Programmatic Advertising: What It Is and Why It Matters

Digital ad spend is expected to reach $298.4 billion in the US alone this year. Yet much of that ad budget never translated into sales or signups. Why? Many advertisers don't use best practices that yield the highest return on ad spend (ROAS). Enter programmatic advertising. This behind-the-scenes ad-buying approach promises more bang for your buck. 

In this post, we'll break down exactly what it is, why it matters, and how you can use it to your advantage. Let's dive in!

What is Programmatic Advertising?

Programmatic advertising automates the process of purchasing digital ad space. Instead of manual media buying, specialized software makes these decisions for you. It uses automation and algorithms to deliver targeted ads to specific audiences across channels like search, social, display, video, and more.

With programmatic, advertisers can automatically target the right person with the right ad at the right time and place. To do so, it analyzes user data and serves impressions in real-time to reach consumers when they're most likely to take action. Shopping habits, location, websites visited - you name it, programmatic ads take it into account.

This level of precision eliminates waste and drives better campaign performance.

For example, programmatic campaigns can:

• Target people browsing products in your ecommerce store to serve ads across sites they visit, moving them further down the sales funnel.
• Show ads to previous customers when they're in the market to repurchase
• Adjust bids based on real-time performance data to optimize spend.

The platform handles the heavy lifting while you focus on strategy and creativity. It's a game changer for today's digital marketer.

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Let's look at an example to see how it compares to the old way of doing things:

Scenario 1 (Manual):

• ABC Company wants to place an ad on XYZ Website
• They call up that website's ad sales team
• Sales rep sends over pricing and targeting options
• ABC agrees, and the ad gets placed a few days later

Scenario 2 (Programmatic):

• ABC Company sets up its ad campaign in a programmatic platform
• They input their targeting parameters and budget
• An automated auction matches their ad with available slots on websites and apps that fit the bill
• Their ad shows up to relevant users within milliseconds

See the difference? Programmatic ads streamline the whole ad-buying process using fancy software. Now, let's look at how it has evolved over the years.

The Evolution of Programmatic Advertising 

In the mid-2000s, real-time bidding (RTB) technology enabled the programmatic landscape we know today. RTB allows advertisers to automatically bid on ad impressions as they become available across sites.

Early on, programmatic ads battled issues like ad fraud, brand safety, viewability, and transparency. Was that ad actually seen by a real person? Or was it a costly illusion? But over the last decade, advanced technologies have brought solutions. Today, artificial intelligence and machine learning power programmatic ads. Sophisticated algorithms crunch mind-boggling amounts of data to optimize decisions.

Instead of marketers piecing together insights, AI spots the patterns humans can't. It practically eliminates guesswork while still allowing you control over targeting and budgets.

How Does Programmatic Advertising Work?

While this type of advertising automates media buying, the process isn't entirely hands-off. Like any campaign, it starts with identifying goals, targeting ideal customers, and creating compelling ads. 

Then, the real magic begins. At the heart of programmatic is an automated auction system powered by real-time bidding. It's like a high-speed matchmaker for advertisers and publishers.

When an ad slot becomes available, the system looks at user data like:

• Browsing history
• Demographic info
• Location
• Shopping behavior

Using this data, it figures out which advertiser's ad to show. The one willing to pay the most for that particular user wins the automated auction. And this all goes down in the blink of an eye. As you can see, programmatic advertising relies heavily on automation, algorithms, and audience data. When done right, it dials your marketing to 11.

Why is Programmatic Advertising Important

As we move into a new era of social media and digital marketing, programmatic advertising is becoming increasingly important. Here are just a few reasons why:

1. Sheer Volume of Ad Inventory 

The digital world is a crowded and competitive place. Endless content, endless ads. To cut through the noise, advertisers need every edge they can get. That's where a programmatic campaign shines. With endless sites competing for attention, programmatic buying gives your ads the best shot at being seen.

2. Need for Increased Efficiency 

Coordinating a digital campaign across search, social, display, and more channels takes an army. Calling sales reps, negotiating prices, trafficking assets. It's a lot. Or you could let the software run the show. Doing so reduces grunt work so you can focus on strategy.

3. Data-Driven Decision Making  

Gut instincts don't cut it anymore. Today, most top marketers say data and analytics significantly influence their strategies. We call this shift data-driven decision-making for marketing.  Programmatic advertising makes campaign data readily available to inform your next move.

Benefits of Programmatic Advertising

Besides being good news for the industry as a whole, programmatic digital advertising has a number of benefits for individual advertisers like you. Take a look:

Enhanced Audience Targeting

Granular targeting options help you reach hyper-specific groups within your target demographic. Options include:

• Demographic targeting: Target by age, gender, income level, education level, marital status, and more
• Behavioral targeting: Target based on interests, purchase history, browsing behavior, and intent
• Contextual targeting: Target ads to relevant editorial content to align with user mindset

Programmatic also enables you to serve up different ad creatives and messaging to different audience segments. The customization possibilities are endless.

