Programmatic ad buying, or just ‘programmatic’, is a hot but confusing topic. It is being talked about a lot, but many find it difficult to understand in detail. Here’s an introduction to the topic which might help and we will follow up with details about programmatic in APAC.

Everyone is talking about programmatic ad buying, but with all of the unfamiliar systems, strategies, and acronyms it’s a bit difficult to understand what people are saying.

And it’s even more tricky in Asia-Pacific as programmatic advertising is a new concept in the region and APAC countries are all at a different stage of adoption.

So, in order to understand programmatic in APAC, we need to first go through what the term actually means, and then later go through where we are at in the region.

Webinar announcement

But before we start, I’d just like to highlight that Econsultancy will be hosting a webinar on the subject, Programmatic: Trends, Data and Best Practice (APAC), on 15 October at 10am Singapore / 1pm Sydney time.

Click here to book your spot.

Programmatic Overview

Trying to figure out what’s going on with programmatic ad buying in Asia is tough. Few industry overviews are available, and the ones which do exist offer statistics which presume that you already know something about the area.

For example, Campaign Asia-Pacific and Ipsos announced a great headline figure earlier this year: Seven in 10 marketers in Asia-Pacific use or plan to use programmatic.

This tells us, sure, that programmatic is becoming more popular but what does that mean?

Well, here today we’re going to start from the basics and try to unpack it. We will first look at what programmmatic ad buying is and then in a follow-up post have a look at what this means for APAC.

First, a definition

Before we get into any details, it’s best to start with a definition.

The term ‘programmatic’ typically means an ad buying process that relies on software, or programs, to buy and sell advertising space.

And that definition lets us know that programmatic uses algorithms instead of human judgement for pricing ads. But what does programmatic look like in practice?

Well, a previous Econsultancy post offers some help. ‘Programmatic… is like Google AdWords, only it’s for display ads rather than search results’. And I think that is both a useful explanation and a little bit misleading.

Useful in the sense that if you know nothing about programmatic, but you know AdWords, then it helps to put it in context.

But it’s misleading because Google AdWords is fairly limited compared to a true programmatic solution, as you will soon see.

Next, the systems

To understand programmatic a bit better, we have to get beyond a high-level definition and get into the details about what makes the whole programmatic ecosystem work.

Advertisers and Publishers

First off, we have the things we all know and understand – advertisers and publishers. These two act as you would expect. The advertisers buy ads and the publishers sell ad space.

It’s fundamentally no different than how we operate today, but it’s how the advertising is bought (i.e. programmatically) where things get interesting – and where the acronyms start.

Demand-side platform (DSP)

Any serious discussion of programmatic should include a relatively new type of ad buying system, a ‘demand side platform.’

Simply put, a DSP is a system which advertisers, or the ‘demand-side’, use to buy ad space. It’s a ‘platform’ in the sense that you don’t directly buy the space on the publishers, but instead input parameters (typically who you want to reach) and the DSP then, programmatically, buys the ad space for you.

And in this way, a DSP is like Google AdWords but with the added bonus of also managing your ad buying. But AdWords is limited to using Google search traffic and a few other factors as targeting parameters.

DSPs, however, are connected to many different networks (not just Google) and they offer targeting options beyond what single-platform publishers could offer.

These parameters can include things we are familiar with such as time of day, age ranges, or even interests. But they can go much further than that and offer new targeting options such as life events (just married or retired), recent purchases, or even the emotional content of the video they are watching.

And DSPs also learn about the effectiveness of your targeting and can change your targeting subtly and dynamically to optimize results.

To really benefit from the options available, though, you need another system. And we need to learn another acronym…

Data management platform (DMP)

The name ‘data management platform’ sounds simple, but DMPs are arguably the most complex, and most important, part of the programmatic ecosystem.

‘Data management’ does sounds like something quite basic like, say, a database with an admin screen.

But there is much more to a DMP than just managing data. DMPs also typically include data organization tools, audience builders, analytics, an optimization engines, and APIs to get data in and out.

And with all those features, they are quite difficult to configure and manage. In fact, even sophisticated brand marketers may use a specialist agency with a media ‘trading desk’ to help configure and manage the platform.

And proper configuration is just the start. More importantly, your DMP blends first-party (your customer data) and third-party data (from data providers) and lets you build ad audiences that you could never build before.

For example, your first party data may be email addresses of customers who have made a big purchase at your store.

A DMP, with third party data, can take that data and blend it with demographic data from another vendor.

Then you can advertise specifically to customers who have another characteristic which you don’t know about, say high disposable income, so you can target your ads to the right micro-audience.

Supply-side platform (SSP)

So now we know that the advertiser buys ads using a variety of data sources in their DMP using the capabilities of a DSP. But where do the DSPs buy the ad space?

Let’s go back to the AdWords comparison. If programmatic is like AdWords, then the DSP (AdWords) buys the ad space from Google search. So Google AdWords provides the demand and Google Search provides the supply.

In the world of programmatic buying, there isn’t just one supplier, there are millions. But with so many different publishers available, how can DSPs know where to buy?

In order to make it easier for DSPs to buy ad space, publishers sign up, typically via an Ad Network, with a supply-side platform (SSP) which then manages both the ad content delivered to the site, the audience data, and paying the publisher for the use of their ad space.

How this works is beyond the scope of this post but as, we will cover in the next post, the programmatic industry now has billions of dollars in revenue so you can presume that it works very well indeed!

How it works: Real-time bidding (RTB)

Now that we know who is involved in the programmatic ecosystem, we can now say how this all works in practice.

The overwhelming majority of programmatic buying is transacted through a method called ‘real-time bidding’ (RTB).

The way RTB works is that when someone browses a publisher’s web page, they tell the SSP that new ad inventory is available. The SSP then informs the DSPs and provides some information about the person who is viewing the page. An auction then commences between the various DSPs connected to the SSPs.

The DSPs then bid, in real-time, for that ad space according to a bidding strategy determined by the parameters set by the advertiser. The advertiser who wins the bid, via their DSP, is then given the space to show their ad.

What this means in practice, is that a DSP will, programmatically, determine a bid price on behalf of the advertiser so that they are likely to win the ad space for the people they want to reach and lose the bid, thereby not spending ad dollars, on the people they don’t care to reach.

Note that this all happens in less than a second so that the person viewing the publisher’s site will typically receive the ad before the page is even loaded.

Of course there are other nuances and complexities to the RTB process, but essentially this is how billions of dollars are now spent on advertising online.

So…

So now you know the participants, the systems, and the acronyms involved in programmatic ad buying, you can see how this all fits together rather nicely in the diagram below.

And now that we have covered what exactly programmatic is, we are ready to tackle the stats, trends, and outlook for the programmatic industry in APAC in the next post!