Exploring Programmatic Advertising: What It Is and How It Functions

Over the last few years, advertising has undergone significant changes, with programmatic advertising emerging as a potent and advanced approach to effectively reach target audiences.

Programmatic advertising refers to the automated buying and selling of digital ad space in real time through the use of algorithms and data.

Unlike traditional methods where ad inventory is bought and sold manually, programmatic advertising uses technology to streamline the process, allowing advertisers to target specific audiences with precision and efficiency.

How Does Programmatic Advertising Work?

Let’s find out how programmatic advertising functions.

#1. Gathering and Analyzing Data

This is a fundamental step of programmatic advertising that enables advertisers to target audiences effectively, personalize ad experiences, and optimize campaign performance for better results.

Data Gathering: Programmatic advertising platforms collect data from various sources, including cookies, device IDs, website visits, app usage, social media interactions, and demographic information. From this advertisers get to know about users’ likes, interests, demographics, and what they do.
Data Segmentation: After collecting the data, it is segmented into different categories based on various criteria such as age, gender, location, interests, browsing history, purchase intent, and more. These segments help advertisers target specific audience groups with relevant ads.
Data Analysis: The collected data is analyzed by advertisers to identify patterns, trends, and correlations. This helps them learn about what people do, predict what they might like, and make ads that target them better.
Audience Profiling: Data analysis helps in creating detailed profiles of target audiences, including their likes, dislikes, habits, and preferences. Audience profiling helps advertisers make ads that fit certain groups of people better, making their campaigns more effective.
Real-Time Data Processing: In programmatic advertising, data processing occurs in real time, enabling advertisers to make instant decisions about ad placements. Real-time data processing makes sure ads reach the right people when they’re most likely to engage, which boosts the chance of getting them to take action.
Privacy Compliance: Advertisers must adhere to privacy regulations and obtain user consent for data collection and processing. Following rules like GDPR and CCPA means handling user data in a fair and clear way, which keeps their privacy protected.

#2. Placing Bids in Real-Time Auctions

When a user visits a website or app that offers ad space, an ad request is sent to an ad exchange. The ad exchange acts as a marketplace where publishers (e.g., website or app owners) can sell their ad space and advertisers can bid on it.

Upon receiving an ad request, the ad exchange sends information about the ad space, including details such as the website or app, ad format, placement, and user data like demographics and interests, to potential advertisers via a supply-side platform (SSP).

Advertisers use demand-side platforms (DSPs) to analyze the ad space and submit bids based on their targeting criteria and campaign objectives. Bids can be set manually or automatically based on predefined rules and algorithms.

The ad exchange conducts a real-time auction where all submitted bids compete against each other. The highest bidder wins the auction and their ad is displayed to the user.

Once the winning bid is determined, the ad exchange notifies the SSP, which in turn informs the publisher’s ad server to serve the winning ad to the user’s device in real time.

The price of ad inventory is determined dynamically based on supply and demand factors, such as the number of available impressions, advertiser budgets, and bidding activity. This ensures that ad space is sold at its optimal value.

Advertisers continuously monitor and optimize their bidding strategies based on performance metrics such as click-through rates (CTR), conversion rates, and return on investment (ROI).

Real-time reporting provides insights into campaign performance and helps advertisers make data-driven decisions.

#3. Ad Placement and Targeting

Advertisers identify suitable ad placement based on factors such as the type of content, audience demographics, user behavior, and the context of the web page or app.

Ad placements can include display ads, video ads, native ads, and more. They define targeting criteria to reach specific audience segments with their ads.

Targeting criteria can include demographics (age, gender, income), interests, behavior (browsing history, purchase intent), geographic location, device type, and more.

Based on the defined targeting criteria, audience segments are created to group users with similar characteristics and interests.

These segments help advertisers tailor their ads to specific audience groups and deliver personalized ad experiences.

Advertisers use dynamic creative optimization techniques to customize ad creatives in real time based on user data and behavior.

This allows for personalized ad experiences that resonate with individual users, increasing engagement and conversion rates.

They can also target ads based on the context of the web page or app content. For example, ads related to travel may be displayed on websites or apps related to tourism or vacation planning.

Advertisers can retarget users who have previously interacted with their website or app but did not complete a desired action, like making a purchase or signing up for an email list.

Retargeting allows advertisers to re-engage with these users by displaying relevant ads to encourage them to return and complete the action.

Advertisers can expand their reach by targeting lookalike audiences who share similar characteristics and behaviors with their existing customers.

Lookalike audience targeting helps advertisers reach new prospects who are likely to be interested in their products or services.

#4. Ad Delivery and Optimization

Ad delivery and optimization in programmatic advertising enable advertisers to reach target audiences effectively, maximize engagement and conversions, and achieve desired outcomes with their campaigns.

By continuously monitoring performance metrics and making data-driven optimizations, advertisers can improve campaign efficiency and drive better results over time.