Increased Ad Relevance 

All that laser-focused targeting translates to ads that actually resonate with users. Instead of feeling spammy or interruptive, your programmatic ads will come across as helpful, timely suggestions. In other words, serving ads aligned to each user's preferences keeps engagement sky-high. 

Mind you, having a good relevance score can also lower your ad spend. Google Ads rewards ads that are highly relevant to users with a lower cost per click (CPC). 

Better ROI & Campaign Performance

At the end of the day, it's all about your bottom line. You need your ad campaigns to generate cold, hard cash. Programmatic delivers. These types of campaigns waste less budget on irrelevant placements and impressions. Because programmatic leverages data to optimize your ad spend in real time, you can be sure every dollar is stretched to the max.

Adjust bids to focus spend on high-performing placements and audiences. This overall effect drives down the cost per conversion and boosts ROI.

Automated Optimization

Optimization used to be a grueling, manual task. Programmatic eliminates the need for constantly monitoring and tweaking campaigns to see any improvement. The algorithms powering this technology make real-time optimizations based on data signals like time of day, device type, site placement, and more.

All you have to do is set key performance indicators (KPIs) like cost per click or conversion rate to guide optimization. Machine learning algorithms do the heavy lifting to hit your goals.

Scalability & Flexibility

Need to pump up volume or scale back spend? Programmatic platforms make it easy to adjust budgets, creatives, and more in an instant.

What's the Difference Between Programmatic & Display Ads?

Programmatic and display advertising refers to two sides of the same coin that work closely together, so this is a fairly common question. Especially with all the automated features and real-time bidding that Google offers these days. They make it seem like it's all one big thing. It's not.

• Display ads are any visual ad format (like banners, videos, native ads, etc.).
• Programmatic is the automated process used to serve display ads to specific audiences.

However, programmatic advertising platforms encompass more than just display ads. The same targeting and automation principles apply across other digital formats like search and social too.

Here are two core differences to remember:

Display ads are the eye-catching images and videos you see splashed across websites and apps. They're designed to grab your attention with bold colors and interactive elements.

Programmatic digital advertising is more like a behind-the-scenes mastermind. It's the high-tech process that decides which specific display ads appear to each user. It takes into account the medley of factors we talked about above. 

The other major differences to remember are:

• Automation: Programmatic relies on automation powered by algorithms. Instead of manual media buys, technology purchases impressions instantly based on budgets and goals. Display ads are usually created and uploaded manually.
• Data-Driven Approach: Programmatic advertising leans heavily on audience data to determine targeting and bids. Quantifiable insights like cost per click inform optimization instead of qualitative creative feedback.

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What Are Programmatic Advertising Platforms? 

Behind the scenes, various advertising platforms power programmatic buying and selling. Let's look at the main players:

Demand-Side Platforms (DSPs)

DSPs allow advertisers to set parameters and purchase digital ad inventory efficiently. Top options include Google Display & Video 360, The Trade Desk, Amazon Advertising, and more.

Supply-Side Platforms (SSPs) 

On the flip side, SSPs help publishers sell ad inventory across exchanges via real-time auctions. Google Ad Manager, Amazon Publisher Services, and OpenX offer scalable solutions.

Ad Exchanges 

Exchanges connect DSPs and SSPs for automated selling and buying. Top ad exchanges include Xandr (Microsoft), Yahoo, and Google Ad Exchange.

Data Management Platforms (DMPs)  

Finally, DMPs collect and segment first-party audience data. They enable advertisers to create targeted audience segments to deploy through DSPs. Options like Adobe Audience Manager and Oracle BlueKai help activate data.

How Varos Can Optimize Your Advertising

Even with all this automation, it still takes savvy strategy and testing to run top-notch campaigns. How do you know your programmatic approach stacks up? 

That's where Varos comes in. 

Our advertising benchmarking platform collects campaign data from 6000+ brands. See real examples of high-performing ads in your niche with proof of what's working. Connect Varos to tools like Facebook Ads and Google Ads, then gauge your metrics against competitors. Discover areas you're excelling in and spots that need work.

Make more informed decisions and get the inside scoop on the latest trends with Varos advertising benchmarks. Sign up free today to connect with the platforms you already use.

The Future of Advertising is Automated, Targeted, and Here to Stay

Programmatic is the present and future of digital marketing. It brings unparalleled efficiency, precision, and optimization potential to the table. As algorithms grow more advanced, they'll handle even more campaign responsibilities. Advertisers can focus less on analysis and more on strategy.

Addressing issues like ad fraud will remain critical. Advertisers will demand transparency into where ads run and how safe their brand is.  

Key Takeaways:

• Programmatic advertising relies on automation and algorithms to purchase ad inventory and deliver targeted campaigns.
• Benefits include enhanced audience targeting, increased relevancy, improved ROI, and more.  
• The future will focus on advanced AI, transparency in ad placements, and brand safety.
• Tools like Varos allow you to benchmark programmatic metrics against competitors so you can optimize efforts.

Ready to step up your advertising game? Get started for free to see how Varos can help.

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