Programmatic Advertising: Deconstructed

programmatic growth

Source: eMarketer

“Programmatic” was chosen by the Association of National Advertisers as 2014’s Marketing Word of The Year.  It trumped popular buzzwords like “content,” “millennials,” “omni-channel” and “transparency.” While it may be the fastest growing segment in digital advertising, it is perhaps the most misunderstood.

Altitude’s Programmatic Advertising Deconstructed series will clarify common misconceptions surrounding programmatic. It will also provide insight for publishers and advertisers trying to maximize campaign performance using its various automated technologies throughout future installments.

Volume 1: The Digital Marketing Ecosystem

“Programmatic is really just a way of using technology to buy and sell media.” -Carl Kalapesi, Senior Director of Industry Initiatives, IAB.

Much of the industry’s confusion stems from programmatic’s simple yet encompassing definition. The fact is, programmatic can be broken down into several distinct deal types (e.g. RTB or an “open auction” being the most well-known) with various methods and technologies. Before we analyze each method, it’s important to look at the origin and architecture of machine-based media buying.

 

The Origin: Ad Networks

The current Ad Tech world is really just an extension of the traditional two-party system of buyers interacting with sellers. In traditional (direct) two-party transactions, agency media planners work directly with publishers to execute a media buy. A deal was typically negotiated in person or over the phone for a set number of impressions at a set price.

However, as the Internet and advertising space grew, an oversupply dilemma was created, with as much as 40-60% of publisher inventory going unsold. At the same time, advertisers were having trouble reaching their target audiences efficiently, often resorting to conducting offline deals with multiple publishers. These inefficiencies led to the creation of Ad Networks:

  • Ad Networks: An advertising network aggregates, categorizes and sells publisher inventory in a way that can be easily understood and purchased by advertisers on a fixed CPM basis. By aggregating inventory, Ad Networks offer advertisers the ability to better reach their target audience while allowing publishers to sell their remnant inventory more effectively. There are many types of Ad Networks. For example, some focus on delivering reach and price while others focus on audience demographics and quality.

ad network

 

Automation: Supply-Side Platforms, Demand-Side Platforms and Agency Trading Desks

As online advertising space grew exponentially, an automated marketplace became necessary to allow publishers and advertisers to manage their transactions and performance at scale. This led to the creation of Supply-Side Platforms (SSPs), Demand-Side Platforms (DSPs), and Agency Trading Desks (ATDs):

  • Supply-Side Platform (SSP):  A Supply-Side Platform (SSP) is a system that allows publishers to manage, sell and optimize inventory in an automated fashion. SSPs allow publishers to connect their inventory to multiple ad networks and DSPs at once. This allows a larger range of potential buyers to purchase ad space more efficiently.

  • Demand-Side Platform (DSP):  Analogous to a SSP, a Demand-Side Platform (DSP) is used by advertisers and agencies to manage and purchase inventory from multiple ad networks through one interface. 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 browsing behavior.

  • Agency Trading Desk: Agency Trading Desks (ATDs) are independent entities working on behalf of media buyers. They utilize DSPs and other technologies to optimize programmatic, bid-based media and audience buying. The primary goal of an Agency Trading Desk is to help clients improve their advertising performance and receive increased value from their ad buys. Additionally, they measure results and report audience insights to their clients.

For some great context and visuals on the creation of this digital ecosystem, check out Mark Dye’s Digital Advertising Ecosystem video:

 

Real-Time Bidding: Ad Exchanges

Ad Exchanges are a step above ad networks in that they facilitate the buying and selling of inventory from multiple ad networks simultaneously. Ad exchanges enable Real-Time Bidding (RTB) on individual impressions by utilizing the automated DSP and SSP technologies that we covered previously.

Using an Ad Exchange, publishers can auction their inventory to the highest bidder through a single interface. Buyers, on the other hand, can access inventory from thousands of publishers (through the many ad networks) in one place, giving them exponentially more reach than any single ad network could.

ad exchange

 

FAQs

What is the Difference Between Agency Trading Desk and a DSP?

An Agency Trading Desk is an independent unit within a media buying agency that centralizes the buying and optimization of “programmatic” or “biddable” media. DSPs are the technology platforms used to manage and optimize these buys.

What is the difference between ad exchanges and ad networks?

An Ad Network works with publisher’s sites to help package and monetize unsold inventory. An Ad Exchange, on the other hand, collects inventory from several publisher sites and exchanges simultaneously and auctions it off at the impression-level in a RTB environment.

 

Conclusion

As you can see, the current Ad Tech landscape is really just an extension of the traditional two-party system between advertisers and publishers. As long as you keep in mind what is being sold (e.g. audiences, categorized remnant inventory), who is selling it (e.g. networks or SSPs via exchanges) and who is buying (e.g. agency trading desks via DSPs), it becomes a little clearer.

Hopefully you now have a high-level understanding of the programmatic ecosystem, including its historical perspective, technology components and deal types.