What is programmatic advertising and how does it work

Buying advertising space in the media is the key for any company. After all, only the placement of the advertisements ensures that the target audience can see them.

In order to buy the best advertising space at the best price and reach the desired audience, there are many models for buying advertising space. One of them is programmatic advertising. A method in vogue due to its long list of advantages. Let's see what it is and how it works.

What is programmatic advertising?

Programmatic advertising is a model for buying and selling advertising space. These are purchased in an automated way by cross-referencing data relevant to brands. For example, audience data, most powerful platforms or bids for advertising space. It seeks to establish a native advertising strategy, carrying out good advertising planning in Social Ads or creating experts in the Google Ads display network.

The main benefit of this advertising model is to display ads that match the interests of users. This allows brands to connect with target audiences at the right time and in places of high interest (e.g. during a Spotify listening session).

As in any operation, two parties are involved in the process of buying and selling these spaces where the advertisements appear:

• The supply side. This is made up of the publishers or media, who own the advertising spaces and offer them on demand.

• Demand. This is made up of advertisers or brands looking to buy advertising space.

Let's take a look at other players to consider when including programmatic advertising in your digital strategy.

Elements that are part of a programmatic advertising strategy

Before going into detail about how programmatic advertising works, we have put together a glossary of key concepts that you should know if you decide to include programmatic advertising in your digital strategy.

• SSP (Supply Side Platform): This is the platform that represents sellers during the buying and selling process. It collects and offers the inventory of advertising space from publishers or media.

• DSP (Demand Side Platform): This is the platform that represents advertisers. It is used to buy the advertising space available from publishers. We could understand it as a centralised media service that works through real-time bidding or Real Time Bidding (RTB).

• Ad Exchange: This is the marketplace where purchases are optimised and transactions for advertising space are carried out once the bids have been won in the DSP. We will understand it as the convergence point between the SSP and the DSP.

• Data Partners or DMP (Data Management Platform): These are the agents in charge of providing data of interest on users and audiences to the DSP. This information is made up of demographic data, user journeys, cookie information, etc. and is key to deciding which advertising spaces to bid for.

• Ad Server: This is the technology that is responsible for distributing the advertisements in the advertising spaces. We could understand it as the logistics and distribution service of the ads to the spaces that have been purchased in the marketplace or Ad Exchange. 

Now that we know the main players in programmatic ad buying, let's see how it works.

How does programmatic advertising work?

Understanding how this ad buying model works is not a simple task. As you have seen, there are many players involved in programmatic advertising. Below, we explain the simplified process.

Programmatic advertising works through intelligent algorithms that are constantly learning. They match the advertising space available in the online media (SSP) with the data that represents the audience an advertiser is seeking for their ads. 

For the buying and selling of advertising space to be effective, advertisers must buy advertising in real time through digital bidding (DSP). 

Advertising space is awarded on the Ad Exchange to the highest bidder, who is willing to pay the highest price for their ads to appear, via Ad Servers, to users with a desired profile. 

Thanks to the cross-referencing of information by algorithms, users are impacted by ads that are more relevant to their tastes and interests in real time. On the other hand, this allows advertisers to improve the rate of interactions and conversions with their ads. 

Therefore, this advertising model allows for more effective strategies as ads are distributed in real time to users based on information such as interests, browsing time or connection device.