Join our free Improving Digital Performance Summit on July 15th

Explore our Marketing Campaign Planning Toolkit

What is Programmatic Marketing?

Author's avatar By Dave Chaffey 21 May, 2020
Essential Essential topic

How are programmatic marketing and digital display advertising defined and what are the opportunities for all types of business?

In the ten plus years since the birth of programmatic marketing, it has really delivered on its original promise to be the future of advertising on the web.  This is shown by the latest Zenith report on programmatic marketing which states that:

In 2020, 69% of all digital media* will trade programmatically amounting to $US122 billion.

This growth of programmatic is certainly impressive, with the Zenith statistics showing how ten years ago programmatic accounted for less than 10% of Programmatic marketing.

However, these charts and the definition of digital media and programmatic is also misleading as we'll explain in this post. As someone who has worked in digital marketing since the mid-1990s, I'll level with you and say I find Programmatic a challenging term to define since it doesn't include what you think it might.

So, what exactly is programmatic?

I'd like to keep it simple, but, in the case of programmatic marketing, it helps to understand what it isn't... I'll highlight the questions you should ask when anyone is discussing programmatic research starting with...

Q. So is Programmatic Marketing limited to Programmatic Advertising? 

Answer: Yes

So, really when we talk about Programmatic Marketing, we will be clearer if we talk about Programmatic Display Advertising... This is what I try to do... but many don't.

A simple definition of programmatic advertising from the Display Trading Council is :"

"The use of automation in buying and selling of media".

Great, simple definitions are good, so we know that programmatic marketing is when people aren't involved in ad buying. We have to be careful here since it refers specifically to paid advertising, not other forms of automation such as web personalization or email marketing which are part of marketing automation. So we can answer this question?

Programmatic has rapidly developed since it's much more efficient for advertisers and media agencies who manage their budgets. Before Programmatic, a publisher had to call an advertiser, negotiate terms for different value of ad inventory, and use a manual insertion order process before buying. Today, ad exchanges have entirely changed the process of selling and buying in programmatic advertising.

Q. Does Programmatic marketing involve all automation of marketing, i.e. is it the same as Marketing Automation? 

Answer: No, it's limited to paid media buying, i.e. advertising and is typically arrange through ad exchanges or marketplaces which we'll explain shortly.

So, to repeat, it's best we talk about programmatic advertising. We need to qualify it as display advertising since...

Q. Does Programmatic include ad spend on Google Ads (paid search)?

Answer: No. Programmatic advertising DOESN'T include all paid search (and classified). This is significant since eMarketer research tells us that Google Ads (including YouTube) is the largest online ad seller. So when we see figures at the start of this article that programmatic accounts for most of online advertising it's misleading.

But this definition suggests that it includes both programmatic ad exchanges and when ads are bid for in auctions such as Google Ads Pay Per Click in search engines, on the Google Display Network and on YouTube right?

Unfortunately, it's not that simple. If we return to the definition from the Zenith research the definition of paid media is: * Digital media refers to all forms of paid-for advertising within online content, including banners, online video and social media, but excluding paid search and classified advertising. So this means that programmatic advertising doesn't typically include Google Ads bidding. This is confusing since as you'll know Google Ads includes both ads placed in response to queries in search engines AND YouTube Ads and Google's display network.

Let's now consider where you can buy programmatic ads with this question...

Q. Does programmatic buying always happen via ad exchanges? 

Answer: Yes (although we'll see that some ad exchanges are private)

Ads were (and still are) also sold through ad networks where publishers had no control on price. Today ad exchanges unite publishers, advertisers, agencies, and networks in one place enabling them to sell/buy ad impressions in a fully-automated process.

This visual summarises the process of an ad marketplace which brings together Demand Side Platforms (DSPs) on the buy-side with Sell-side platforms (SSPs) on the right

It's easier to read it from the right, to understand the process, starting with the consumer:

  1. Consumer loads page on publisher website in their browser, for example, a car magazine website.
  2. Publisher ad server announces via SSP that ad inventory is available to...
  3. DSP informs advertisers (for example, a car manufacturer) possibly via an ad network linking to a trading desk who select inventory based on the type of consumer they want to advertise to and the bids they have set

Q. Is programmatic advertising bought in real-time? 

Answer: Yes. This is another characteristic of programmatic advertising. It's why the diagram refers to RTB or real-time bidding and increasingly header bidding which is another term that's part of understanding Programmatic display advertising.

So, to extend our definition, we define Programmatic display advertising as:

Programmatic display advertising involves automated bidding on display advertising inventory in real-time, for the opportunity to show an ad to a specific customer type, in a specific context. It doesn't include paid search bidding. Often it involves header bidding to facilitate the real-time bidding process.

Which leads us on to the next question...

Q. Does programmatic involve header bidding?

Answer: Not necessarily, but it's an increasingly common technique used by large advertisers since 2016.

Header bidding involves the website media owner or publisher placing a line of JavaScript in the website’s header. When a page on the site is loaded, the code reaches out to the supported ad exchanges or supply-side platforms (SSPs) for bids before its own ad server is called. Bidding is essentially simultaneous, instead of sequential, and focuses on all available impressions, not just the ones available after direct sales.

