Programmatic Advertising: Definition & Example

What Does Programmatic Advertising Mean?

Programmatic advertising refers to the automated trading of digital ad space. Using specialized software and algorithms, decisions are made in a fraction of a second about which ad is shown to which person or target audience.

A common method in programmatic advertising is a lightning-fast auction: As soon as a user opens a website, the system can auction off the ad space on that page in real time. Advertisers automatically bid on it, depending on how well the user or the context matches the predefined target audience.

All of this happens in real time, even before the page has fully loaded. Instead of using blanket ad placements, this allows each individual ad impression to be traded separately, and the winning bidder’s ad to be displayed.

Where did programmatic advertising originate?

Programmatic advertising emerged in the 2000s, when new advertising technologies and the increasing availability of data made the automated trading of digital ad spaces possible.

This largely replaced the manual purchasing of ad space that had previously been the norm in many areas. Starting in the 2010s, programmatic advertising increasingly became one of the most important forms of digital ad buying.

Why is programmatic advertising important?

Manual ad space buying is time-consuming, labor-intensive, and often imprecise. It’s essentially buying an ad spot and hoping the target audience will see it. Programmatic advertising changes the game by delivering ads in a targeted manner based on the context as well as various audience and user signals.

Automated digital ad trading can thus reduce wasted reach and direct the budget to where it reaches the right people—automatically, at scale, and with ongoing optimization.

Advantages

Programmatic advertising enables precise, target-audience-specific advertising.
The more targeted approach can reduce wasted reach.
It automates the time-consuming process of purchasing ad space.
The system continuously optimizes ad delivery based on results.

Challenges

The systems are complex and lack transparency. It is often difficult to track exactly where an ad appears or where the budget is allocated in detail. For example, part of the budget ends up with various service providers within the automated supply chain, which can diminish the actual media performance of the advertising campaign.

It is entirely possible that the ad could be placed in inappropriate or even reputation-damaging contexts. The use of target audience and user data also entails strict data protection requirements.

Example

A manufacturer of laboratory supplies wants to specifically target people in research and laboratories across many different websites without having to manually book every single ad. Using programmatic advertising, the company defines the characteristics of its target audience as well as the budget.

From then on, the system displays their ads wherever people match the defined target audience profile. With each ad impression, the system also optimizes the campaign.

In this way, the manufacturer efficiently reaches its target audience across many different websites, rather than laboriously booking individual ad placements on various industry portals.