A Beginner's Guide to Programmatic Advertising and How it Works

Reaching your target consumer in the right place, at the right time and with the right message is a marketer’s dream. From content marketing to PPC, various strategies exist to help marketers reach their intended audience. Programmatic, however, is one strategy worth exploring for those who are seeking to automate the process of buying digital ad space.


If programmatic is a new term for you, fear not. We will explain what programmatic advertising entails and how it works in an easy to understand manner.

What is Programmatic Advertising?

Programmatic advertising is an automated process to buy and sell digital ad inventory. The advertiser (the buyer) will work with a technology vendor to purchase ad space from a publisher (the seller). The process by which an ad is selected and served to a user is blistering fast. Think hundreds of milliseconds.


At this point, it may help to think about the stock market. Each day, people decide they want to buy and sell stocks. By using an online platform, they can place orders to buy and sell shares at a given price. Programmatic is similar, but rather than stocks it is digital ad space that is being bought and sold. Technology is used in both programmatic and the stock market to help facilitate transactions.


Key Programmatic Terms

To be well informed it helps to understand some of the jargon you will encounter in programmatic. Most people will understand who the advertiser is and who is the publisher. A demand-side platform (DSP) is used by an advertiser, or their agency, to purchase ad space from an exchange. The supply-side platform (SSP) is a piece of technology that enables publishers to offer their inventory to an exchange. Finally, a data management platform (DMP) allows for the collection and management of data.


Within a DSP and SSP, users can specify details for a campaign. Advertisers can provide campaign dates, rates they are willing to pay (the CPM) and targeting details. Publishers can specify what inventory is for sale and at what CPM they are willing to sell that inventory.


You may also hear about real-time bidding or RTB. This is a process that allows a digital auction to take place when an impression is being sold and bought.


How Programmatic Ad Serving Works

With some key terms under our belt, it is time to take a walk through programmatic. Let’s follow an ad from the time a user requests a web page to when the ad is shown. I’ll be referencing the following diagram with the numbers in the text corresponding to the same numbers in the diagram.

  1. A user wants to access a webpage, so the user’s browser makes a request to the publisher’s web server.
  2. The publisher’s web server sends back HTML code.
  3. The HTML code tells the browser where to get the content and how it should be formatted.
  4. HTML code is returned to the browser and includes an ad tag. This ad tag will point to a supply-side platform (SSP) and contains information such as the ad placement dimensions, the website ID, and the publisher’s ID.
  5. The SSP is now called.
  6. The SSP will kick off an auction and request bids from multiple demand-side platforms (DSPs). The more information that is known about the user that will see the ad, the higher the price will be to win the auction. The cookie has been the traditional way to gather information on users to help the DSPs determine how much to bid on a given impression.
  7. Using the cookie ID and any other information that has been passed from the website or SSP, the DSPs will submit a bid back to the SSP. Included with the bid is also an ad redirect, should the DSP be the winner.
  8. The SSP will evaluate the bids and select the winner. Once the winner is identified the ad redirect is returned to the user.
  9. The user calls the appropriate DSP.
  10. The DSP will return an ad redirect to the marketer’s ad server.
  11. The user will call the marketer’s ad server.
  12. Finally, the ad is served to the user!


It is worth reiterating that the above steps all take place in less than one second!


With the above in mind, you now know the basics of how an ad is served programmatically. We could go down the rabbit hole and discuss further processes, such as when impressions are counted, but that is beyond the scope of this introductory article.


You might be thinking that programmatic sounds great. An automated process to bid on a publisher’s inventory that is executed in real-time. Like many things in life, however, programmatic isn’t the final answer to your marketing problems. Benefits and risks abound in this digital world.


Benefits and Risks of Programmatic

Before deciding that programmatic is the answer you’ve been looking for, let’s review a few of the benefits and risks.


Benefits of Programmatic

Making it personal: programmatic can help marketers deliver relevant ads to current or potential customers. Using a DMP to create unique segments, such as new home buyers or new parents, can help get the right message in front of the right person. Nothing is worse than paying to serve an ad to a person who isn’t a viable prospect.


Automation: Programmatic leverages technology to select and serve ads at blazing speeds that a human simply cannot match. Marketers can schedule campaigns without having to go through the difficult process of calling a publisher, negotiating rates, sending the creative and then waiting for analytics to be provided.


Cost-effective: Marketers may find that by using programmatic they are able to reduce the cost of reaching a certain target segment. Automation, as explained above, helps reduce costs as does the ability to access a wide variety of inventory at once.


Risks of Programmatic

Fraud: No one likes it, but we must acknowledge that fraud exists in digital marketing. From serving ads to bots to ads appearing on “ghost sites” with little, or no, human traffic, fraud does exist. Savvy marketers can utilize fraud detection services and review campaign data to help spot fraud. Unfortunately, this is a constant game of cat and mouse as fraudsters become more sophisticated over time.


Brand Safety: Try as they might to prevent it, marketers still find their ads appearing in questionable and outright unsafe environments. Automation can be a double-edged sword in that without constant human monitoring ads can end up on sites that can do more harm than good to a brand’s reputation. Marketers should scrutinize where their ads are being served and quickly address any red flags with their agency and/or programmatic vendor.


Fees: Programmatic can be cost-effective for the reasons given above. However, marketers may find that their ad budget is being eaten up by various fees. Remember the DSPs, SSPs, and DMPs mentioned throughout this article? Each of those platforms needs to be compensated. An ad dollar into the programmatic supply chain does not equal a full dollar once it reaches the publisher. Marketers should be constantly vigilant and monitor the fees they are paying to ensure they are getting the most bang for their buck.


Congrats! You’ve made it through an introduction to programmatic advertising. Hopefully, you have a better understanding of how ads are selected and served. If you still have questions that is a good thing. Programmatic isn’t something that is learned in one article. I’d encourage readers who want to learn more to leverage communities, such as r/programmatic on Reddit, to ask questions and learn. YouTube has some excellent videos. Finally, a simple Google search will deliver a plethora of results to increase your knowledge.