Welcome to the Future

A Guide to Programmatic Advertising

Programmatic advertising’s ability to quickly, accurately and cost-effectively target a huge audience is rapidly reshaping the media business. Brands from Amex to Ford to Kellogg’s are openly shifting their ad budgets to programmatic, while premium publishers are making ever more high quality inventory available. 

Already making up over half of US digital advertising, IAB research shows that UK programmatic is forecast to grow from 28% in 2013 to almost half (47%) of digital display ads in 2014. By 2017, it could reach 75%. 

Well established in Canada, Australia and France, programmatic is spreading rapidly across the rest of Europe and into new markets like China and Brazil. Interpublic’s Magna Global predicts global ad spend will expand by 27% annually to a total of $53 billion by 2018.

Despite all this, there is still a serious lack of knowledge about how programmatic works. Every guide seems to tell a different story. This paper looks deeper into the intricate building blocks of programmatic and seeks to explain how its unique attributes differentiate it from any other type of advertising that has gone before, digital or otherwise.

Why is everyone so excited about Programmatic?

Marketers want to reach their desired audience across all channels and devices from a single platform. Publishers want to present audiences for their properties defined by specific interests and behaviours. Programmatic ad buying brings the two together across web, mobile, video, social and beyond.

Conventionally, advertisers have booked digital media from a single source, in advance. Ad serving networks bring scale to that process, letting advertisers buy impressions across multiple sites based on a single customer profile. More recently, ad exchanges have directly connected ad buyers (advertisers or agencies) with sellers.

However, there’s usually still a lot of labour involved. You have to pick up the phone and call people, swap spreadsheets and emails and sign booking forms. As well as limiting response tracking, targeting or optimised ad buying across multiple networks, manual processes are just too slow to manage today’s vast digital ad marketplace.

Programmatic changes all that. Its sophisticated data and technology-driven infrastructure lets buyers bid for impressions on demand in a real-time marketplace – otherwise known as Real-Time Bidding (RTB). With huge amounts of inventory to choose from, buyers can carve out precise selections from millions of options.

This way, advertisers can deliver precisely the right message to those consumers most likely to buy their products and services – at the optimum time and in the correct context. They can buy space when exactly the right user is browsing a page or serve ads based on the weather conditions at a consumer’s location. 

The results? Lower cost per acquisition (CPA), increased engagement and better overall ROI, along with far lower overheads for ad purchase and fulfilment. This high performance also translates to increased ad relevance for the consumer and greater revenue for publishers. Let’s look a little more closely at what happens under the bonnet.

Interpublic Group has stated that it wants to move 50% of its media buying to programmatic by 2015.

So how does Programmatic ad buying work anyway?

Demand-Side Platforms (DSPs) lie at the heart of programmatic buying. Just as today’s stock traders bid across many virtual stock markets rather than real trading floors, programmatic buying via DSPs can access digital advertising inventory across multiple ad exchanges, ad networks and data exchange accounts, all through a single intelligent interface.

DSPs give both agency trading desks and end-user client buyers’ sophisticated tools with which to define budget, reach, audience and content for their campaigns. Based on those parameters, a DSP uses bidding algorithms to bid on a client’s behalf in many different real-time auctions simultaneously, automatically adjusting the bid price and impression selection to achieve the campaign goals.

Run as the ad impression becomes available and the web pages loads, these auctions really do happen in real time. Bidders have a very short time to respond, usually less than 100 milliseconds. Once the bids are in, the winning ad is served instantly. As campaigns execute and consumers respond, programmatic platforms use the incoming response data in real time to re-select and optimise ad audiences, pricing, content and context, shifting spend from the lowest to the highest performing spots.

On the other side of the fence lie Supply Side Platforms (SSPs). These are where publishers manage their impression inventories and make them available for purchase in ad exchanges and other locations. Publishers can also use ad networks to present their inventories, while some ad exchanges build in SSP functionality that let publishers deal with them directly.

Other applications within the programmatic infrastructure include Ad Verification and Brand Protection, Data Management Platforms (DMPs) and Creative Platforms. Working together with these, the DSP is better able to target each consumer segment with the right messaging, then track consumer response and use that information to optimise ad targeting and creative during campaign execution. We’ll come on to these shortly.

