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The most amazing revolution in advertising has been quietly evolving over the past decade. This revolution can easily be summarized in the stupid word 'programmatic'.

It's a word I hate.

And I hate it because most people don't have time to keep up with digital advertising trends and vocabulary and words like "programmatic" don't help them understand what it is and why it's good for you.

The term attempts to describe a series of interactions between ad sellers and ad buyers that provides unique benefits to both and overcomes time-wasting and limited issues represented by old advertising sales, negotiations, placement, and reporting models.

In this post, I'll attempt to describe the basic operations of "programmatic advertising" so that the benefits and value of what it is can be more easily evaluated.

In an earlier post I shared my point of view that local advertisers need to change their thinking about digital advertising based on the different mechanisms of how digital advertising works. "Programmatic" is the main reason to support that perspective.

Programmatic derives most of its benefits from its efficiency connecting buyers with sellers. So we will begin our journey by looking at the "Sellers":

The 'ad sellers' are the publisher's, websites, apps, and others who generate revenue through advertising sales.

Programmatic advertising solves a significant challenge for these publishers; Prior to the advent of ad exchanges and the more automated capabilities of programmatic advertising, a publisher had two basic choices to monetize their advertising inventory: Sell it themselves or make it available to an ad network (someone else sells it, in 'bulk' with many other websites, etc...).

Each of these solutions has its drawbacks: A sales force can be costly and can only reach a finite number of potential buyers; while an ad network typically provides low yield (i.e. less money) and also limited controls over the advertising quality.

The ad exchange is the heart of the transactions. The seller's provide the ad exchange with access to their ad inventory on their websites and inform them if ads are available to be sold. Additional information from the websites are passed onto the exchange as well, such as what size the ads are, whether they appear above or below the fold, a minimum 'floor price' and so on.

The important role for the ad exchange is that it aggregates seller ad inventory from hundreds of websites. This depth of inventory provides scale. This scale is key as it allows for far more buyers, as well a large enough pool of different types of content and users to make more precise targeting possible. For a local business, the aggregation of all this supply means that it is possible to target ads to persons just in one particular zip code. And that sort of precision could be a huge benefit.

Data Management Platforms (or DMP's) provide additional data to the inventory provided by the publishers on the ad exchange. Think of them as the "data sellers". What they provide are more dimensions for the buyer to 'layer onto' the advertising space they want to buy.

Confused? Here's an example: Classic media planning trying to reach sports fans would look to buy advertising on sports-related websites (content, topic, category, or context targeting). Basically you are trying to find the right audience for your ads based on 'where' they are (a sports content site).

But, if you had information about a user that indicated they visit sports sites, you can use that information to reach that person on a weather website, or a travel website - whatever. The point is rather than targeting the person based on the site they are on now (the 'where') you are targeting based on what they've done that indicates a certain interest (the 'who they are') making the 'where' somewhat irrelevant in the whole targeting scheme.

DMP's collect, aggregate and make available data from hundreds of different sources to layer onto your digital marketing ad placement. So you can combine a person's interest in sports with their zip code to more precisely target an audience.

The Demand Side Platform, or "DSP", is the gateway for the buyer to access the inventory and (in most cases) the third-party data from the DMP's.

It's the 'dashboard' where the ad buyer can pick the sort of buy they want to make (banner ads, videos, etc..), when they want it to run (campaign or flight dates), and what they're willing to pay (both in terms of budget, as well as how much they want to pay per click or view, etc...). There are variety of DSP's, although most of them cater to large agencies and advertisers (see this), there are a few that are focusing on the small/local business segment.

To illustrate the difference between programmatic advertising and traditional ad sales, there is no sales person involved in the ordering process and often not in the trafficking, reporting or other steps required with advertising placement. Nor is there an Insertion Order.

Much like eBay, you login, search for what you want to buy, and then enter the price you are willing to pay. Its that simple.

The last player in the programmatic process is the ad buyer. This is the person who has the money after all. They are the ones who identify a DSP and then set up their advertising to reach whatever audience they desire. For the advertiser, the entire process is all somewhat seamlessly integrated.

Of course, the ad buyer must have a plan or strategy prior to logging onto their DSP. The power of the programmatic landscape is powerful, but also pretty overwhelming.


Publishers are ad sellers; these publishers make their inventory available on a n Ad Exchange. The Ad Exchanges are integrated with DMP's - who aggregate hundreds/thousands of different websites with companies that have information about user behaviors and make it available on Demand Side Platforms.

Demand Side Platforms (DSPs) are tools for ad buyers to select data and audiences from various ad exchanges and DMPs and set up and manage ad campaigns.

The above flowchart puts the process together. The arrows show the 'buying side' flow of information and requests for advertising opportunities across many different websites. The advertiser determines what they are willing to pay (a cost-per-click based bid, or cost-per-view bid, etc...) which is then entered into the DSP, transmitted to the DMP (if used), then to the Ad Exchanges. Within the Ad Exchange(s), 'matches' are sought that meet both the ad buyers requirements for a specific audience or placement, and the publisher's requirements for how much they would be willing to sell their ad space. If the buyer's bid matches the publishers criteria then the buyer has 'won' in the competitive, real-time, auction for the ad space. When this happens, the buyer's ad is shown on the ad seller's inventory.

What is not shown (for reasons of simplicity) are the data signals sent back from the sellers through the above relationships. So imagine lines going in the opposite direction which provide both 'pre-selling' information (the ad size, the type of content, etc...) as well as results if the buyer wins the bid (impression data, click data, etc....).

The benefit of the above 'real time' exchange of buying requests and seller acceptance/rejection should be obvious. Its an incredible efficient, automated system of buying and selling on an extremely granular level. This means that the ad buyer can chose from an almost limitless supply of advertising opportunities . The massive volume of thousands of websites and millions of users means the advertiser can 'cherry pick' just the type of people they want to reach with ads. No longer are you limited by the media that is able to send a salesperson to your office or business.

This is an extremely simplified overview of the key players and how they work together. From a technical perspective this is far more complicated.

The goal with this overview is to explain what is meant when the term 'programmatic' is used. In doing so, I hole that this also generates some enthusiasm for how any business can use this new approach to ad buying with more interest.


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