What Is Programmatic Ad Buying and How Does It Work?

Key takeaways

Programmatic ad buying improves targeting, automates digital ad purchases, and uses real-time bidding to adjust prices for optimal campaign delivery. Here are some important things to know:

• Advertisers invested an estimated $595 billion in global programmatic ad spending in 2024 and remain on track to push that figure toward $800 billion by 2028 [1].

• When purchasing programmatic ads, advertisers can choose from several methods, including real-time bidding (RTB), programmatic guaranteed (PG), and private marketplaces (PMP).

• You can streamline ad buying by using programmatic platforms to automate placements, optimize your target market, and reduce manual work.

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What is programmatic ad buying?

Programmatic ad buying, also called media buying, enables advertisers to effectively reach specific audiences in real-time by automating the purchase of digital ad space. When you use software platforms in place of manual negotiations, it helps lessen ad fraud while increasing cost-effectiveness and wasting fewer impressions.

The 2024 forecast from eMarketer predicts that US retail sales will increase gradually through 2028, with e-commerce growing at a rate more than four times faster than in-store sales. Gen Z’s preferences and changing trends in product categories create new opportunities in digital commerce. This shift indicates a resurgence in online retail during a time of renewed growth and adaptation [2].

According to Statista, the US continues to lead the global market in this space, with advertisers driving global programmatic ad spending to an estimated $595 billion in 2024 and on track to push that figure toward $800 billion by 2028 [3, 1].

How does programmatic ad buying work?

Programmatic ad buying represents a strategic approach to purchasing digital advertisements. It utilizes data analytics and automated systems to increase campaign effectiveness and return on investment (ROI). Regardless of your company size, it is a valuable strategy that produces great results for both small and global brands, helping them to compete more effectively.

However, not every step of the ad-buying process is entirely automated. Manual input may still be necessary for traditional tasks, such as managing ad tags or creating insertion orders. The advantage is that automation gives marketers more time to focus on refining their creative assets, enhancing targeting, and improving the overall effectiveness of campaigns.

What is the difference between programmatic advertising and media buying?

Media buying is the process of acquiring ad space, either manually or through automated programmatic systems. Programmatic media buying is the automated purchase of digital ad space, streamlining transactions through the use of data and algorithms. Programmatic advertising, on the other hand, covers every step of the campaign, from audience targeting and strategic planning to performance analysis and creative optimization. In addition to purchasing inventory, it also uses automation to manage placements, allocate budgets, customize messaging, and track results across channels.

Although media buying is a component of media advertising, programmatic advertising offers a more thorough, insight-driven strategy meant to maximize campaign impact and improve efficiency. It leverages artificial intelligence (AI) and real-time bidding (RTB) to acquire ad impressions within milliseconds. 

Types of programmatic ad buying options

When purchasing programmatic ads, you can choose from a few different types of advertising options. Real-time bidding (RTB), programmatic guaranteed (PG), and private marketplaces (PMP) all have their own place in the process. Explore them in more detail to gain a better understanding of each:

• Real-time bidding: Also known as open auction or open exchange, RTB enables real-time bidding for ad space by advertisers utilizing demand-side platforms (DSPs). The process depends on a digital ecosystem that instantly links publishers and buyers using supply-side platforms (SSPs), ad exchanges, and DSPs.

• Programmatic guaranteed: PG is perfect for campaigns that need consistent delivery because it offers fixed inventory and guaranteed impressions, along with pre-negotiated terms between the buyer and seller. 

• Private marketplaces: PMPs are invitation-only auctions where publishers sell a limited amount of inventory, allowing advertisers more control and access to carefully chosen offers for premium placements.

Adding programmatic advertising to your media strategy can help improve audience targeting and efficiency. PMP provides premium placements through carefully chosen partnerships, PG helps ensure impressions, and RTB offers scalable reach.

Programmatic ad formats

Programmatic advertising encompasses a range of ad formats, each tailored to target specific audiences across various platforms, devices, and contexts. As such, you may use a combination of some or all of the below to drive the most engagement. Types of programmatic ads include:

• Display ads: Banner ads are a type of display advertising that appears on websites and helps you reach a large audience at a lower cost.

• Native ads: This is a subtle and platform-friendly form of advertising that seamlessly blends in with the surrounding content.

• Video ads: These ads utilize visual storytelling with a higher "cost per mile" (CPM, the agreed-upon price per 1,000 page impressions) and have a significant impact on viewers.

• Digital out-of-home (DOOH): DOOH is a dynamic advertising format that changes according to time and place on public screens, like at bus stops.

