In Australia, Fairfax media in early 2016 did just this. Often larger publishers may sell premium space on the private network and sell regular space to the open networks. A good example of this is homepage special features (such as pop ups) which are sold at a premium rate and whose sale is restricted.

Don’t confuse programmatic with an Ad Network or Ad Platform

An ad network is simply the name of an organisation which group together inventory from many publishers and this grouping allows for buyers (advertisers) to connect with the sellers (publishers) of ad space who wish to host advertisements on their websites but may not have the traffic volume individually to go at it alone. Adsense by Google, is one example of an ad network.

Programmatic has become a term that people throw around as some kind of new, superior online advertising system. Almost always, it’s used incorrectly. Programmatic is a buying method just like credit cards are one buying method for goods vs cash as another. We’ve seen job roles even pop up recently such as, ‘head of programmatic’. This title has mystique and sounds exotic, but as time goes on and most people become educated in programmatic buying methods, it really isn’t any different to any digital media buyer who organised the purchase of media space through an online system that has programmatic features. As we’ve mentioned above, nearly all of them do.

Which online Advertising Platforms allow for Programmatic Advertising?

It would be unusual for a digital ad platform not to feature programmatic media buying ability. However, they do vary significantly in their optimisation and automation features.

  • Google Double Click
  • Google Adwords
  • Adroll
  • Sitescout
  • Criteo
  • Sizmek
  • Perfect Audience
    …and many more!

 

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How Exactly Do Programmatic Ad Platforms Work?

At their core all systems will generally have the following features in common:

  • A booking mechanism to buy inventory aka. media space
  • A bidding system or RTB (Real-time bidding) where you can set the rate you’re willing to buy the space. This is generally a fluid rate that is responsive to the market mechanism (demand and supply).
  • A targeting system which gives you access to data that helps the advertiser purchase the most appropriate ad space for their campaign.
  • Optimization – This can involve optimizing placements (websites or apps where the ad space is located) through to audience targeting (ability to focus your ads to users who most likely match your target market’s characteristics as well as the ads themselves (tailoring certain ads with certain messages to users who would be most receptive to them given their past behaviour).

What is the main advantage of Digital Programmatic Ad Platforms?

Efficient Media Buying

The ad buying process is more efficient, faster, less susceptible from human distortions and more reflective of market forces. In short, it’s easier to receive a fair market price.

Relevant Advertising

In short you have the ability to deliver the right ad, to the right person, on the right digital medium, at the right time, to elicit your intended response.

Why is Programmatic a Buzzword in Online Marketing?

Make no mistake, there’s nothing new about programmatic, in fact it’s been around for over a decade. What’s changed has been an increase in the use of programmatic ad buying by advertisers. To advertise online, all an organisation has to do, is to sign up to one of these platforms, upload their ads, define a few targeting settings, add their credit card and they are ready to go.

You will notice that most Digital Marketing Agencies will not require the services of a media agency because they are purchasing media through these systems on behalf of their client anyway.

Most of the innovation around programmatic in the industry has concerned specific program interfaces which allow for data analysis and automatic optimization through proprietary features or algorithms. Most of these ad platforms simply integrate into ad exchange networks and combine this with payment systems, their own metrics, UI and optimization algorithms.

Is Programmatic Advertising the same as RTB (Real-time Bidding)?

No, RTB is a type of programmatic ad buying referring to the purchase of ads through real-time bidding. Real time bidding means that the price fluctuates based on demand at the time and many other parameters. RTB is still the biggest revenue generator for most media agencies where they can make enormous margins by marking up their bids by 40%, in the name of a ‘service fee’. With that said, this is not dissimilar to mark-ups that were applied to the purchase of offline media space such as TV and Print. These large margins are how media agencies are generating most of their base revenue. It can be said that there is incentive to plan and deliver more dollars through an agency trading desk due to the consistency of profit margin. In the past there were also incentives, besides agreed rebates for the media agency, buying offline can offer clients substantial perks: i.e. that invite into the box at the MCG, tickets to shows, wining and dining at Attica etc depending on the publisher chosen to advertise with.

Programmatic’s impact on Media Agencies

Programmatic is now being talked of as more of a medium to delivery than a ‘new’ medium or channel. Media agencies are now dissolving their separate trading desks and spreading out the traders within the media teams to be the specialist on campaign implementation and delivery.

There is a big push by agencies to move all ad buying by end of 2017 to programmatic systems.

What’s new in Programmatic Land?

There is a new buy type called Automated Guaranteed which means specific contextual or premium positions such as homepage takeovers (like the one pictured above on news.com.au) can be bought programmatically, replacing the manual IO system for such premium positions.

Is Programmatic the Future of all Advertising?

Currently, most of these systems are exclusive to the digital content world, although a few more progressive offline media firms are using similar exchange systems to help automate what was previously a more manual process (IO’s). The problem with offline media lies in the difficulty measuring the consumption of the media meaning the ability to optimize campaigns is hindered by flawed or unavailable data. For this reason, we predict programmatic media buying will only grow in popularity in the future.

Is there still a need for Media Agencies?

Traditional media agencies will struggle to adapt to the ways of the digital advertising using their existing business models as their clients become more savy and expect more transparency. Most inventory can be purchased directly from the publisher via these Ad Networks with ease and at market-set prices. With a day or two of training, anyone can set up an online ad campaign and advertise on pretty major websites if they wanted to.  However, larger publishers still seem to be developing their private marketplaces and restricting the open sale of their premium inventory where manual interaction is necessary. Furthermore, ad networks are somewhat fragmented (especially in the USA) meaning you will need to be familiar with multiple systems unless you develop or use integrated advertising aggregators.  For this reason, we would argue Media Buying Agencies will have a place, especially for large advertisers due to their purchasing power, however they will have declining relevance in the SME advertising market.

Implications for Advertisers

There’s less reason to use a Media Agency to advertise online, especially if you have some reasonably savvy digital marketing staff. In Silicon Valley, it’s rare for Australian-sized companies to use agencies at all. One of the biggest differences between our two markets is the fact that many marketing functions Australian firms outsource to agencies are simply not outsourced as there’s the talent available to create huge efficiency through the establishment of competent in-house departments. With that said, we have noticed companies such as Sportsbet, HCF, Coles and other larger digital advertising players starting to follow Silicon Valley’s trend and divest from traditional agency relationships. The financial resources saved can be substantial. In fact, organizing this transition is one of our most popular services.

 

 

ABOUT THE AUTHOR

John James

John has been working in marketing and sales for over 10 years, working with brands such as Procter & Gamble, RACV/Q and Sothebys during stints at global Advertising agencies early in his career. His core specialties lie in marketing strategy development and branding, but is most sought after for his ability to influence users online and generate behavioural responses though marketing communications. He spends most of his time in Melbourne, Australia and California, USA.

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