Programmatic Advertising Explained

Posted on April 04, 2019
By Team InMobi

In-App Programmatic Advertising Explained from A-Z

Need programmatic advertising explained to you in layman’s terms? No worries, because we have you covered here!

Interested in learning more about the current state of mobile programmatic? Be sure to download our latest report for insights straight from our leading global mobile in-app ad exchange!

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Programmatic Ads: A Definition

Anytime you sell or buy digital ads using machines or through any kind of automation, that’s considered programmatic advertising. Programmatic enables buyers and sellers to collect and make deals without having to manually process insertion orders or develop one-on-one deals.

Different Types of Programmatic Media Buying

When it comes to buying and selling programmatically, there are a few ways deals can be structured and managed.

With open exchanges or open marketplaces, available ad inventory (i.e. potential ad placements on apps or websites) is made available to anyone, and the highest bidder in an ad auction gets to place their ad in that spot for a given amount of time. This is the advertising world’s equivalent to buying on a stock exchange like NASDAQ. While it’s relatively easy for advertisers to set up and optimize campaigns at scale with open exchanges, they historically have had issues with low impression costs, fraud and less-than-stellar ad quality.

In a private auction, which is also sometimes known as a private marketplace or a closed auction, a publisher allows a select group of advertisers to bid against one another for available ad inventory. It’s like an open exchange, but on a much smaller scale. Often, a publisher’s premium inventory is made available in this manner, which can help drive up ad prices; however, as a result, it can also lead to low fill rates.

  • Preferred deals are a type of private auction in which a price floor (minimum accepted bid price) is established and where advertisers get first right of refusal for offered ad inventory. Both sides have a lot of control and oversight here, but again low fill rates are an issue. It’s also difficult to scale such arrangements.
  • Standard deals are just like preferred deals, except they compete with open exchange auctions for rates. These are more transparent than open marketplace deals and have better targeting, but there’s no guarantee that a standard deal bidder will win out over an open exchange bidder.
  • Programmatic direct or programmatic guaranteed is a type of programmatic buying in which brands (or their advertising partners) programmatically purchase specific placements or work with specific publishers in a direct yet automated fashion. Typically, direct or guaranteed buys happen at a fixed price, as opposed to through an auction. These one-to-one deals are just like the guaranteed buying and selling of yore through manual insertion orders, just slightly more automated.

RTB, or real-time bidding, refers to the automated buying and selling of advertisements and placements as soon as a website or app is loading or as ad placement opportunities arise. RTB is a subset of programmatic that occurs in real time.

Top Benefits of Programmatic Technology

So why bother to buy programmatically? There are a few key reasons why advertisers and publishers would want to go down this route:

  • By eliminating time delays associated with insert order processing and supporting real-time bidding, both advertisers and publishers gain instantaneous insights and data without any lag. Almost immediately, all sides can determine what is and is not working — no need to wait weeks, days or even hours to find out how everything is functioning in the campaign.
  • It helps all sides to have greater transparency into digital advertising mechanics and performance. Thanks to a wide variety of both first- and third-party data available, all sides have greater insights on how ads are performing, who is viewing and interacting with ads, where these end users are located, whether ad impressions recorded are legitimate or not, etc. The number of data points available through programmatic is unmatched.
  • By automating the advertising insertion and tracking process, programmatic greatly increases the efficiency of marketing campaigns, especially for those looking to work at scale. Without programmatic, if a publisher wanted to run ads from a wide variety of demand sources, they would have to develop, run, manage and track campaigns manually with each and every advertiser for all of their campaigns. This kind of effort simply does not scale well. The same logic applies to brands trying to advertise to all of their target audiences across lots of properties.
  • Real-time data and insights help all sides to more effectively target ads within a programmatic campaign. Unlike with more manual efforts, it’s relatively easy to make changes as soon as the need arises within a programmatic campaign. When information is only coming through after a campaign is finished, these kinds of tweaks to improve targeting are next to impossible.

Of course, like everything else, programmatic is not without its downsides. Be sure to check out our blog How to Solve Common Problems with Programmatic Advertising to learn more about both what these common issues are and how they can be resolved.

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Bid Flows with Programmatic Buying and Selling

In a programmatic setting, how does the buying and selling work? How precisely do ads end up going live?

First, a brand or their agency decides to spend some amount of money on programmatic media buying. To get started, they’ll often leverage an agency trading desk (ATD) to help with optimization, tracking, spend management, etc.

A demand-side platform (DSP) then aggregates programmatic advertiser interest from a wide variety of advertisers, agencies and ATDs. Many DSPs offer a self-service tool and interface, which enables advertisers to determine how and where ads should show up and to ensure that placement actually happens. It’s at the DSP level where brands and their partners decide where to display video ads or other creative types.

Sitting in the middle of everything is an ad exchange or an ad network. It’s here that bids from DSPs and their advertising partners are synced up with publishers and the inventory they’ve made available. An exchange or network will make the final call regarding who won the ad auction or otherwise has the opportunity to bid on an available ad placement opportunity. They’ll also use ad tags to retrieve the creatives and ensure they are associated with the proper placements.

So what’s the difference between an ad exchange and an ad network? Exchanges are totally open and even, while networks tend to provide more control and say to publishers regarding placement preferences. Sometimes, exchanges will link up with ad networks, with exchange syncing together demand and networks doing the same for inventory supply.

There are a few different ways in which ad exchanges will determine precisely how much auction winners actually have to pay. While second price auctions were once dominant, they’ve fallen out of favor in some circles in favor of first price auctions or bid shading. To learn more about these pricing mechanics, be sure to check out our videos on the topic:

What is a Second Price Auction and How Does It Work?

Common Problems with Second Price Auctions

There are other players in the demand side of the equation here too. Brands and their advertiser partners may leverage the services and support of third parties dedicated to viewability, fraud prevention, audience verification, etc. The purpose of utilizing these kinds of services is to make sure that programmatic ad spending is being measured effectively and that the right people are seeing the ads.

Besides an ad network, another notable player on the publisher side of the equation is a supply-side platform (SSP). Similar to a DSP, SSPs aggregate available inventory across a wide variety of publishers and make then available in exchanges and networks.

Need help keeping track of all of the terms and acronyms here? Keep our terminology guide handy so you don’t forget anything!

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How Mobile Differs from Other Forms of Programmatic Digital Advertising

In many ways, buying programmatically for mobile in-app audiences can be very different than for other types of programmatic transactions, including for mobile web.

For starters, mobile in-app buying provides a lot more data including device IDs and lat/long location signals, that’s not available from browser cookies. Mobile also supports high-impact ad creatives— examples include 360-degree ads, rewarded video ads, videos with end cards and playable ads — that are either difficult or impossible to implement within websites.

And, it’s generally easier to track and oversee mobile in-app programmatic campaigns. This is key for brands that prioritize transparency and viewability, and are overall looking for trustworthy programmatic partners.

To learn more about the key benefits of mobile in-app advertising, be sure to check out our blog on the topic.

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What is the Future of Programmatic Ad Spending?

In our Mobile Programmatic Advertising Trends 2018 report, we observed significant growth in mobile programmatic ad spending worldwide. Thanks to its many benefits, we expect programmatic media buying to become even more popular and powerful in the months and years ahead.

What do you think is the future of programmatic? Need more details about programmatic advertising explained to you? Let us know on social media! We’d love to hear from you on Twitter and LinkedIn.