Programmatic is a famous buzzword in the adtech realm. It works great, everyone seems to be using it and it's becoming more and more unprofitable to not understand what it is. Although programmatic advertising may sound quite demanding, you actually do not need any technical knowledge to understand it.

With this article, you will get a solid grasp on programmatic advertising. We will go through the key milestones of programmatic, its essence, advantages and best practices. At the end, you will be on a first-name basis with programmatic, learn how it applies to native and display advertising and definitely want to put your knowledge into practice as soon as possible. Programmatic won't bite, take our word.

What Is Programmatic Advertising?

Programmatic advertising is the automated buying and selling of online advertising space. No more, no less. Another thing is what this automation implies.

Ad exchanges oversee the market for digital advertising space, bringing together two parties: advertisers seeking to purchase ad space on the internet and publishers owning the digital space to sell.

Programmatic advertising utilizes algorithmic software that rapidly handles the sale and placement of digital ad impressions via ad exchange platforms. Advertisers use a demand-side platform (DSP) to manage and purchase ad inventory from publishers, who use a supply-side platform (SSP) to make their ad inventory available for purchase.

The process looks like a real miracle. Based on the behavioral information about the user who came to the website, the algorithm selects the most relevant advertisements, conducts real-time bidding (RTB) and places the winning ad on the website. All of this occurs in just a few milliseconds. Advertisers get their ads placed to the right audience quickly and efficiently, while also ensuring that ad inventory is priced fairly.

As a way to buy and sell digital advertising spaces, programmatic can be used across a range of channels, including display, mobile, social media, video and native advertising. Yes, the programmatic approach applied to native advertising gave rise to the same native programmatic advertising that everyone is talking about.

One of the key benefits of programmatic advertising is its ability to accurately target a specific audience based on a number of factors: demographics, behavior, interests and more. This allows advertisers to show highly relevant ads to users, which increases engagement and conversion rates.

What is Programmatic Display Advertising?

Programmatic display advertising is display advertising placed on targeted websites using automated technologies. In fact, it is the same process as we’ve talked about when describing programmatic advertising, just with a different format.

The entire range of display ads — banner ads, pop-ups and other types of ads — fall into the perfectly coordinated programmatic advertising machine. Then, the same magic happens: the ad is placed on the DSP and takes part in an auction. The highest bidder wins the auction, and their ad is displayed to the user. Everything is very simple, and no one needs to spend time looking for sites and undertaking lengthy negotiations.

What is Programmatic Native Advertising?

Programmatic native advertising is native advertising placed on targeted websites using automated technologies. As you can see, native programmatic definition is identical to the previous, with one changed word.

Native programmatic ads allow for seamless targeting across multiple channels. Website visitors see the ads that are relevant to their interests and requests, and willingly interact with them by clicking and converting.

While it is one thing to know what programmatic advertising is, it is another thing to understand what programmatic advertising implies. Programmatic advertising, in all of its forms, is the elimination of the human factor and the transfer of the decision-making process to artificial intelligence. Simply put, it is a bold step towards the development of the advertising market for the future.

Programmatic Advertising: How It All Began

The history of programmatic advertising can be traced back to the early 2000s. Then ad networks came into play as a new way to buy and sell ad inventory. They became intermediaries between advertisers and publishers, allowing advertisers to place ads through a network of publisher websites.

Here's the rise of programmatic in a nutshell:

  • 2007. Right Media, later acquired by Yahoo!, launched the first real-time trading platform (RTB). RTB paved the way for programmatic advertising by allowing advertisers to bid in real time on individual ad impressions. Needless to say, this has made the process of buying and selling ad inventory more efficient and cost-effective.
  • 2007. In the same year, Right Media launched the first supply-side platform (SSP), which gave publishers the ability to sell their ad inventory to multiple ad networks and exchanges simultaneously. Right Media's SSP helped streamline the process of selling ad space and gave publishers more transparency and control.
  • 2009. DataXu introduced the first demand-side platform (DSP), which gave advertisers more control over the bidding process and allowed them to target specific audiences based on user data. DataXu’s DSP was one of the first to use machine learning algorithms to optimize ad targeting and improve campaign performance.

This programmatic team was the first of its kind. Since then, programmatic advertising has continued to evolve. Data management platforms (DMPs) emerged, later joined by artificial intelligence (AI) technologies. Adtech is getting more and more sophisticated and advanced, and programmatic is one of its main drivers — accurate, efficient and result-oriented.

Today, programmatic advertising is the dominant force in the digital advertising industry, accounting for the majority of advertising spend in many markets. In the US market alone, programmatic display advertising spend is expected to jump to almost $142 billion by the end of 2023, as opposed to the $106 billion spent in 2021.

How Does Programmatic Advertising Work?

Programmatic stands out because, unlike traditional online marketing, it doesn’t focus on specific websites. It focuses on buying a specific audience and, in particular, the finding and reaching of potential customers in an environment outside of typical media. The buyer can set parameters, such as network reach and bid price, and the programmatic platform will match this with the behavioral factors of audiences and find the best offer.

In summary, the programmatic buying process looks like this:

  1. A user enters a website.
  2. The website auctions off the ad impression through a Supply-Side Platform (SSP).
  3. Advertisers place bids on the impression through a Demand-Side Platform (DSP).
  4. The highest bidder is awarded the ad impression.
  5. The ad is displayed to the website visitor.

With programmatic, marketers can focus on goals, budget and attribution models. The desired ROI is provided by the platform adjusting a huge number of variables in real time to determine the relevant campaign settings. Most importantly, automatic ad buying provides a 100% transparent pricing model and advertisers having full control over what is being bought at what price and to whom.