Ad Serving: Once an ad is successfully bid on and won in the real-time auction, it is delivered to the user’s device in various formats, including display ads, video ads, native ads, and more. Ad serving occurs in real-time, ensuring that ads are displayed to users as they browse websites or use apps.
Frequency Capping: Advertisers can set frequency caps to control how often an ad is shown to individual users within a specific time frame. Frequency capping helps prevent ad fatigue and ensures that users are not bombarded with the same ad repeatedly.
Ad Positioning: Advertisers can specify the position and placement of their ads within websites or apps to maximize visibility and engagement. Strategic placement of ads can significantly impact their effectiveness and performance.
Creative Optimization: Advertisers continuously optimize ad creatives based on performance metrics such as click-through rates (CTR), conversion rates, and engagement metrics. A/B testing and multivariate testing techniques are used to test different ad variations and determine which ones perform best.
Bid Optimization: Advertisers adjust bidding strategies based on real-time performance data and market conditions to optimize campaign performance and achieve desired outcomes. Bidding strategies may be adjusted to target high-value audience segments or capitalize on opportunities with lower competition.
Budget Allocation: Advertisers allocate budgets dynamically based on performance metrics and campaign objectives. Budgets may be shifted between different targeting segments, ad formats, or channels to maximize return on investment (ROI) and achieve campaign goals.
Real-Time Reporting: Advertisers have access to real-time reporting dashboards that provide insights into campaign performance metrics such as impressions, clicks, conversions, cost-per-action (CPA), return on ad spend (ROAS), and more. Real-time reporting helps advertisers make smart choices using data and improve how well their campaigns are doing right away.

Benefits of Programmatic Advertising

Here are some benefits of programmatic advertising.

#1. Efficiency

Programmatic advertising automates many aspects of the ad-buying process, including ad placements, bidding, targeting, and optimization.

This automation eliminates the need for manual intervention, saving time and resources for advertisers and agencies.

Programmatic advertising platforms continuously monitor and optimize campaign performance based on key performance indicators (KPIs) such as click-through rates (CTR), conversion rates, and return on investment (ROI).

Automated optimization algorithms adjust bidding strategies, targeting parameters, and ad creatives in real-time to maximize campaign efficiency and effectiveness.

Programmatic advertising offers scalability, allowing advertisers to reach a large audience across multiple channels and devices with ease.

Ad campaigns can be scaled up or down dynamically based on budget allocation and performance metrics, ensuring that advertisers can adapt to changing market conditions and campaign objectives.

#2. Targeted Advertising

Advertisers can target their ads to highly specific audience segments that are most likely to be interested in their products or services.

This customization results in better performance measures for ads, including click-through rates (CTR), conversion rates, and return on ad spend (ROAS).

Targeted advertising helps advertisers spend their money better by targeting the people who are most likely to be interested in their ads.

Instead of broadcasting ads to a broad audience, advertisers can target their ads to niche audiences that are more likely to convert, maximizing the return on investment (ROI) of their ad campaigns.

When ads are aimed at certain groups, advertisers can avoid showing them to people who probably won’t be interested. This saves money as it lets advertisers focus on reaching people who might actually buy their products.

#3. Scale and Reach

Through programmatic advertising, advertisers can reach many of their potential customers online (websites, apps, social media platforms, and so on). This broad audience coverage allows advertisers to extend their reach and connect with users wherever they are online.

Programmatic advertising offers global reach, allowing advertisers to target audiences in multiple geographic locations around the world.

Having a big audience all over the world helps advertisers tell more people about their brand, find new places to sell, and get customers from almost everywhere.

#4. Transparency and Measurement

Programmatic advertising platforms provide advertisers with transparent insights into how their ad budgets are being allocated and spent.

Advertisers can see detailed breakdowns of where their money is going, including ad placements, impression volumes, and associated costs.

Programmatic advertising platforms offer robust analytics and reporting tools that enable advertisers to analyze campaign performance in-depth.

Advertisers can find out how their ads are performing over time, determine how to make them better, and modify their campaigns to get better outcomes.

Programmatic advertising platforms employ advanced fraud detection technologies to identify and mitigate ad fraud risks, such as bot traffic, click fraud, and impression fraud.

Advertisers benefit from increased transparency and security, knowing that their ad campaigns are reaching real human users and generating legitimate engagement.

Final Thoughts

Programmatic advertising represents the future of digital advertising. It allows advertisers to achieve their marketing objectives with unparalleled precision and efficiency.

By embracing programmatic advertising and leveraging its capabilities effectively, advertisers can stay ahead of the curve and drive success in today’s competitive marketplace.

About the Author!

Andy Beohar is the Managing Partner at SevenAtoms, a leading B2B demand generation agency. SevenAtoms is dedicated to driving growth for SaaS and B2B businesses through innovative and optimized paid search and is recognized by Google as a Google Premier Ads partner. At SevenAtoms, Andy plays a strategic role in managing paid search campaigns. Let’s connect on LinkedIn and X/Twitter!