What programmatic advertising is and how it can be dangerous

It’s 1994 and Hotwire launches the first banner ad. Its click-through rate achieves a stellar 44%.

That was a pretty exciting time for online marketing. But getting your advertisement on a website back then was a tedious, expensive and time-consuming job. Not only did you have to contact the website owner and negotiate terms like time, budget and placement. You had also to do it for every website you wanted to advertise on. (Not so) good old times for digital advertisement.

Besides this troublesome process, every website visitor saw the same ad. Targeting was basically only done by selecting websites in your niche. If you wanted car lovers to see your ad, you showed it on a car blog. If you wanted musicians to see your ad, you placed it on a music website. That allowed you to target a bit but there was no control over who actually visited the website. Just as a car lover visits music websites, a music lover can land on car websites.

Now imagine you could successfully negotiate time, budget and placement with thousands of website owners in less than a second. And then having your ad delivered only to people in your target audience, no matter what website they visit. No matter which website the car lover visits, he’ll always see ads about cars.

Today, programmatic advertising allows you to do just this.

In this article, we focus on real-time-bidding, as it makes up 90% of all programmatic buying.

Note: There will be a lot of marketing lingo. We curated all the words (and a couple more) into a dictionary. Download the dictionary here and keep it next to you while reading.

What is programmatic advertising?

Programmatic advertising is the automated buying of media space. This process is done through online auction and takes precisely 120ms.

Let’s say Tesla wants to advertise its new model on various websites. They create a banner ad for their ideal persona. They are ready to pay $ 18.- for every 1’000 impressions. The ad should be delivered to people matching their defined persona, no matter on what website. Tesla now uploads the ad to its Demand Side Platform (DSP), places its bid and specifies its target audience.

Meanwhile, Lou from Geneva likes to blog about cars. And many people read her blog. She is certain that she can make some money with it by selling media space. She goes to a Supply Side Platform (SSP), sells her media space and sets a minimum price to buy it. In our example, Lou’s floor price is $ 10.-.

The SSP of Lou and the DSP of Tesla connect virtually when exchange takes place. But they are not alone. There are countless DSPs bidding on Lou’s ad space, hence the necessary auction. The clients Tesla focuses on are also interesting for Audi, Aston Martin, and Jaguar. Every bid that is above Lou’s floor price is recorded and the highest bidder wins.

The highest bidder doesn’t have to pay his bid price though, but the second-highest bid price +1 cent. If Tesla wins with $ 18.- and Jaguar is the second-highest bidder with $ 14.-, Tesla wins the auction paying $ 14.01. Their ad will now display on Lou’s blog.

This whole process happens in the background within split seconds while the page loads in the background. When a user visits Lou’s blog, he just sees the ad as if it had always been there.

Targeting

It’s not only super-efficient, but it also allows hyper-accurate targeting.

To sell the media space on her website, Lou has to integrate a code snippet provided by the SSP. The SSPs uses that code snippet to collect data on the users visiting the website, similar to Facebook’s pixel. And Lou is not alone. Everybody who uses the SSP that Lou uses contributes to the huge collection of user data.

In the old days, the advertiser would simply go to a website in his niche. With the knowledge of the SSPs, this limit doesn’t exist anymore. It is now possible to target users directly instead of segmenting websites.

For example: Dave likes electric cars and thinks about buying one. He visits Lou’s blog a lot, but today he wants to bake cupcakes. The website he visits for the recipe has obviously nothing to do with cars. But because the SSP knows Dave likes electric cars, he still sees the Tesla ad.

To conclude, using programmatic advertising allows you to target unlimited amounts of people corresponding to your persona across different niche websites in less than a second.

The dangers of programmatic advertising

Programmatic advertising is extremely powerful. And as we all know from Uncle Ben: With great power comes great responsibility. Here are the dangers of programmatic advertising.

It’s difficult. Setting up a Facebook or Google Adwords campaign is not nearly as complicated. To reach the level of technical knowledge required to set up a programmatic campaign you need months of training. And to set up good campaigns, years of experience.

If you do not have any prior experience, you’ll be very ineffective at best. You need to have a very clear strategy in place before you even log in to your platform. You need to know what persona to target, how much a click is worth to you and what happens when a user clicks to get to your website. Programmatic advertising is conceived as one tool in a larger strategy, not as a standalone solution.

And at worst, you’ll send out your ad to every webpage on the internet and get bankrupt in a split second. Okay, I’m exaggerating… but if you don’t know how to budget and bid, you’re going to waste a considerable amount of money.

Should you start with programmatic advertising?

Programmatic advertising can certainly take your business to the next level. However, with the dangers in mind, I wouldn’t recommend doing it yourself.

If you are not ready to hire someone to do it for you, put a pin and save it for the future. Start somewhere else, for example with social media marketing. It’s a great place to start your online marketing journey.

Check out our guide on building social media marketing strategies in just 5 steps (and if you are already experienced in social media marketing, you should still take a look).