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Programmatic advertising, or simply programmatic, is a type of digital advertising that is notable for its great targeting capabilities. It can take different forms, which affect the ways profit is generated, deals are negotiated, and ads are served. It is important to understand clearly its subtypes, so you are well aware of what you are getting into whenever you strike a deal, whether you are a publisher or advertiser.
This is exactly what we are about to do in this article. We are going to learn about guaranteed and preferred deals, private and public RTB, and explain briefly why programmatic, RTB, and header bidding are not interchangeable terms — contrary to the most persisting beliefs out there. But before that, let’s figure out the essence of advertising, as well as its origins.
A quick history lesson
When it comes to an advertising chain, there are 3 key links to it: the advertiser, publisher, and recipient. Modern advertising can take many forms, and that does not concern ad formats only. The ways in which advertisers interact with publishers can be different, implying different opportunities, privileges, and revenues.
Historically, advertising was about establishing a tête-à-tête meeting to negotiate a suitable price. The advent of the telephone simplified the matter, but not to the degree of full automation. It did allow squeezing in more meetings per day, yet it was not enough for an efficient business communication.
The computers were next in line to arrive. On their own, they have almost non-existent communication value. However, computers gave way to another invention that has revolutionized the way we see communication today — the internet.
Computers enable programming, and when the latter enters the world of internet — the magic happens. With the right set of software, online deals can be facilitated, simplified, and sped up — digitalized. Initially, ad purchasing online worked akin to real life ads: every website visitor saw a bunch of ads, despite their personal preferences.
No doubt people were irritated. Consequently, the next step was to tailor the ad impressions to target the exact audience. While it is difficult to imagine a tangible billboard to appear and disappear, depending on who looks at it; online ads can be programmed to be shown to an exact user. And this is where programmatic advertising comes into play.
Programmatic ad deal is a highly automated process, where a publisher sells its inventory (spots) to an advertiser, which can be done in a matter of seconds and without human interference. Unlike simple digital tools, programmatic ad purchasing allows paying for target impressions only. In a blink of an eye, the technology determines if the ad is to be shown to the user, depending on the campaign setup, which is handy, since the users are no longer raked up. Basically, programmatic ads include 3 parts:
- Sale automation — all negotiations are made with the help of AI, so no mails, spreadsheets, or phone calls; programmatic ads must be automated, or else they are not programmatic
- Direct sale (yes/ no) — either a publisher and advertiser negotiate the price directly or enter an auction, where the bidding takes place
- Guaranteed impression (yes/ no) — a fixed volume of inventory to be given is a generous gift, which is not the case in most of the time
Programmatic advertising can take different forms, depending on the sum of its components. Time to explore some of its subsets, as well as to address some common misconceptions.
Programmatic deals can be ranked from the most to the least premium ones. This is exactly how we are going to approach them this time:
Guaranteed deal — is the first subtype, marked by its stability: fixed inventory, fixed price, one-to-one deals. Plain and simple, an automated direct deal in a nutshell, with a reserved impression. It has the highest server priority and boasts the greatest transparency, control over the creatives used, and facilitation of long-term relationships.
Preferred deal — the second subtype, where the impression is not reserved. It is still an automated direct deal, but the amount of inventory is not guaranteed. This configuration is very similar to how private market works, which will be explained next. One more thing to note about this subtype is that while the amount of inventory is not guaranteed, the privilege to see the inventory first is secured. This, in turn, helps to establish better relationships with buyers. Moreover, this format has very precise targeting and decent level of control over the creatives involved.
Private auction — no reserved inventory, the price is dynamic but has a minimum threshold, and it is open only for specially invited advertisers. Most of the auctions are grounded on Real-Time Bidding basis. We will elaborate on RTB just a bit later, for the time being all you need to know that RTB is made of 3 key components: advertisers, publishers, and an ad exchange to connect both parties seamlessly and in milliseconds. Closed auction is a well-rounder with good transparency, robust fraud prevention, and very high Cost-per-Mille (CPM), thanks to the combination of premium inventory and selected advertisers.
Open auction — as the name suggests, it is an invitation-only auction but made public. While open exchange is the least premium one, it is open for everyone, making it an excellent starting point for inexperienced publishers. The advantages of open auction are quick setup, simple optimization, and the possibility of selling inventory remnants.
Auctions are different
Auctions differ not only in terms of their exclusivity but functioning too. Originally, RTB was limited to the so-called waterfall configuration. Instead of aggregating all the platforms in one place like modern header-bidding does, waterfall addressed each platform sequentially, or in a daisy-chain fashion.
Imagine an auction where the bidders are invited one by one into the hall room, and each subsequent participant has a chance to see the inventory only after the first in line refrains from making a purchase. This is approximately how waterfall functions. Obviously, this is not fair, ineffective, and counter-intuitive, yet this was the best solution at the time.
Strictly put, waterfall is not an RTB in its full sense, because bidding is made in turns. To some degree, preferred deal resembles the falling into oblivion waterfall, but with one important difference — the preference is given voluntarily and deliberately.
In contrary, header bidding is a veritable RTB and the closest digital resemblance to real-life auctions. It is free from double commission, as all the interactions with publishers can be made directly with no mediation from an ad network. It maximizes the publisher’s revenue and gives a chance to new advertisers — something waterfall was not capable of. Finally, it lowers the latency, thanks to lower number of intermediaries.
The foundation of RTB, though, is set in stone: publishers use supply side platforms (SSP) to manage and sell the inventory to advertisers. The latter rely on demand side platforms (DSP) to automate ad placement and purchasing. These platforms function within an ad exchange ecosystem, responsible for establishing and maintaining the business communication at a lightning speed. These core components of RTB are complemented with minor elements like ad networks, data management platforms, trading desks, and ad verification & brand protection.
Let’s recap everything we have learned. Programmatic advertising is a type of digital advertising, marked by its relatively high targeting precision. Programmatic ads can be direct and auction-based. The former can be divided further into guaranteed and preferred deals. Guaranteed deals are pre-negotiated in full, while preferred ones does not guarantee the ad inventory to remain. As for the auction, it is split into private and open RTB, with limited or unlimited access respectively.
Real-time bidding is not the same as header bidding, because waterfall used to be another popular alternative. However, header bidding tends to replace waterfall as the main way of conducting RTB for its fairness and representativity. That is why these terms are used interchangeably more often than not. Waterfall suffers from turn-based nature, while header bidding provides equal opportunities to every party involved.
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