Programmatic advertising

Definitions, benefits, examples, and how it works

March 11, 2021

If you haven’t adopted programmatic advertising, or have only just begun to explore it, the time is now. Programmatic advertising continues to gain momentum around the world, with programmatic media buys making up 85% of all digital ad spending in the US and just over 80% in Europe. And, globally, programmatic media buys are predicted to make up 68% of all digital ad spending this year.1 So, what is programmatic advertising and is it right for you? Read on to learn more.

What is programmatic advertising?

At the most basic level, programmatic advertising is the use of technology to buy and sell digital ads. Programmatic advertising uses an automated process, within advertiser-defined parameters, to purchase digital ad inventory across the web, mobile, apps, video, and social media. Programmatic advertising uses workflow automation and machine learning algorithms to deliver the most effective ads to audiences based on a variety of signals, like shopping patterns.

What are the benefits of programmatic advertising?

Programmatic advertising offers many benefits. Advertisers may achieve greater efficiency, more targeted marketing reach, transparency, and real-time measurement and optimization.

Efficiency: Traditional advertising requires time to develop requests for proposals (RFPs) and quotes, conduct negotiations, and create insertion orders. With programmatic, the process is more streamlined. Advertisers can buy and place ads quickly through Real-Time Bidding (more on that later). Programmatic media buying also cuts down on wasted ad impressions by serving ads to relevant audiences and minimizing ad fraud risk—making it cost-efficient, as well.

Reach: Programmatic allows advertisers to reach audiences based on different signals, such as shopping and browsing activity across devices.

Transparency: With traditional media buying, ads are purchased in bulk and advertisers have little control over the inventory and placement. With programmatic advertising, advertisers know where their ads will appear and can have greater confidence that they’ll show up in relevant brand environments.

Measurement: Programmatic offers real-time measurement and optimization to drive maximum results.

What are the challenges of programmatic advertising?

Potential challenges with programmatic advertising may include:

Commoditization: As with other forms of media, programmatic is commoditized. Everyone is playing in the same space and some types of ad supply may be scarce. With the growing popularity of Programmatic Guaranteed, an increasing amount of non-commoditized inventory is becoming available to advertisers programmatically.

Transparency: While programmatic provides advertisers with greater control over viewability and where their ads appear, brand safety and transparency remain top-of-mind for advertisers. Amazon Ads and many third-party solutions address these concerns.

Learning curve: Programmatic requires a learning curve that may initially feel overwhelming. Working with partners, agencies, or Amazon Ads directly can help advertisers to ease their foray into programmatic.

Despite the potential challenges, brands that don’t adopt to programmatic advertising strategies may be missing out on the benefits of efficiency, reach, transparency, and accountability.

What is Real Time Bidding?

Real-Time Bidding (RTB) is a way to buy ads programmatically. With RTB, advertisers can participate in an auction when an impression becomes available. If their bid wins the auction, their ad is displayed instantly on the publisher’s site. RTB is not only efficient, but it helps advertisers focus on the most relevant inventory.

What is header bidding?

Header bidding is a technology that allows publishers to simultaneously request bids from multiple demand sources and send the bids to their ad server to conduct an auction. The ad server determines the winning bid and renders the ad on the site. Allowing multiple bidders to bid on the same inventory at the same time increases competition, but offers advertisers the opportunity to access premium inventory with these publishers

What is an ad exchange?

In programmatic advertising, an ad exchange is an online marketplace where advertisers, agencies, demand-side platforms, publishers, and supply-side platforms can bid on advertising inventory from various publishers using RTB. Advertisers determine the price by participating in the bidding process. Additionally, with an ad exchange, advertisers gain visibility regarding where their ads will appear.

What is a supply-side platform?

A supply-side platform (SSP) is programmatic software for publishers to facilitate sales of advertising impressions via ad exchanges. By connecting publishers with multiple ad exchanges, demand-side platforms, and networks at once, SSPs let suppliers sell impressions to a greater pool of potential buyers, and allows suppliers to set the bidding range to maximize their revenue.