Precision meets scale - programmatic audience targeting and tracking

Unlike many pretenders to the title, programmatic targeting really is Big Data Analytics in action. It has similarities to the targeted advertising employed in familiar channels like direct mail or email, but combines precision with instant execution while operating at truly enormous scale.

Where traditional segment-based targeting might use a handful of attributes like age, gender, income or past purchase, the best DSPs can employ thousands of different variables and access petabytes of historical data to target the right consumer segments in the correct context at the right time. DSPs also make impressions from many different advertisers and channels available for selection by buyers using the same audience definitions.

Programmatic’s ability to track and (anonymously) identify individuals and their actions generates endless insights. Which inventory delivers the best combination of response and cost per click or per acquisition for a given audience? Advertisers can learn which buying strategies work best and DSPs can incorporate both historical and real-time learning when bidding for impressions. 

This information also contributes to more accurate attribution modelling: which marketing actions in what proportion or sequence have influenced a consumer to act in a certain way? Buyers can compare performance between channels and use the results to decide where budget should be allocated.

“Precision programmatic marketing uses unstructured data to build custom audiences and optimise them on the fly.”
Amber Benson VP, Marketing, Simpli.fi.

Targeting and re-targeting

As well as engaging completely new prospects, programmatic's tracking abilities means it can retarget known consumers that have previously engaged with a brand. Site-based retargeting is the best-known example. If a consumer abandons a shopping basket, the advertiser’s website places a cookie on their computer. 

As that consumer moves onto other sites, a retargeting campaign uses the cookie as a trigger and, if ad space is free on the site, bids for it. If that bid is successful, the consumer sees a free shipping ad (for example).  Using the power of programmatic to track, marketers can start with brand advertising, then follow up with relevant messaging throughout that same individual’s lifecycle as they move from site visitor, to customer, to repeat customer. 

"Putting data at the heart of your strategy, and having the power to deploy highly targeted campaigns to your consumer base (both new and existing) means that marketers are seeing huge efficiencies from what was previously a "spray and prey approach".

Programmatic marketing means you can up sell, cross sell, and retain customers through tailored messaging - without having to guess which group they may belong to.

We have seen clients increase their ROI through selling in products and services above and beyond the product that has been purchased, meaning gone are the days of being re-targeted with something you have already purchased."

Joel Christie, UK Client Strategy Director, Rocket Fuel

How do you track?

Digital marketers employ many different techniques to track users online, from traditional cookies and IP address to methods like HTTP authentication, pixel tracking, query strings and hidden form fields. Cookie and pixel-based tracking are the most common methods used in programmatic buying.

In simple terms, whether using pixels, cookies or anything else, the aim is simple: Identify the user in question (even if they are anonymous). When you've done that, you can begin to understand patterns of behaviour and build a picture of your conversion rate. When you can do that, you can place a value on an ad impression. In years gone by, these processes would have taken massive time and resources. Programmatic manages all this and more on the fly.

Programmatic infrastructure in more detail

The tools available for ad buying, targeting and tracking don’t end with the DSP. Other applications add extra functionality to help improve ad placement and performance. It’s vital to remember that vendor specifications vary enormously and that many – or even all – of the features described below will also be offered within many programmatic platforms.

The Data Management Platform (DMP)

DMPs let advertisers, buyers and anyone else involved in programmatic better manage the many different sources and types of audience data and analytics involved in programmatic.  Working hand-in-glove with DSPs, DMPs help produce a single, coherent set of metrics that can be used to intelligently describe, target and track a consumer audience across all channels and devices. 

Notably, DMPs aid in importing disparate user profiles and segment data from sources such as CRM systems, converting it and matching at individual customer level. For example, that might mean extending long-established demographic and behavioural segmentations used in offline channels to cover ads bought programmatically. 

DMPs have so far only been for the most sophisticated multichannel marketing outfits. One recent (CMO Club) survey found that fewer than half of US marketers (44%) using programmatic are incorporating their own CRM or even their first party web data into their ad buying strategy. However, their relevance will increase as programmatic continues to grow.

“A data management platform just for display is not worth it. Only [use one] if you're pulling a lot of different things together from search to email.”
Megan Pagliuca, VP and GM of Digital Media, Merkle.

