What Is Programmatic Advertising (And How Does It Work?)


What Is Programmatic Advertising (And How Does It Work?)

Did you know that 75% of all adults in the United States use YouTube? This is more than Facebook, which reaches just 68% of American adults. The next highest media platform is Instagram, used by 40% of the population.

Even with the already huge visibility surrounding the platform, the number of watchers is expected to grow from 214.9 million to 228.1 million by 2024.

How can advertisers use this major platform to their advantage? Programmatic advertising is the answer, but what is this form of marketing exactly?

Keep reading to learn everything you need to know about programmatic video advertising.

What Is Programmatic Advertising?

Programmatic advertising, otherwise known as programmatic ad buying, is the process of using software to purchase digital advertising. The traditional form of buying ad involves tenders, quotes, proposals, and negotiation.

In contrast, programmatic buying uses algorithmic software to purchase and sell online display space. So, how does it work exactly?

Using traffic data and display targeting can drive impressions that result in a better return on investment for companies. This process is not completely automated. In fact, you’ll need to manually prepare ad tags and insertion orders.

Because the process can be labor-intensive, it’s important to have someone on your side that knows how it works. Of course, you can always learn to do this on your own.

If you opt to hire a marketer, they will seamlessly find programmatic advertising ads for you. With their knowledge, they will have more time to improve ads and optimize them for best results during an ad campaign.

The first real instance of programmatic advertising was through the birth of Real-Time Bidding (RTB).

What Is Real-Time Bidding (RTB)?

RTB is the process of buying and selling ads through auctions. This means that transactions get completed in the same time it takes to load one webpage. Through this process, ads get traded in 100ms.

When a visitor hops onto a website, a request is sent to an ad exchange for information on the visitor data and the website. The information is matched against advertisers who are available and then the real-time auction begins.

Let’s say you visit an online store for the first time but don’t buy anything. When you visit your local news site, you’ll start seeing ads from that same site. The ads are placed in front of you with the help of Real-Time Bidding.

This means the online store you went to won the real-time bid against everyone else interested in showing you ads.

Although RTB is a form of programmatic advertising, not all programmatic processes use RTB. Other common ways of programmatic advertising include programmatic direct and private exchange buying (PMP).

Programmatic direct involves the following:

  • Buying guaranteed amounts of impressions on certain sites
  • Often used for late formats (full-page takeover ads)
  • Fixed-price agreements instead of auctions

Private exchange buying (PMP) involves an auction on different terms. Here’s what you need to know about this form of programmatic advertising:

  • Invitation-only marketplace
  • A way to bypass exchanges altogether
  • A buying platform that plugs into a publisher’s inventory directly
  • An auction with pre-negotiated terms
  • More manual than regular RTB

A programmatic system only works when there are key components in place.

Key Components of a Programmatic System

A programmatic system has many components that make the process of ad buying more efficient. Some of the most important components are listed below.

Ad Exchanges

What is an ad exchange and how does it come into play when discussing programmatic advertising? Ad exchanges are where advertisers and publishers meet and agree on space to display ads.

The function of an ad exchange is similar to that of the stock market. Most ad exchanges operate through real-time auctions, the space where an ad purchase is made once a visitor loads a website.

An ad exchange is placed in the middle of the programmatic ecosystem and plugged into two different platforms, one on the advertiser’s side and the other on the publisher’s side.

On the advertiser’s side is the Demand-Side Platform (DSP) and on the publisher’s side is the Supply-Side Platform (SSP).

Ad Exchange vs. Ad Network

An ad exchange connects to multiple different ad networks and an ad network is connected to a certain number of websites. The network offers inventory for advertisers on certain sites.

The ad exchange is specifically the trading floor where advertisers buy their ad space from different networks. After publishers sell their premium inventory manually, they will use the ad exchange to auction off the unsold inventory.

Demand-Side Platform (DSP)

The demand-side platform is software or a tool that lets advertisers buy ad placements automatically.

An advertiser will sign up for DSP which connects them to an ad exchange. The DSP ecosystem involves a visitor reaching a website that connects to the ad exchange. An auction signal is then sent to the exchange.

The exchange will ask the DSP if the advertiser has ads that could fit the placement. If the answer is yes, the DSP will send a signal to enter an RTB auction where advertisers will compete over the ad placement.

Supply-Side Platform (SSP)

On the publisher’s side, the foundation is the supply-side platform. In traditional advertising, a publisher would use their salespeople to reach out to advertisers and sell ad space. With the supply-side platform, the process is automated.

The SSP connects to an ad exchange to tell it what kind of inventory is ready for auction. DSP has the job of buying programmatic ad space for an affordable price from publishers.

In contrast, an SSP does the opposite. This platform sells ad space at the highest price possible.

An SSP will connect to a variety of exchanges to maximize publisher exposure. Publishers can control inventory more efficiently by setting minimum prices and dictating specific buyers for certain channels.

