What is programmatic advertising

Programmatic advertising has revolutionised digital marketing, providing a faster, smarter way for brands to reach their target audiences online. But how exactly does it work? This comprehensive blog breaks down everything you need to know about programmatic advertising. 

Programmatic advertising refers to the automated buying and selling of ad impressions through real-time auctions. Instead of the traditional manual processes of negotiating and placing ads, programmatic advertising uses algorithms and machine learning to match buyers to the most relevant ad opportunities at scale.

Imagine you're trying to display your ads on various websites, but instead of contacting each website owner individually, you use a system that does all the work for you. This is essentially what programmatic advertising boils down to - the automated buying and selling of online ad inventory.

The Key Players in Programmatic Advertising Before we explain the three main methods of programmatic advertising, it's important to understand who the key players are: 

Demand-Side Platforms (DSPs): These are like shopping assistants for advertisers. *So, If you are a company trying to advertise your product, you would go to a DSP with your target audience and they will then set up the rest of the advertising process for you.*DSPs help them find the best ad spaces and handle the bidding process.

Supply-Side Platforms (SSPs): These platforms work with publishers to sell their ad spaces.

*Publishers are any site that has ad slots on it. For example, this could be an online news outlet running advertisements down the sides of the screen.*They're like sales assistants for website owners, helping them get the best price for their ad spaces.

Ad Exchanges: These act as the marketplace where DSPs and SSPs meet to buy and sell ad inventory.

An easy way to remember this is by understanding what the product is… In programmatic advertising, the ad slot is the product. So the publishers are supplying that product (hence why they are called supply-side platforms) and the advertisers are trying to bid on those ad slots, meaning they are setting the demand (hence, demand-side platforms).

TYPES OF PROGRAMMATIC ADVERTISING

Now you know who the key people are in programmatic advertising, it is important to understand how they interact.

Remember, programmatic advertising is just the automated buying and selling of ad inventory. 

Open Marketplaces: This method is like a public auction for ad spaces. Demand-Side Platforms (DSPs) participate in real-time bidding (RTB) on behalf of advertisers to secure ad spaces on various websites.

The highest bidder gets their ad displayed.

Private Marketplaces: While similar to the open marketplaces, these are exclusive, invite-only auctions where selected advertisers can bid on premium ad spaces from specific publishers.

This allows advertisers to access high-quality inventory while ensuring more control over where their ads appear.

Programmatic Guaranteed: In this method, advertisers and publishers agree on a fixed price for ad spaces, skipping the auction process.

Advertisers directly purchase the ad spaces, ensuring their ads appear on specific websites and offering more predictability in terms of ad placements and costs.

This is still programmatic since the placing of the ads is all automated.

In simple terms, programmatic advertising is like a smart matchmaking service, connecting advertisers with the perfect ad spaces to reach their target audience efficiently and effectively.

ADVANTAGES OF PROGRAMMATIC ADVERTISING

Programmatic is the go-to for advertising for a reason. Here are some of the advantages:

Efficiency: Automation speeds up the ad buying and selling process, saving both time and resources.

Programmatic typically works in less than 200ms! - That’s quick enough that your brain can’t register the delay!

Targeting: Advertisers can reach their desired audience based on user data, ensuring their ads are seen by the right people.

Programmatic advertising uses a huge amount of personal data (cookies) to make sure they are the most effective. To learn more about cookies, click here.

Cost-effectiveness: Programmatic advertising allows better control over ad spend with bidding and budget optimisation.

Wow! Programmatic is great! Yeah, it is - but there are some challenges that are becoming harder and harder to overlook…

CHALLENGES OF PROGRAMMATIC ADVERTISING

While advertising has come a long way over the years, it’s still far from perfect.

Carbon Footprint: One significant problem that has emerged in recent years is the carbon footprint of digital advertising, particularly with programmatic advertising.

With the rise of data-driven advertising, the energy required to process user data and deliver targeted ads has increased exponentially, resulting in a significant increase in greenhouse gas emissions.

Advertising Fraud: Another issue is advertising fraud, which is estimated to cost the industry billions of dollars each year.

Advertisers are losing money due to fraudulent practices like click farms, ad stacking, and ad injection, which artificially inflate ad views and clicks without providing any actual value to advertisers.

Privacy and Regulation: Programmatic advertising has traditionally relied on cookies to target users effectively. However, as concerns about personal privacy grow, so does the regulation surrounding it.

The General Data Protection Regulation (GDPR) has made it increasingly difficult for programmatic exchanges to use cookies for user targeting, leading to less effective advertising and higher costs.

This is why companies ask you if you would like to accept cookies before you browse the site. It's due to these new regulations by GDPR!

Complexity: Finally, the programmatic advertising ecosystem has become incredibly complex, with many middlemen taking a cut of the advertising spend before it reaches the publisher.

This has resulted in reduced revenue for publishers, who are struggling to monetise their content despite increased traffic.

This is why you’ve probably recently noticed a lot of news companies requiring a subscription or fee to read their content! It’s because the programmatic advertising system has become so clogged up with third parties that the money gets filtered out before it reaches the publisher.

THE FUTURE OF PROGRAMMATIC ADVERTISING

Looking ahead, innovations in privacy, identity resolution, AI, and omnichannel integration will shape the future of programmatic. Blockchain-based solutions, like Alkimi Exchange, will also help tackle issues like transparency and bot fraud. As programmatic continues advancing, advertisement will shift further towards precision, personalisation, and performance. 

To find out more about blockchain-based solutions and their potential to revolutionise industries, read our blog here

Blog S1E5 - A Deeper Look at Blockchain Technology

SUMMARY

Programmatic advertising provides a powerful, data-driven approach to media buying allowing brands to find and engage their best customers seamlessly across channels. Despite ongoing challenges, programmatic delivers transparency, efficiency, and results making it the preferred way of executing digital advertising campaigns today.

Innovative companies like Alkimi Exchange are emerging to address the challenges of programmatic advertising by leveraging the power of blockchain technology. This approach can help reduce carbon emissions and ad fraud while enhancing digital privacy. As a result, publishers can potentially generate higher revenues without resorting to paywalls to monetise their content.