Programmatic Advertising – 5 Key Questions Answered

Confused by Programmatic Advertising? Real-time bidding? 1st, 2nd & 3rd party data? We don’t blame you.

The aim of this article is to answer the most common questions about programmatic advertising: what it is, why it differs from what has come before, and where it might be going. So here goes…

1. What Is Programmatic Advertising?

At it’s most basic level, Programmatic advertising is any advertising which is bought/sold through tech platforms, which create a degree of automation. These platforms require the use of rules set up in advance, to determine certain specific criteria which must be met (or exceeded), in order for a buy (or trade) to occur.

That set of rules or instructions has therefore been pre-programmed into a machine, and that Programme will be executed by the machine. It is therefore ‘Programmatic’ buying.

These rules, or criteria might, for example, look at what time of day/day of week an advertiser wants to buy an ad, what publisher(s) they might be willing to buy ads with, what price they might be willing to pay, and a multitude of other potential variables.

2. What Media Channels Support Programmatic Advertising?

Programmatic was initially used to buy digital advertising, and in the vast majority of instances it continues to be used for this medium; to buy banner ads on the fixed or mobile web, video ads, and even some highly engaging rich media formats.

The IAB believes that over half of all digital ads in the UK were bought programmatically in 2015, and that this figure will be closer to 66% in 2016.

There are billions of digital ads that can be bought/sold daily, so the digital advertising ecosystem has the requisite liquidity and need for automation that Programmatic offers.

However, Programmatic ad buying does not have to begin and end in digital; it is being experimented within the fields of Out of Home, Audio (Independent stations such as those owned/operated by Global, as well as Spotify and Acast for Podcasting) and TV (through the likes of Sky).

3. What Is RTB? Is It Just Another Term For ‘Programmatic’?

RTB stands for ‘Real Time Bidding’ – a term which is often, erroneously, used synonymously with the term ‘Programmatic’. RTB implies that there is a real-time marketplace within, which ads can be bought and sold using Programmatic rules, and also that ads are bid for, generally in live auctions.

Given the billions of impressions available per day, such auctions can only really exist if the rules for both buyers and sellers can be matched by computer systems.

In the UK, most Programmatic trades are currently executed in real-time (hence the interchangeable usage of the terms). But, that is not necessarily the case everywhere, e.g. in the US, and might not always remain true here.

Increasingly, systems are being built, tested and used, which can execute Programmatic trades in advance, i.e. for ads which will be bought/sold at some point in the future. This is often called Programmatic Guaranteed, Programmatic Reserved or Programmatic Direct.

If you are selling space, such systems are massively useful, as they enable you to sell a chunk or chunks of your inventory ahead of time, using automated systems, leaving you far more knowledgeable about your future financial position. For buyers, such systems also provide a hedge against future price increases as well as lowering the cost of buying through decreasing the need for human involvement and admin, as well as potential for making costly mistakes.

4. If Programmatic Just Means ‘Automation’ Then Why Is It Such A Big Deal?

On the one hand, Programmatic Buying is a technique used by buyers and sellers to bring mass automation into an enormous marketplace. This ensures that with increasing regularity, the advertiser who values an individual impression most highly, is most likely to appear in that spot, ahead of any other advertiser (for whom it has a lower value), and that price yield will be optimal for the seller. The buyer will decrease wastage i.e. the buying of non-optimal ads, through the same mechanism.

Using RTB to buy ad impressions also fundamentally alters one of the basic building blocks of advertising theory. Up until now, advertisers would buy target certain media titles as those titles would have a certain type of user. There was no way of specifically targeting users, other than to use media as a proxy. So if, for example, a brand was targeting the City Gent, that brand might advertise in certain Broadsheet newspapers. However, through RTB and Programmatic buying, advertisers can now buy data which identifies a user as being in that target audience, and then buy impressions against that audience; so media is no longer needed as a proxy for defining audience, as one can now buy audiences based on their actual prior behaviour.

This therefore means, that over time, Programmatic Advertising is not only better for the advertiser (minimizing wastage) and the publisher (increasing price-yield), but also the consumer (seeing more relevant ads).

5. What Is 1st, 2nd & 3rd Party Data? And How Do They Differ?

Data usage within the RTB Programmatic ecosystem ensures that advertisers can target users based on previous habits, or even potential future habits, based on previous actions of similar (lookalike) audiences.

This data can theoretically come from multiple sources. Either it can be data owned by the advertiser, known as 1st Party Data; data bought from third parties who exist in order to understand the consumption habits of the digital consumer usually via cookies, known as 3rd Party Data, or even data generated together by advertisers in different markets, who have an interest in similar audiences, known as 2nd Party Data.

In any event, such data can be used to better understand when a consumer might be interested in ads from a specific brand. This data might identify consumers in a myriad of different ways. 1st Party Data which the advertiser owns, might show that a specific consumer has visited a site before, bought a certain product or even that they have searched for specific terms off-site but not converted.

3rd Party Data might show that a specific consumer lives in a certain part of the country, is of a certain age, or even that they are ‘of a generally positive outlook’. All of this depends on who has been given the right to understand/record/sell certain data points by any given individual. And all of this can be used to understand and determine in real-time what price a given ad impression on a specific users screen might be worth to any given advertiser, in order that they can submit a ‘bid’ in a real time auction. One of those bids will be successful, and, in 65% of all occasions, that is likely to be why you see a certain ad on any given UK website.

This article was written with the intention of providing a very basic overview of the top-line on Programmatic Buying. We hope that it was fulfilled that aim.