In combination with machine learning, programmatic buying helps to be predictive in terms of future ad campaigns’ performance. Real-time analytics and reporting enable advertisers to optimize their campaigns on the go. At any point in time, advertisers can adjust their campaigns to respond to market changes or user behavior, resulting in improved ROI and reduced wastage.

Real-time bidding will give rise to new strategies that were previously unattainable. It is safe to say that programmatic ad buying will consequently dominate the online market. In 2022, ads bought programmatically accounted for 84% of the global digital advertising spending. It is predicted that by 2026 this proportion will increase to 87%. So, if you don't want to be left behind, be friends with programmatic.

What Are the Types of Programmatic Advertising?

We've been talking extensively about RTB as one of the main types of programmatic advertising. However, the taxonomy of programmatic types is not limited to RTB. Let's go through the other main options:

  1. Programmatic direct. This type of programmatic allows advertisers to buy guaranteed ad impressions for certain websites directly from publishers.
  2. Private marketplaces (PMPs). PMPs are invitation-only auctions where publishers offer a select group of advertisers access to their premium advertising inventory.
  3. Preferred deals. As the name implies, this type is similar to PMPs, but instead of an auction, the advertiser negotiates a fixed price with the publisher for a certain amount of ad inventory.

Each of these types of programmatic advertising has advantages and disadvantages. Obviously, the choice depends on the advertiser's specific goals, budget and target audience.

For example, RTB is well-suited for display ads because it allows for fine-grained targeting and real-time bidding on ad inventory across a large number of websites. Programmatic direct is ideal for purchasing premium ad inventory directly from publishers, ensuring advertisers have access to high-quality ad placements.

Know your goals and audience, and the right programmatic format — or even a combination of them — will come naturally.

Is Programmatic Native Advertising More Effective Than Banner Advertising?

Yes. Programmatic native advertising is much more effective than banner advertising. And here it's not about programmatic at all. In this case, that distinction can be omitted from this comparison, being that it is just a way of buying advertising. Bottom line, we are comparing native vs. banner. According to a study by IPG Media Labs, users watch native ads 52% more often than banners, resulting in native ads generating 85% to 93% more clicks than banners.

Yes, banner ads are more affordable and common — so far (although no one cancels ad blockers and banner blindness). However, the combination of the benefits of native advertising with automatic placement offers significantly more options and scalability. Programmatic native ads provide a better user experience, increased relevance of the ads to the target audience and more precise targeting and retargeting capabilities.

Benefits of Programmatic Native Advertising

The pros of native advertising plus the programmatic component equals surgical precision in showing the right ad to the right person. So let's sum up all the benefits of native programmatic advertising:

  • Streamlined buying process. Taking the best out of the automation process, programmatic native advertising allows advertisers to focus on the overall strategy rather than conventional ad buying metrics, such as RFQs (requests for quotes) and RFIs (requests for information).
  • Cost-effectiveness. Although the implementation of programmatic native advertising requires an investment, there is no doubt that it will pay off. Programmatic native advertising allows for the adjusting of CPMs in real time depending on the value of the impression.
  • Enhanced customer insights. With device-specific data, search keywords, geography and more, programmatic native advertising is a sure way to reach the perfect customer. A comprehensive approach to customer needs means perfectly matched advertising campaigns.
  • Effectiveness. By effectiveness, we mean a programmatic platform’s ability to reach a wider audience by displaying advertising across multiple devices and platforms. Programmatic native advertising allows advertisers to use real-time bidding and optimization to target specific audiences based on their demographics, interests and behaviors.
  • Better user experience. Customer experience is everything, and any interaction is based on trust. Judging from our experience, programmatic native advertising is the key to further improving the user experience by selecting and displaying ads that don't look like ads.

Best Practices in Programmatic Native Advertising

Just because programmatic native advertising platforms offer automated buying and selling of ad space doesn't mean you should sit back and wait for conversions to roll in. You still have to come up with and design an ad creative that can compete with others and catch the user's eye when they stumble upon it. Even the most modern and advanced tools and technologies require careful planning, testing and optimization to be effective. So, here are our tips for getting the most out of your programmatic advertising campaigns:

  1. Optimize for mobile. As more and more users access the internet on mobile devices, it is important to optimize programmatic native ads for mobile. This means using smaller ad formats, optimizing ad creative for smaller screens and ensuring that landing pages are mobile-friendly.
  2. Use relevant ad creatives. Native advertising relies on relevance and context to be effective. Use ad creatives that are relevant to the audience and the context of the page where the ad will be displayed. Use imagery and copy that align with the brand's voice and tone.
  3. Test and optimize. Test different ad creatives, targeting strategies and ad formats to see what works best for your audience. Use A/B testing to compare the performance of different ad versions, and research data and analytics to optimize your campaigns for better performance and ROI.
  4. Ensure transparency. Programmatic native advertising can involve many different vendors and partners. Ensure that you understand the roles and responsibilities of each partner in the process, and make certain that there is transparency around pricing, inventory and performance data.
  5. Monitor performance. Monitor the performance of your programmatic native campaigns in real time with metrics: impressions, click-through rates and conversions. Use this data to optimize your campaigns for better performance and adjust your bidding and targeting strategies as needed.
  6. Follow industry guidelines. Adhere to industry guidelines and best practices for programmatic advertising, such as those set by the Interactive Advertising Bureau (IAB) and other industry associations. These guidelines can help to ensure that your ads are delivered in a way that is safe, transparent and effective.

Final Words

We live in the digital era, which provides a unique chance to work smarter, not harder. Programmatic advertising is brilliant whereas native advertising is creative. When science and art come together, something big and meaningful is born. Programmatic native advertising has a big future ahead, take our word for it.