Programmatic advertising explained: Everything you need to know

Programmatic advertising has revolutionized the way we buy and sell inventory and is now a critical component of a digital marketing strategy. By 2023, programmatic spending will reach over $140 billion, according to eMarketer. This guide will cover how programmatic display campaigns work, what they allow you to achieve, and the terminology needed to dive into programmatic media buying.

Programmatic display advertising is the automated process of buying and selling ad inventory through an ad exchange. This process connects advertisers to publishers and is made possible by AI technology and machine learning. Machines purchase and sell ads autonomously based on the requirements set by the advertisers and publishers.

In the U.S., programmatic digital display ad spending is projected to account for $115.23 billion in ad dollars in 2022, making up 90.2% of the digital display ad market, according to eMarketer.

In 2021, the growth rate for mobile display ad spend dipped below the broader programmatic average. This drop is due to advertisers investing more in other areas, such as connected TV (CTV). However, five industries—entertainment, CPG, financial services, telecom, and consumer electronics—will allocate over 70% of their digital ad budget to mobile, proving that mobile ad spend still reigns.

Marketers need to understand the different terms that define how programmatic advertising works. We’ve compiled a list of essential terms that will help you understand how to do programmatic advertising.

Supply-Side Platform (SSP)

A supply-side platform (SSP) is software that enables a digital publisher to sell display, mobile, and video impressions in real-time. This happens autonomously, giving publishers greater control of their inventory.

Demand-Side Platform (DSP)

In contrast to an SPP, a demand-side platform (DSP) is software that enables advertisers to buy mobile, display, and video ad inventory autonomously on an ad exchange. They allow advertisers to purchase high-quality traffic across many real-time bidding networks, making them a powerful digital marketing tool for scaling. DSP advertising should help you reduce costs by better utilizing your budget. If you’re looking to select a demand-side platform, check out our article Choosing the right mobile DSP.

Ad exchange

An ad exchange is an online marketplace for advertisers, publishers, agencies, DPS, and SSP to buy and sell ad inventory through bidding. The ad exchange is given inventory by the publisher’s supply-side platform, and then the ad purchasing management is done via the advertiser’s demand-side platform. The publishers benefit from connecting to an ad exchange with SSP to reach a large pool of advertisers.

Real-time bidding (RTB)

Real-time bidding (RTB), also called open auction, is an auction available to all advertisers and publishers where the inventory price is agreed upon at the auction in real-time. In RTB, the highest bid wins. In simple terms, it’s similar to a live auction but with automation in play for both publishers and advertisers within an ad exchange.

But how does an RTB auction work?

Digital publishers use SSP to automate the selling of display, mobile, and video impressions in real-time to advertisers on an ad exchange. Inversely, advertisers utilize DSP to automate the buying of ad impressions across multiple publishers’ websites. Therefore, multiple advertisers can bid on an impression, and the winning bidder—the one willing to pay the most— gets their ad shown to the user. Note: this all happens within a split second.

For example, imagine a gaming app where the player must view an ad between levels. As this happens, the mobile SSP runs an auction. Advertisers can then make their bids using DSP advertising, and within milliseconds, the highest bidder is chosen, and their ad is shown to the user.

Real-time bidding is beneficial for both advertisers and publishers. For advertisers, it offers a fine-tuned targeting process that allows them to focus on relevant inventory – ultimately increasing ROI by delivering more relevant ads. RTB can also increase revenue for publishers because it opens their inventory to more bidders. Publishers can also learn from their highest bidders’ data how much these bidders are willing to pay and set the prices for premium placements accordingly. This is likely why real-time bidding is the most popular type of programmatic advertising.

Preferred Deal

This is a one-on-one programmatic auction in which publishers sell their premium inventory at a set CPM (Cost-Per-Mille) price to a selected number of advertisers. These advertisers bid in real-time at or above the fixed CPM price. However, in this type of programmatic buying, once an advertiser bids on an impression, they cannot bid again on the same impression within a preferred deal.

This direct contact between buyers and advertisers provides transparency for all. Publishers will be able to view the inventory before running the ad campaign and, thus, control for quality, while advertisers can take charge of their inventory’s pricing.