Creative optimisation platforms

The right creative content and optimal placement translate into better consumer engagement and higher conversion. So, for maximum ROI, advertisers must choose the best performing content for a particular audience from a seemingly infinite number of variations in headlines, body copy, video or images. 

Integrated with DSPs, creative optimisation platforms dynamically serve different ad creative to engage various groups and sub-groups within an audience. To make the initial creative selection, these platforms use client-entered parameters along with data on historical ad performance, such as which message works best with a certain segment, the right ad format for a message type or where the optimum spot lies on a webpage.

The creative platform then revisits and optimises those choices as data arrives on consumer response to placements. Able to analyse and apply big data analytics in real time, these platforms offer far more rapid and accurate ways of testing both ad designs and audiences over traditional cyclical test and learn approaches.

Ad campaign verification and brand protection platforms

Just as auditors verify print magazines’ claimed circulations, ad verification platforms use independent tracking to prove that a digital campaign’s impressions reach their intended audience in the right format and position. That might mean checking that premium impressions are delivered on a publisher’s core properties rather than those of an affiliate, or spotting where ads are invisible or adjacent to a competitor. For example, a video ad intended for a pre-roll impression is served as a banner video ad instead – a spot which is far less attractive to consumers.

Brand protection or brand safety tools take preventative measures to make sure ads are always served in suitable locations. They score domains based on keywords, images and other many criteria, working with industry and campaign-specific blacklists and whitelists to identify suspicious sites and destinations. They then block those impressions deemed to be low quality, fraudulent or otherwise suspicious. 

Programmatic buying platforms do more than just auctions

Real Time Bidding is synonymous with programmatic buying and remains the chief method used by DSPs to purchase ad impressions. However, as the ad industry has realised the performance and cost benefits of RTB, so programmatic platforms are adding other ways to buy and manage campaigns that aren’t necessarily auctions. Here’s a few of them.

Private Marketplaces (PMP)

Publishers use private marketplaces or ad exchanges to control exactly who can buy their inventory, and at what price. They are often used to sell the most prized impressions or the ability to target a specific audience. 

Rather than selling through an auction on an open ad exchange, the publisher can offer impressions in a private auction to a restricted set of clients or agencies, often with a strict lower price (floor) limit. Private marketplaces can also feature fixed-rate sales (non-auction) for various types of ad placement.

Though closer to the old model of ad buying, PMPs are now part of the programmatic infrastructure with all the efficiency and intelligence benefits that entails. Good DSPs and creative platforms offer tools that let advertisers buy in private markets, then track and measure those ads’ performance alongside all their other impressions bought via RTB or elsewhere.

What is Programmatic Direct? 

Programmatic Direct takes the automation mechanisms used in RTB and applies them to the traditional ad buying process. Also known as Programmatic Premium, Reserved or Guaranteed, it simply means that ads are bought directly from publishers or SSPs without going through an auction, for either reserved or unreserved inventory. 

In return for paying more, impressions are typically premium inventory shown to many high-quality visitors at optimal peak traffic periods. Buying direct through programmatic platforms lets advertisers benefit from much lower operational and sales overheads, plus they can track and evaluate their direct ad performance alongside all their other ad buys.  

How do you find out the type of content your ad will be displayed against?

In traditional digital campaigns, brands know exactly each and every placement and website where their ads will feature. In contrast, programmatic transactions offer varying levels of detail on different ad impressions ranging from a full URL to a completely blind sale with no information at all. 

That’s why buyers should make sure their suppliers employ protection platforms and processes to screen out poor quality inventory (see above) in real time. Using web crawlers, human panels and other screening technologies, it’s possible to pre-classify and evaluate the content on millions of properties. 

Programmatic-buying providers also often maintain white lists of approved content. Clients can choose to bid only for these and to exclude all other properties by default.

Can you handle programmatic buying yourself or should you still use an agency?

The trend is definitely towards independent buyers and in-house teams, and away from agencies. A late 2014 World Federation of Advertisers (WFA) survey found that American use of agency trading desks had declined by 15% over the last year. Meanwhile, client adoption of independent trading desks (not owned by media agencies) had more than tripled to 30%.