Data Management Platform (DMP)

A data management platform (DMP) collects, stores, and sorts information. In programmatic advertising, DMP is used in combination on either the advertiser’s side or the publisher’s side.

A demand-side platform should be connected to a data management platform if an advertiser wants to take full advantage of the benefits of programmatic advertising.

A lot of demand-side platforms integrate DMP solutions directly. This is how an advertiser will gain access to targeting options.

Is Programmatic Advertising Successful?

The simple answer is yes, programmatic advertising is successful because the ads are targeted, efficient, and scalable.

Programmatic marketing is designed to fix the problem with hit or miss campaigns. Marketers tend to spend a lot of money on traditional advertising that does not always yield the same results as programmatic marketing.

The algorithm for programmatic advertising can help businesses determine where the ad money goes exactly. When you have a campaign, you’ll use that information and send it to your programmatic solution.

The algorithm does the hard work just by knowing your audience and key performance indicators. The system then launches the campaign and monitors where improvements are needed.

There is no guesswork involved in programmatic marketing. Instead, you’ll be able to make data-driven decisions to reap not only short-term benefits but long-term benefits as well.

Programmatic video ads are especially growing on YouTube, but there are various video ads that could be beneficial to your business.

Benefits of Programmatic Video Ads

There are many advantages and reasons to start using programmatic ads. We outline some of the best ones below.

Reach a Specific Audience

Programmatic advertising uses specific behavioral data to find where your audience frequents. You can then run targeted ads that show up in front of those who are interested.

There are various ways to target your ads through programmatic advertising. The most common ways include the following:

  • Contextual targeting
  • Keyword targeting
  • Data targeting (audience targeting)
  • Geo-targeting (location-based targeting or geo-fencing)
  • Retargeting

Contextual targeting is based on the context of a website that a user visits. For example, financial services would choose to place ads on sites that match their services like Forbes.

Keyword targeting focuses on displaying ads based on specific keywords. If your business sells motorcycle helmets, you’ll want to place ads on websites that are about motorcycles.

In addition, finding blog posts that mention keywords is a great place to target your potential customers. You can create your own list of keywords and plug them into the algorithm if you choose this route.

Data targeting/audience targeting is based on the user’s cookies instead of the context of the website.

Geo-targeting is exactly what it sounds like. It is based on the locality of customers. This is often a great method for small businesses like HVAC companies, roofing companies, etc.

Since it is rare for users to convert the first time they visit a website, retargeting focuses on bringing those users back. Users that already have a relationship with you are more likely to convert after retargeting.

Cross-Channel Reach

Programmatic video ads can be displayed almost anywhere these days. Because this form of marketing relies heavily on data, it can serve targeted ads on desktop, TV, and mobile.

Campaign Tweaking

A campaign is no good if you cannot tweak it when you find an area that needs work. If necessary, you can adjust the information you’ve provided to programmatic software to purchase better ads for your target market.

Plus, it is quick and easy to tweak campaigns because you don’t have to renegotiate or go through long meetings.

Easier Deal-Making

When you buy media through programmatic processes, the algorithm does the hard work for you. You won’t have to build relationships with sales teams and buyers to get your ads out there in front of the right audience.

The algorithm only needs enough information to make a data-based decision. This removes the need for deal-making in person.

Quantitative Reporting

The media ad space reports you’ll receive with programmatic ad buying are solely based on data and the communications between machines. You’ll use quantitative reporting to find out how successful campaigns are and improve them where necessary.

Types of Video Ads

There are three different types of video ads that you should know before you try out programmatic advertising. In-stream, in-display, and out-steam each have their own benefits and desired uses.

Ads are those that play before a video starts, you’ve likely seen them on YouTube multiple times. They also might interrupt your video mid-stream or pop up at the end of the video.


In-display ads appear at the top of a YouTube feed. If you are watching a video on a desktop and see the “up next” column, this is the in-display ad.

These ads, unlike in-stream and out-stream ads, won’t play automatically. The user has to make an active choice to click them and learn what the ad is all about.


Out-streams are one of the more controversial ad formats because they work similarly to pop-ups. These are the video ads you’ll find in the middle of reading an online article.

Depending on your target audience, these ads may or may not be effective. Some users love seeing them while others will leave an article once they see an out-stream video.

The Rise of Programmatic Advertising

Programmatic advertising is a great way for your videos to get seen by the right audience. Brands of all sizes can benefit from knowing about programmatic videos and implementing the process into advertising campaigns.

If you want to benefit from specific targeting, efficient ad campaigns, and quantitative reporting, this is the path for you. Now, you don’t have to rely on guesswork to see the best return on investment.

The future of programmatic advertising is bright which is why the time to hop on the trend is now. If you are interested in YouTube ads for your brand, contact us today to learn what we can do for you.

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