Simply put, programmatic advertising is media purchasing. It involves the sale of media space to buyers who are seeking exposure for their brand; however, unlike traditional programmatic advertising, this transaction is entirely automated and is complete in about 100 milliseconds. The transaction takes place in an ad exchange, which is an online platform specifically designed for the purpose of buying and selling media. Programmatic advertising has become increasingly popular in recent years and in 2019, companies in the U.S. spent more than $35 million on online advertising via an ad exchange.

Demand-Side Platform (DSP) vs. Supply-Side Platform (SSP)

There are two types of ad exchange platforms: the demand-side platform (DSP) and the supply-side platform (SSP). These two platforms both perform the task of buying or selling media space; however, DSPs are used by advertisers while SSPs are used by publishers.

DSPs are set up to help the advertiser reach their target audience. These platforms rapidly analyze the user’s search history and engagements to match them with a selection of suitable advertisers. Advertisers then take part in real-time bidding with the winner obtaining the impression, or displaying their ad to the user.

Real-Time Bidding (RTB) vs. Programmatic Direct

With real-time bidding, advertisers have the opportunity to advertise to the audience they choose. Prior to bidding for an impression, the publisher provides details about the user – primarily their search history, allowing the advertiser to decide whether or not the user is worth bidding on and how much.

In a programmatic direct advertising arrangement, the advertiser is guaranteed a certain amount of media time but has less say in the users it advertises to.

What’s An Ad Exchange and How Does it Work?

An ad exchange is an online platform that facilitates programmatic advertising. It’s essentially an online marketplace in which buyers, or advertisers, can purchase online advertising space from sellers, or publishers. There are a variety of ad exchange platforms, including Verizon Media, AOL, Smaato and Intex Exchange.

When a transaction takes place, it involves several steps:

User visits a website, views a video or streams music online
The buyer (advertiser) places a bid on that users’ impression
The highest bidding buyer wins the impression
The ad of the winning buyer (advertiser) is shown to the viewer or site visitor
Once these steps are complete, the hope is that the user will click the ad and purchase the product or service being advertised.

Benefits of Programmatic Advertising

There are many benefits to using programmatic advertising instead of purchasing specific ad space. This includes reaching a wider audience and of course, users who are more likely to turn into conversions.

Reach more users at a lower cost

Using ad exchange allows advertisers to reach users across multiple websites and streaming services without purchasing media space in a lump sum. By purchasing media on a user-by-user basis, advertisers can go where the users are without doling out large payments for premium advertising space.

Reaching more members of a targeted audience

Since advertisers have the opportunity to purchase advertising space in smaller amounts on each website and streaming services they advertise on, it gives them more opportunity to chase users who are likely to engage with their ads and potentially purchase their product or service.

Reach engaged users

Users who are actively using a website or streaming service are already engaged with their device, meaning that they’re usually easier to advertise to effectively. This is especially true when compared with mediums such as print and direct mail advertising.

Access to real-time advertising results

Most demand-side platforms (DSPs) offer advertisers access to instant reports. These reports may display a wide array of statistics, including impressions, conversions, and user details such as location, search history and when possible, age and gender. Additionally, reports usually include detailed information about how keywords and individual advertising campaigns are performing.

Growth and the Future of Programmatic Advertising

As mentioned earlier, programmatic advertising has grown exceptionally in recent years. In fact, as recently as 2018, more than 80% of mobile ads were purchased via an ad exchange. While the majority of programmatic ads are displayed to the user on the web or in streaming services, mediums such as television and radio are beginning to adopt this method.