One driver for this is that companies see the intelligence conferred by the analysis of programmatic data as providing a competitive edge. Handing your ad budget to an agency means other clients on their roster may benefit from your campaign learnings. However, agencies still fulfil their traditional function: providing expert advice while delivering performance benefits and cost savings that substantially exceed their own fee.

“It used to be clout that won in media, but that’s not necessarily true anymore. The new clout is the strength of your algorithms and your capacity to exploit data.”
Matt Green, senior marketing manager, World Federation of Advertisers.

Is Programmatic just for response-driven advertising?

Direct response campaigns solicit an immediate and measurable response, typically with the purpose of driving website traffic and sales, while brand advertising is more focused on awareness and brand recall. Branding campaigns have traditionally focused on broad demographics and fixed audiences, with advertisers’ hand-selecting impressions that help convey their desired brand image. 

Though the optimisation features that DSPs use to control RTB are certainly well suited to helping direct response campaigns reach their conversion and other targets, they are just as effective in driving ROI for branding campaigns. 

By targeting an optimised audience at an influential stage in their path to purchase, programmatic can use its dynamic geographic, demographic and behavioural targeting capabilities to maximise engagement and contextual relevancy – ensuring brand ads are reaching precisely the right audience at the right time. 

Most premium and standard sized inventory can now be bought via programmatic, including video, expandables and large brand formats. Brand-centric advertisers such as Ford, Kellogg’s and Heineken are spending more of their budget than ever this way, with P&G recently stating it aims to buy 70% of digital ads programmatically.

“Marketers are beginning to realise that the ability to optimise in real time will help them to drive improved ROI for their branding campaigns.”
Dominic Trigg, SVP, MD Europe, Rocket Fuel.

Online ads influence offline action. 

A 2012 study by RapidBlue found double-digit increases in both the number of shoppers and the amount of time they spent in store when stores ran Google AdWords campaigns. 

Rise of Brand 

Over the past 18 months there has been a dramatic shift in the amount of brand pounds being spent in digital. According to the IAB/ PwC UK Digital Adspend Study 2013, brand budgets online have almost doubled over the past 5 years. In 2009, 10% of total online spend was attributed to brand advertising rising to 17% in 2013. Budgets are not being transferred from TV to digital, in fact TV budgets continue to increase. The shift is coming from within the digital channel itself. 
By Andy McNab UK Managing Director, Rocket Fuel 

Why is this? 

Ultimately a shift has taken place in the mind-set of brand marketers. The focus has shifted from buying publisher placements in the hope of reaching your audience, to audience guarantee buys. This is not only a first in digital, but in advertising. Marketers realise that the importance of digital buys does not rest on content alone but with the consumer. It’s the who, not the where. 

Even with advanced data segments and targeting, marketers today are only reaching about half of their target audiences, not because they are not available, but because when accuracy of this audience targeting is measured it is proving to not be as accurate as one might hope. According to a study by Nielsen (OCR Norms (zone 4), over 60% of online ads are delivered outside the brand advertiser’s target audience. 
Finding the best placement is more difficult given the growing complexity of devices, formats and content modules. 

As investment in digital brand grows, brands must evolve their understanding of the digital KPI, especially in relation to offline media channels where the majority of branding budgets are spent. 

Therefore brand campaign success in the RTA space must consider these challenges by incorporating 4 key elements of success:

1. Reaching your true target audience. 
2. Discovering the right opportunity to generate that moment of influence. 
3. Creating that moment of impact in a brand safe environment. 
4. Driving real results that echo client-led ROI principles.

Another key reason for the rise in brand spend is simplicity and insight. No longer do brand marketers have to wait until the end of a brand campaign to analyse its effectiveness. This insight is given in real-time, and more importantly optimised in realtimereal time. Through programmatic advertising it is possible to see the impact of a brand campaign on brand consideration. This insight is acted upon in real-time.

Measuring Effectiveness 

In order to measure effectiveness of programmatic brand activity, another shift in mindset also needs to take place; that of measurement. Marketers need to focus on brand KPIs and look at the uplift in brand consideration, not clicks. As far back as
2011, Nielsen’s Beyond Clicks and Impressions Study demonstrated that there is no correlation between clicks and brand metrics or offline sales. And yet still brand marketers are clinging to the click-through-rate as a measurement of success.

