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November 13, 2014, Article

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iMedia Connection: Programmatic Buying: The FAQ Every Marketer Needs

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I was at the ad:tech conference in New York last week, and in one of the sessions, three different people asked about programmatic. They didn’t ask any nuanced questions. They effectively asked, “What is programmatic?” They were embarrassed that they didn’t know, but after the first person spoke up, others in the room were emboldened.

For someone so steeped in the programmatic space, this took me by surprise. Certainly, I thought, no one in our industry doesn’t know what programmatic is. Adding to my consternation was that this specific panel was focused on SEO — and I figured that anyone working in search must be in the know on what was happening in programmatic. So I walked around and asked people for the rest of the conference what they knew about programmatic, just so I could see how out of touch I was from the mainstream. While most people were relatively up to date, I was surprised by the lack of general knowledge and the amount of misinformation there was out there.

So I figured it was time to step back and go over the very basics in this classic frequently asked questions (FAQ) format.

What does the term “programmatic” mean?
The term “programmatic,” which I’ve been told I coined back in 2009, really just is the umbrella term for automated buying and selling of media. While this is how I use the term, and what the market generally tries to use it to mean, many people use it to refer just to one part of the “programmatic ecosystem” — real-time bidding (RTB).

What are ad exchanges?
Much like in the finance world where stocks, commodities, and derivatives are sold over “exchanges,” we now have mechanisms to sell advertising over exchanges. Think of this as an auction-based mechanism to sell ads. Most exchanges are second-price auctions, meaning that whoever bids the highest for an ad wins the ad impression but pays the price (sometimes plus one penny) that the second-highest bidder was willing to pay. And nearly all of these exchanges have moved to RTB. Ad exchanges typically perform the function of providing liquidity to the marketplace, letting supply and demand match fluidly. Ad exchanges are not typically where the dollars accumulate; they’re a relatively inexpensive conduit through which demand and supply flow.

What is real-time bidding?
RTB is an auction-based mechanism for media buyers to bid on advertising at the impression level, as the ad impression takes place. When the ad impression takes place, a call is made to the exchange, which submits the impression to all bidders (participants with seats on the exchange). Those bidders have a very short time — usually less than 100 milliseconds — to respond to the auction with their bids. Unlike in the world of paid search, where all the demand for ads sit within the ad system of the search engine, ad exchanges federate out the auction, meaning that each bidder contains its own demand and only submits what it chooses to the exchange. This makes the exchange more of a clearing mechanism, rather than the revenue-generating mechanism that the paid search auction is.

What value does an advertiser or media buyer get by using RTB?
RTB enables a media buyer to specify exactly what their goals or outcomes are and look only for ad inventory that matches against those goals. Sometimes those goals are performance based; sometimes they are audience based. In other words, buyers can specify what audiences they want to reach and buy only those ad impressions that match. This is very different from the experience of buying from publishers directly, where the publisher specifies the inventory definition. Over RTB, the buyers specify the inventory definition and only buy what they want.

Are exchanges only available for banner ads?
RTB and programmatic exchanges are not in any way limited to one inventory type. Pretty much any available media inventory (ironically except for paid search) is available this way. Display, mobile, video, social, and even some traditional media such as television, radio, and print are either already available over exchanges or will be soon.

How do I buy ads on an exchange?
Buying mechanisms for ad exchanges are typically referred to as demand-side platforms, or DSPs. Some ad networks also enable exchange buying but in some cases are not transparent about this (i.e., they might be buying ads on the exchanges and reselling them to their customers). DSPs are available from companies like MediaMath, Turn, DataXu, The Trade Desk, AppNexus, and others.

How do publishers sell ads over exchanges?
Publishers that are quite large can sometimes offer their inventory directly over an ad exchange. Some even have their own. But most publishers use an aggregator of one kind or another — either an ad network or a specialty platform called a supply-side platform (SSP). SSPs are kind of the inverse of a DSP and have specialized software for managing supply on the publisher’s behalf. Some exchanges are incorporating the functionality of SSPs directly such that publishers don’t need a separate vendor to support this need. And some SSPs are beginning to behave as exchanges on their own.

Can I buy directly from publishers programmatically?
Yes, many publishers make their inventory available over the exchange, and most DSPs can specify publishers they wish to include in a buy. Many publishers also have rolled out “private marketplaces” using either ad exchanges or supply-side platforms. These private marketplaces are kind of like private ad exchanges where the publisher makes its inventory available only to specific buyers. These have all the benefits of RTB to the buyer but give the publishers more control over floor prices they want to set — or even fixed rate deals they want to support with specific buyers or advertisers.

Can I execute direct buys, or guaranteed buys, programmatically?
Yes, there’s a whole subset or category of the programmatic ecosystem that is appropriately called programmatic direct. Solutions in this space are less well defined, as it is newer. But the general goal is to provide more automation to the buying and selling of media. These buys can happen over display, mobile, video, social, and even television, radio, and print. The ecosystem has vendors supporting the needs of buyers and sellers independently — and a few that are hybrid solutions. Companies in this space include Bionic Ads, Shiny Ads, Yieldex, iSocket, BuySellAds, and others. Many DSPs are now plugging into the programmatic direct inventory sources as well, allowing one-stop-shop buying of both RTB and direct inventory.

Is programmatic replacing more traditional ways of buying and selling media?
Yes. Interpublic Group, one of the biggest agency holding companies, has stated that it wants to move 50 percent of its media buying to programmatic methodologies by 2015, and ultimately do that across all media types. In public and private conversations across the industry with executives at both marketing and media agencies, the zeitgeist is definitely moving in this direction. Publishers were the holdup until the last few years, when they started to see the benefits of programmatic selling on their own. Many publishers are finding that programmatic selling provides higher yield, either because their cost of sales are lower or because the inventory is being used more efficiently.

Eric Picard is vice president of strategic partnerships at MediaMath.

 

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