• Connected TV (CTV): Advertisements on smart TVs and streaming services are CTV advertising.

Pros and cons of programmatic ad buys

While programmatic ad buying provides automation, scale, and precision, it can also introduce complexity and risk. Explore some of the benefits and challenges automated ad buying can pose.

Pros of programmatic ad buys

By automating transactions, programmatic ad buys expedite campaign deployment and minimize manual negotiation. Advertisers can place ads quickly using RTB. Additionally, it offers heightened transparency and maximized reach, along with a few other notable advantages, including the following:

• Targeted reach: Using a variety of signals, including browsing, streaming, and shopping habits, advertisers can connect with consumers across platforms and devices.

• Measurement in real-time: Programmatic platforms give advertisers the ability to track campaign performance and make necessary adjustments while it's happening, which improves outcomes.

• Transparency: Programmatic ad buying gives advertisers more control over brand environments by providing visibility into where ads will appear, in contrast to traditional bulk media buys.

• Helps to mitigate fraud: Programmatic platforms verify ad delivery to actual users and identify invalid traffic using real-time analytics. This openness lowers the risk of fraud for advertisers and helps avoid budget waste.

Cons of programmatic ad buys

Advertisers may have concerns about viewability and brand safety despite advancements in programmatic ad buying, although third-party tools can help mitigate these risks. The potential challenges of using automated ad buying may be fewer in number than the benefits above, but are worth noting. They include:

• Commoditization: Competition for premium inventory intensifies as programmatic becomes more commonplace. As programmatic guaranteed gains traction, platforms increasingly offer premium, non-commoditized inventory directly to advertisers.

• Privacy issues: Programmatic ad buying uses extensive amounts of user data, and privacy and compliance issues can arise.

• Learning trajectory: Technical fluency is necessary for programmatic. To manage the complexity, advertisers might find it helpful to collaborate with agencies or platform partners.

Why is programmatic advertising important?

Programmatic advertising is important as it automates the purchasing process, which speeds up the creation and delivery of ads. It also frees up time for advertisers and marketers to concentrate on other crucial issues, such as understanding their target audience, crafting compelling ad copy, and planning their next campaign. Additionally, programmatic tools monitor performance in real time. This means it helps advertisers modify campaigns for improved outcomes.

Read more: Advertising Agency Services, Jobs, Training, and Salaries

Programmatic ad buying platforms

After deciding on your optimal combination of programmatic ads, your next step is selecting a platform that aligns with your overall goals. 

You can choose from several platforms, including DSPs, which enable advertisers to bid on inventory automatically, and SSPs, which assist publishers with revenue optimization and ad space sales. You might also explore ad exchanges, which bring publishers together with brands and agencies, and additional platforms such as:

• Data management platforms (DMPs): To enhance targeting, DMPs handle and examine audience data.

• Ad networks: Ad networks bundle publisher inventory and offer it to advertisers as packaged media buys.

• Customer data platforms (CDPs): Create comprehensive audience profiles by combining customer data from multiple sources.

How to buy programmatic ads

Buying programmatic advertisements involves establishing precise objectives and setting a budget before launching your campaign. Consider a few steps to help you begin running your programmatic ads:

1. Establish objectives: Determine whether you want to prioritize increasing visibility, which you can gauge by cost per thousand impressions, or boosting conversions, which are measured by cost per acquisition (CPA). You can then adapt your approach accordingly.

2. Decide who your target market is: After defining your preferred audience, you can target them precisely by using interest, demographic, and behavior filters.

3. Set a spending limit: It’s ideal to set a flexible budget. Real-time bidding drives programmatic pricing, so consider starting with a modest budget and scale based on results.

4. Design your assets: Design and devise your assets according to the format guidelines (e.g., a leaderboard or rectangle). Ensure your assets are engaging with a direct call to action.

5. Launch your campaign: Now that you have your goals, a budget, your target audience, and your assets, you’re ready to launch your programmatic ads. Each platform has its own setup, so follow instructions closely to ensure proper configuration.

6. Monitor the outcomes: You can gauge success and direct campaign modifications. Use KPIs such as clickthrough rates (CTR), conversion rates (CVR), cost per click (CPC), and cost per acquisition (CPA).

CPM often determines the price of programmatic ads, and typically varies according to the size of the audience, the level of targeting accuracy, the budget, and the campaign duration. It's usually less expensive per impression to reach large audiences than to target specific demographics. Pricing dynamically adjusts based on demand and targeting settings, as programmatic advertising uses RTB.

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