When it comes to targeting, brand marketers will continue to focus on specific audience groups. Historically the ability to deliver to these groups has
relied on the audience analysis of individual publishers and/or the quality of third party data segmentation. Nielsen Online Campaign Ratings and cComSscore
Validated Campaign Essentials individual analysis has shown the relative inaccuracy of these approaches. The programmatic space has enabled those with the ability to ingest and utilise big data to improve upon this situation using advanced algorithmic approaches to building audiences that match with measurement by these 3rd parties.

Conclusion

The creative brain will continue to be a key KPI in programmatic branding activity. It is most critical here that we ensure that we do not lose the human touch. The evolution that we are witnessing in digital advertising will create an expectation in the
future for other brand channels. Measurement and accuracy will be needed in TV, radio and other brand engaging media. Ultimately, the digital evolution will be transferred to traditional channels, resulting in the expansion of the digital footprint.

Programmatic challenges

Even as its rapid rise continues, programmatic still has obstacles to overcome. 

Enhanced tracking across devices

Though tracking and targeting individuals is one of programmatic’s great advantages, the same workflow can be hard to achieve when consumers use multiple devices for browsing. The removal of cookies – an increasingly endangered species, particularly in Europe – could make the situation even more challenging. “Fingerprinting” technology designed to recognise and unify a collection of user devices is still in its infancy.

Looking for consistent targeting

The metrics used to define publisher audiences are often incompatible; consistent targeting is one of the main reasons for adopting DMPs. Companies like Nielsen, Experian and comScore, amongst others, are still fighting it out for supremacy in the marketplace, but no measurement or technology is anywhere near achieving market dominance.

More positively, the metrics used to target and evaluate programmatic video campaigns are moving closer to those used for TV. This means marketers can directly compare the reach of digital and offline brand campaigns.

Is programmatic ad fraud a real problem?

With billions of ad impressions flowing through ad exchanges every day from millions of publishers, fraudsters try their best to take advantage of the open marketplace within programmatic buying. The fake websites and bot fraud (ads delivered to hijacked computers) that they use are definitely challenges that programmatic has to face, but their effect on well-managed campaigns is almost always greatly exaggerated. Adopting rigorous brand safety procedures and using the latest screening tools lets advertisers and their partners quickly detect and block suspicious or fraudulent sites. 

The situation is analogous to the early days of email marketing, when spam and click fraud presented real problems before responsible industry leaders and government regulators rooted them out. Wider adoption of brand protection and anti-bot tools along with metrics like traffic quality score will help the industry win the war against the fraudsters and make it uneconomic or too risky for them to operate. 

In the meantime, advertisers must always demand details on placement quality to ensure their ads are running when and where they’re supposed to. Like any ad channel, strict A/B testing is the best way to measure the real incremental value programmatic adds to their advertising. 

“Fraud reduction is a work in progress. The industry won't solve this in just a week or two.”
Henry Blaufox, DragonSearch.

Programmatic coverage in the ad market?

Premium inventory is widely available on programmatic, in fact that’s one of the reasons behind its success. Double-digit annual growth means that programmatic is rapidly overtaking conventional direct ad sales in the US and the UK will shortly follow. 

However, it’s true that some publishers still sell all or part of their inventory directly through their own sales force. So it’s not yet possible to cover the entire online ad universe, buying only through programmatic.

Innovations like private marketplaces and programmatic direct however are rapidly attracting publishers into the fold who don’t necessarily want to sell by auction. Whether or not all ads are eventually bought this way, ignoring the performance and price benefits of programmatic would be a costly error.

Programmatic direct will make up 42% of all US programmatic buys by 2015.

Conclusion

Programmatic is here to stay, and hopefully this white paper has shed a little more light on how this vital new sphere of the marketing industry functions. Though its internal workings are certainly complex, programmatic’s automation and targeting capabilities actually make ad buying far simpler and more productive compared with traditional methods. It just makes advertising work better.

Now starting to encompass offline ad media like TV, radio and print, the shape of the future can be seen in programmatic’s firm grip of video ad impressions. With more and more publishers making their inventories available, programmatic’s sheer efficiency, effectiveness and convenience makes its eventual dominance seem both desirable and inevitable.