The process is explained by this visual from AdopsInsider :

They explain the process as:

  1. User requests a website
  2. Header tag script redirects user to one or many SSPs (or DSPs, or Exchanges)
  3. User calls one or many SSPs in parallel
  4. SSPs conduct auction with DSPs and internal network demand
  5. DSPs respond with bids
  6. SSP determines winning bid value and returns to User
  7. User passes bid value into ad request and calls Publisher Ad Server
  8. Ad server determines final line item to serve and redirects User to Marketer Ad Server (let’s assume the ad server determines a pre-bid SSP line item for this example)
  9. User calls Marketer Ad Server
  10. Marketer Ad Server returns final creative (via CDN)
  11. User calls trackback to SSP

To understand how this works, Header bidding Chrome extensions like BidFilter can show bidding times and bids for a publishers website:

Q. So programmatic is only about buying via ad marketplace platforms via auctions?

Answer: No. This is what is popularly thought of as programmatic, but media can also be bought direct from advertisers and through private marketplaces. As this figure from the IAB Programmatic Handbook (direct download) shows, there are two options on the right, private marketplaces and open Real-time buying exchanges (RTB)

Header Bidding recommends these as the top programmatic ad exchanges for publishers to consider:

  • Rubicon Project
  • PubMatic
  • Index Exchange
  • OpenX
  • DoubleClick (Google Ad Exchange)
  • AppNexus
  • Smarty Ads
  • Smaato

Google AdX, the largest programmatic ad exchange, conducts a first-price auction and sells display advertising space in real-time. It's the premium version of Google’s AdSense for larger publishers compared to AdSense which is used by smaller publishers.

'Programmatic Marketing' or advertising is a general term, so it's best to divide it based on whether it involves Real-time Bidding (RTB) or not. Often it is only considered to be real-time transactions to bid  This summary, also from the Magna Global report is useful to show the differences.

Definition of programmatic marketing - rtb vs non rtb


 

The opportunities of programmatic display?

The only thing standing in the way of increased adoption of programmatic is marketers' lack of knowledge of the process and reluctance to give up previous ways of purchasing ads in favour of the complex yet extremely effective instant, automated bidding process used in programmatic marketing. A little knowledge can go a long way, so we thought an introduction to the concept of programmatic marketing would be useful for digital marketers. But what is programmatic digital marketing?

This post covers just a handful of the benefits and potential opportunities of programmatic marketing. We also have a 'Programmatic Marketing Glossary' to aid readers in their understanding of different terminology and definitions. For a more in-depth look at what programmatic marketing is, the potential benefits, and how to get started with programmatic, see our new guide for all members.

The sections are:

  1. An introduction to programmatic
  2. A data-led approach
  3. Programmatic platforms and auctions
  4. Benefits of programmatic for the marketer
  5. Ad fraud
  6. Compliance

Forecasts for Programmatic Digital Marketing

For reference, these are previous Magna Global Programmatic Intelligence report gives forecasts for programmatic by format from 2014 to 2019. They estimate that by 2019 it will be 50% of all advertising, which is less than the Forrester estimate, but still a significant growth.
Programmatic marketing spend by format

Need more information about Programmatic Marketing and Paid Media strategy?

Smart Insights has a toolkit dedicated to paid media strategy to help increase online reach and awareness. Learn best practices to improve your ROI using Google AdWords, Social media and Display Ads. Our guides include:

Or view our FREE 10 costly AdWords mistakes guide.


How does Programmatic Marketing work?

When anyone clicks on a web page that has advertising space that is configured for programmatic advertising, the publisher of the page puts up an ad impression for auction in an ad marketplace. The ad marketplace then runs an auction among advertisers interested in displaying an ad to that specific customer that just click on the page. There may be many advertisers competing in this auction, and whichever one ultimately is willing to bid the most wins the auction and then their ad is displayed to the customer when the page loads.

Because the process is automated and the maximum price each advertiser is willing to bid for the impression has already been programmed in, the auction can be completed within the milliseconds it takes for the page to load. Our simple infographic takes you through 6 steps that explain how programmatic marketing works.

programmatic advertising infographic

What are the advantages of Programmatic Marketing?

Programmatic marketing opens up a series of opportunities, which would not be possible if ad placement was done manually, as it has been done in the past. It allows advertisers to procure digital media without having to pre-negotiate a price, so they pay only for the relevant impression that they actually receive. They can also sign up for a minimum number of impressions or a minimum budget, which makes digital advertising more flexible, and they can buy digital media across publishers, which reduced administration costs.

Sign up for Free membership

But the opportunities are much greater than just making ad buying easier and more flexible. Because programmatic marketing means bids are arranged for each individual accessing the site people can be targeted to a far greater extent than before.

Using customer data, Programmatic technology can identify what resonates with each individual and target him or her on the sites on the sites they are most likely to engage with and at the time they are most likely to engage.

Auhtor's avatar

By Dave Chaffey

Digital strategist Dr Dave Chaffey is co-founder and Content Director of online marketing training platform and publisher Smart Insights. Dave is editor of the 100+ templates, ebooks and courses in the digital marketing resource library created by our team of 25+ digital marketing experts. Our resources are used by our Premium members in more than 100 countries to Plan, Manage and Optimize their digital marketing. Free members can access our free sample templates here. Dave is a keynote speaker, trainer and consultant who is author of 5 bestselling books on digital marketing including Digital Marketing Excellence and Digital Marketing: Strategy, Implementation and Practice. My personal site, DaveChaffey.com, lists my latest Digital marketing and E-commerce books and support materials including a digital marketing glossary. In 2004 he was recognised by the Chartered Institute of Marketing as one of 50 marketing ‘gurus’ worldwide who have helped shape the future of marketing. Please connect on LinkedIn to receive updates or ask me a question.

Recommended Blog Posts