What is Programmatic advertising?



Programmatic advertising is a huge industry and given the effects of e-commerce and time spent on mobile.

Due to Covid, some programmatic experts think it could even double in the next year.

So this article is going to explain to you how it works? How it affects different companies involved from advertisers agencies, tech companies, publishers, etc.

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I’m going to talk about programmatic advertising. If you are reading this, at this point you should have heard about programmatic advertising.

But it is a pretty large subject and uh pretty vague just hearing the name programmatic.

So, I’m going to try to explain what it is? and How it differs from what you would consider traditional advertising?.

So programmatic, let’s define it –

“Programmatic ad buying typically refers to the use of software to purchase digital advertising. As opposed to traditional process which involves an RFPs, human negotiation and a manual insertion order.”

So that means you’re using machines to buy ads instead of doing a manual place and buy the one-to-one type of deal or negotiation.


Here is an example –




To illustrate that let’s say we have an app. And we’re going to go through the traditional direct RFT process being the request for a proposal.

So I have an app I have an ad unit down here in green 320 x 50.

And every month I get about 10 million impressions from users opening my app. And using that I’m using google’s DFP as my ad server.

Every month I have 10 million ads that run through that ad server and I want to monetize that.

I’m going to go out directly to an advertiser and try to sell to them.

Let’s say I go to coca-cola and I convince them to buy five million impressions every month.

I’ve just sold fifty percent of my ads to one advertiser but I sell five million more to go.

So I get in front of Nike and they agree that they’re gonna buy two and a half million, now 75% sold.

And then lastly I go to McDonald’s and they agree to buy two and a half million impressions.

Now I’ve done a direct deal with three advertisers and sold 100 % of my ads for the month.


The advantage here is –

Now, this is great if you’re going to do that you’re going to get the highest price possible. There are really no middlemen here you’ve gone direct to the advertiser.

You don’t have to pay here any fees. Like an agency or an exchange or any sort of network any sort of fee you’ve gone direct to them.

And the disadvantage is –

The obvious disadvantage here is that it’s difficult to get in front of these people especially if you’re a small app.

Good luck getting in front of coca-cola, Nike, and McDonald’s. And even if you do get in front of them, not any guarantee that they’ll actually buy it.

It could be that you get in front of advertisers and you sell 75 % but two and a half million impressions every month that go unsold.

You really don’t want to do that’s lost potential revenue for you.

It’s a great idea but there are really only a few very large apps and very large publishers that are going to be able to get that audience directly with major advertisers and to sell out all of their inventory.


Now compare this to the programmatic process –

programmatic _process

I’ve got my app and I’ve still got my 10 million impressions and I still use DoubleClick as my ad server.

But instead of going direct to advertisers, I’m partnered with a DSP, ad network, exchanges.

You could have multiple partnerships at any one given time.

So I’m going to come up with multiple partnerships and I’m going to work with google’s Adx and I’m also going to work within InMobi and Smato and Openx.

I’m going to allow all these guys to bid on my inventory. The reason I want to work with them is that these are large companies that do have access directly to advertisers. Also into agencies and to those who are actually spending the money.

Behind each one of those tech companies are dollars and dollars that are directly tied to advertisers.

Well, here is my choice –

So as an app I don’t have to go direct to the advertiser to get them, I just have to go to one of these tech companies and these tech companies are always looking to bring on new inventory, new apps, new ad units, new places to fill. To sell the ads that they have from their demand partners and from their advertisers on the back end.

Here is a little bit of disadvantage here –

The disadvantage here is that now there are more steps and middlemen essentially between you the app developer and the end advertiser who is actually serving that ad.

So, the advertiser might be working with an agency or another exchange that takes a small margin. And then it gets to these demand partners to take a small margin, and then DFP might take an ad serving fee on top of that. For working with one of these companies so along the way you’re losing a little bit of money.

And obvious benefits here are –

Advertising_revenueHowever you don’t have to work directly with a sales team, you don’t have to hire people, you don’t have to manage them, you don’t have to pay for travel, you don’t have to pay for taking people out for meetings and for dinners and drinks. And whatever it normally takes to court a major advertiser.

Yes, you might be giving up some of those margins along the way. But it is a much more cost-effective way to run your advertising.


Now, Consider this scenario

Now if you just create your own app or your own game or you’re a small independent guy or even a small group of people. Programmatic is really the way that you want to go.

Because that’s going to give you the most opportunity to monetize your app. Essentially the least amount of work you set up the pipes and then they run.

If you’re a large app though let’s say you’re somebody like Espn.

Espn is huge and they can demand an audience with some of the biggest advertisers in the world. So, what they’re going to do is a bit of a combination of that direct RFP process and programmatic.

Again same app, same ad space, the same amount of impression, same ad server. But if we’re let’s say Espn you can go direct to coca-cola and they very well may buy half of your ads in a month.

And Nike might buy 25 % of that and then you might go 25 % of your ads unsold.

At that point, you bring in your programmatic partners who as we discuss have demand in advertisers on the back end to fill that remaining 25 percent.

At the end of the month if you have 10 million impressions available you, sell all 10 million of them or as close to 100 fill as you possibly can.

To close here

Hope you understood this process, now that is a general explanation of programmatic and how it differs from a direct buy? And then in the real world how it actually works together? now that process of filling those ad units takes place through a process called RTB or real-time bidding.

If you need any help in setting up programmatic for you, I can help that for you. Please contact me via email mentioned.