Private Marketplace (PMP)

As the name suggests, private marketplaces are auctions with restrictions regarding who can bid. Only specific advertisers have access to the PMP, typically by invitation only. However, publishers will implement a selection process in certain cases by which advertisers can submit an application that grants them access to a private marketplace.

Advertisers who want access to premium inventories before they become available to the open marketplace will prefer PMPs. This marketplace also offers a much closer relationship with publishers than with RTB.

Programmatic Direct

In the case of programmatic direct, a publisher sends an advertiser an invite to buy their inventory directly without a bidding process. This means media inventory is sold at a negotiated price, usually CPM, to advertisers for a set time period.

This type of programmatic advertising is also known as automated guaranteed because advertisers know where their ads will be placed and can set the ad inventories, prices, frequency capping, and audience targeting. Due to the nature of exclusivity and specificity of programmatic direct media buying, it is particularly useful to companies focusing on premium placements and brand safety. But note that advertisers must have a big budget to use this method.

Traditional media buying involves many menial tasks and manual labor, from requests-for-proposals (RFPs) to negotiations and manual insertions of the orders (IOs). All of this creates a slow and inefficient workflow by today’s standards.

Programmatic advertising offers an efficient alternative, making ad buying quicker and cheaper by removing people from the laborious and repetitive parts of the process and replacing them with machines. We’ve summarized the main benefits of programmatic advertising below.

Advantages of programmatic advertising

• Save time
• Target the right users for increased ad effectiveness
• Reduce advertising costs
• Enjoy a larger reach for publishers
• Gain total transparency in the ROI of your campaigns

In short, with programmatic advertising, you’re optimizing the bidding process and only paying for the best users. By using data insights and algorithmic technology, programmatic media buying enables marketers to target audiences at the right time, and at the right cost.

Before delving into the world of programmatic advertising, review our tips below.

1. Establish your KPIs
   It’s essential to establish clear KPIs before venturing into programmatic advertising. Note that campaign conversion rates and KPIs vary across verticals. This variation is particularly evident in retention and engagement campaigns. For instance, users are more likely to use a fintech app a few times a month compared to the daily use of their health & wellness app.
2. Thoroughly measure your campaigns
   If you’re wondering how to measure programmatic advertising, there are several things to consider when measuring your campaigns such as user lists, territories, URL schemes, and hundreds of possible banner formats, to name a few. But know that the metrics you use—ROAS, impressions, conversions, etc.—should be based on your campaign type, app vertical, and overall marketing goal. Additionally, make sure to A/B test your campaigns to find out what works for your audience and continue iterating.
3. Utilize DSP and mobile attribution platforms
   For those starting out with their first programmatic campaigns, working with an experienced mobile DSP and a mobile attribution provider is advised. They can provide guidance in helping make the right decisions for your app. Your provider should be able to offer real-time optimization based on fully automated programmatic buying algorithms. This includes optimizing toward individual, cohorted KPI targets and not just CTR. If you’d like to see how Adjust can help you grow your app growth with our powerful analytics platform, let’s talk.
4. Go for lookalike audiences
   Programmatic buying is only as powerful as your analysis of whom to target. This means that it’s not all about installs. Your goal should be to acquire the most valuable users who are likely to convert, increasing ROI. This can be achieved by learning how your audience currently interacts with mobile ads. Then you can use your audience analysis to serve ads to audiences sharing the same characteristics as those in your analysis, known as lookalike audiences.
5. Don’t forget to retarget
   Programmatic advertising should align with what you understand about your app’s user funnel. This includes where users churn, why they return, and whom you should be retargeting. For example, a mobile gaming app analysis may reveal that if users go past level three, they are far more likely to make a purchase later in the funnel. With these insights, it may be useful to retarget users who have made it to level two but then became inactive.
6. Set your sights on scaling
   Experienced marketers who are satisfied with their ROI should then focus on scaling their app marketing efforts. Programmatic advertising is all about achieving more volume without sacrificing ROI and can help achieve your scaling goals.

Adjust is one of the leading MMPs, and we offer our clients real-time optimization to help them make the most of programmatic advertising. If you’re looking to partner with a globally trusted mobile attribution provider, request a demo today!