What is a demand-side platform?

A demand-side platform (DSP) is programmatic software for advertisers. A DSP helps facilitate media buying from numerous publishers through SSPs, ad exchanges, ad networks, and direct integrations. DSPs help brands and agencies (the demand side) determine which impressions to buy and at what price (the supply side). Advertisers can select audiences based on demographics, shopping patterns, browsing behavior, and many other signals.

How does programmatic advertising work?

Within less than a second, programmatic advertising serves up relevant ad impressions to audiences through automated steps, as follows:

When consumers click on a publisher’s website, the publisher puts the ad impression up for auction through header bidding and one or more SSPs.

The DSP bids on behalf of the advertiser for that impression based on campaign’s strategies, budget, creative sizes, and other factors.

The publisher automatically assigns impressions to the winning bidder—the advertiser/DSP offering the highest CPM (cost per mille, or the cost per one thousand advertising impressions).

The ad is instantly served on the website.

How do I run programmatic ads?

Once you’ve established your campaign goals, such as driving new product discovery or increasing sales; defined your ad types, such as display, video ads, or in-app ads; and have set up the DSP, you’re ready to get started.

To maximize your impact at the lowest cost, think about the various components of your campaign setup, such as duration and audience size, as this will help determine the CPMs you need to win your bid. At this stage, you can estimate the budget you need for the campaign and develop a bidding strategy.

CPM bid levels vary by media types and creative units. Generally, display demands the lowest CPMs whereas video demands the highest CPMs.

With programmatic advertising, you have the opportunity to evaluate campaign and creative effectiveness mid-campaign through reporting on metrics such as CTR, CPC, overall spend, and conversions. You can then optimize your campaign based on these insights.

How much does programmatic advertising cost?

The cost of programmatic advertising varies and is generally based on CPM. CPMs range in price based on who you’re trying to reach, supply settings, advertising budget, and the amount of time the campaign has to run. Adjusting these factors will change the end price for the campaign. For example, holding everything else constant, when you’re reaching a broad audience, the CPM is typically less than when you are trying to reach a more niche audience. Targeting and ad group variables impact the CPMs required to secure inventory. With programmatic, advertisers are charged prices through RTB.

How do I measure programmatic advertising?

Impressions, clicks, and actions are three main ways to measure your programmatic advertising campaign, but they are just starting points. You can also measure key performance indicators that map back to your business objectives. Below is a helpful guide; utilize the metrics most relevant to your objective:

Branding and awareness – What is x?Reach/unique reach, average frequency, share of voice, brand lift, views
Interest and consideration – I want to know more about x.Completed views, clicks/site visits, detail page views, engagements, leads/cost per acquisition
Purchase – I am going to buy x.Return on ad spend (ROAS), Return on investment (ROI), sales, subscriptions

Programmatic advertising with Amazon DSP

Amazon DSP is unique because it enables programmatic buying of display, video, audio, and in-app ads both on and off Amazon. Plus, Amazon DSP gives you access to audiences and insights from the millions of shoppers across Amazon’s website and physical stores. Advertisers just getting started can choose self-service or managed service.

With Amazon DSP, you can plan your programmatic ad campaign to:

Reach relevant audiences and use insights to inform the varying ways you can reach them.

Access unique owned and operated supply like Fire TV, IMDb TV, Twitch, and more.

Deliver quality ad experiences that can reach audiences by their preferred touchpoints like video and audio.

Measure the outcomes of your media investments.

“Amazon Ads drives return on investment for us,”
– Nick Vlahos, CEO, The Honest Company

Programmatic is a key aspect to The Honest Company’ strategy to reach exclusive audiences. Read more about how The Honest Company employs a full-funnel advertising strategy, including programmatic advertising with Amazon Ads, to reach audiences where they are.

Learn about our full suite of advertising solutions, including programmatic advertising.

1International Advertising Bureau, Brand Disruption 2020: Direct Brands Go Mainstream, 2020