Explainer Videos

How does programmatic advertising actually work? Many terms are sometimes used synonymously, making the topic seem quite complicated. Programmatic Advertising, the automated trading of online advertising, still sounds confusing to many, but it has the potential to simplify the booking process, to free up your mind for more creative tasks.

So how does programmatic advertising differ from the traditional way of buying online advertising? This is how we buy so far: Contact and negotiate an offer. Produce and send advertising materials. The advertising material is booked into the ad server by the medium. The ad server is the system that displays the advertising on the website. Then the campaign runs. And finally, a report is sent. Because a campaign works better and reaches more different people, if you book several media and platforms, this process must be repeated with many partners. The coordination, production plans per medium, and the consolidation of reporting figures take time. There are many advantages to programmatic advertising, but let's start with the simplest: The most obvious simplification is that you no longer have to send emails for delivery and booking, but that there is a system that takes over this work for you. In the programmatic world, there is a buying platform and a selling platform. If quantity, price, and term are fixed between the buying and selling side, we speak of Programmatic Guaranteed, Automated Guaranteed, or also Programmatic Direct. The system handles the booking. The advantage for the client: All figures flow into a single report. The advantage for the medium: Orders do not have to be booked individually, because they come directly through the programmatic system. However, costs are incurred on the exchange platforms. These are mostly revenue or spend-share models.

So far, we have assumed a fixed price for a total booking package. However, there is also the possibility that the actual price for each ad impression is only fixed upon delivery. This is implemented according to the auction principle and is called Real Time Bidding. And this is how it works: Every time there is a space for an advertisement on the publisher's website, customers are invited to buy. Everyone can decide how much they want to pay, so that the prices for the medium do not fall below a certain minimum, a minimum price or floor price is defined. Whoever bids the most gets the ad displayed. This all happens in fractions of a second. The highest bidder, however, does not pay their maximum bid, but one cent more than the second highest price.

But why do customers bid different amounts for the same ad space? For customer A, it's simple. They just don't have more budget. Customer B bid €20 CPM because they've found through experience that they can acquire customers through this offered advertising space, whose shopping cart is so large that the price pays off. Customer C, however, has realized that this very unique client they're currently bidding on was already in their shop once and put a product in the shopping cart, but hasn't completed the order yet. They should be reminded of this with this contact. So customer C uses their previously collected data for retargeting.

How do customers B and C even know what the users have done before? This is usually solved with so-called cookies. Cookies are small text files that store arbitrary information in the users' browser, for example, to retrieve what product is in the shopping cart or how often a certain topic page has been visited. Or simply to know how often the banner has already been shown on this browser. There are also providers who sell anonymized customer data using cookies, such as the interests of the users. This way, you can avoid wastage in your campaigns. Technically, this is usually organized with a so-called Data Management Platform, DMP.

To avoid surprises in supply and demand, both buyers and sellers can precisely determine who they want to accept as a business partner and who not. For example, it makes a difference whether you offer your inventory to everyone: Then we call that Open Auction. If only very specific partners are allowed to bid, then we talk about Private Auction or Invitation Only Auction.

All in all, supply and demand are moving a little closer together. But beware! Beware of black sheep and, if in doubt, rather approach reputable providers in the areas of media, agencies, and technology. Even if the processes in programmatic advertising are largely automated: We need experts who are specialized in operating the systems.