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How does programmatic advertising work - The Details

The Detailed Mechanics of Programmatic Advertising

Programmatic advertising has emerged as a game-changer, reshaping how brands connect with audiences. But what exactly is it, and how does it function? For the curious reader, this article delves deep into the mechanics of programmatic advertising.

How does programmatic advertising work

Definition of Programmatic Advertising

Programmatic advertising automates the decision-making process of buying and placing ads by targeting specific audiences and demographics. In essence, it's the algorithm-driven purchase and sale of advertising space in real-time. It eliminates the traditional manual methods, introducing precision, efficiency, and scale to the advertising process.

The Intricate Process of Programmatic Advertising

Programmatic advertising is propelled by technology platforms, the most integral being the Demand Side Platform (DSP) and the Supply Side Platform (SSP). Here's a breakdown of these platforms and their roles:

Demand Side Platform (DSP): A system that advertisers use to automate the purchasing of digital media across various inventories. Through the DSP, advertisers can set their targeting preferences, budget, bid for ad impressions, and monitor campaign performance.

Supply Side Platform (SSP): This platform allows digital media owners (publishers) to manage, price, and sell their ad space. An SSP assesses the value of incoming impressions, invites bids from potential buyers (via DSPs), and chooses the highest bid.

The real magic unfolds when a user visits a web page. Here's a step-by-step process of what happens:

User Visits a Website: The moment a user accesses a webpage with an ad space, the publisher sends a "bid request" to the SSP. This request contains information about the user, including their browsing history, location, and more.

Auction Process: The SSP evaluates this data and sends the bid request to the ad exchange. The ad exchange then invites advertisers to bid for that ad impression.

Advertisers Place Bids: Advertisers, through their DSPs, evaluate the user's data and decide if this user is valuable to them. If they're deemed valuable, the DSP places a bid on behalf of the advertiser.

Selecting the Winner: The highest bidder wins the auction. The ad exchange then notifies the SSP, which in turn tells the publisher's platform to display the winning ad.

Ad Delivery: The user's browser fetches the ad and displays it. This entire process, from the user visiting the site to the display of the ad, takes mere milliseconds.

A Detailed Breakdown of an RTB Auction

Many companies building technology for programmatic advertising follow the OpenRTB specification. Here's an overview of a typical RTB auction.

1. User Accesses a Web Page

When a user navigates to a webpage that has spaces allocated for programmatic ads (like banner ads or video ads), this action triggers the start of an RTB auction.

2. Bid Request Initiated

The publisher's ad server, often through a Supply-Side Platform (SSP), sends out a bid request to an ad exchange. This bid request contains a bundle of information about the user without revealing their personal identity. This can include:

  • User Data: Browser type, device (mobile/desktop/tablet), operating system, IP address (often anonymized), and possibly historical data about the user's past browsing behaviors.

  • Page Context: URL of the site, content category, page keywords, and other relevant metadata.

  • Ad Details: Ad sizes/types available, ad formats, and placement positions.

3. Advertisers Evaluate the Bid Request

Once the ad exchange receives the bid request, it broadcasts this request to multiple potential advertisers (or their representatives, which are Demand-Side Platforms or DSPs).

These DSPs evaluate the bid request based on:

Targeting Criteria: Advertisers have predefined criteria (like targeting users from a certain location or using a specific device) they look for. If the user's profile matches this criteria, they proceed with the bidding.

Retargeting Lists: If the user had previously interacted with the advertiser's content (like visiting their website without making a purchase), they might be on a retargeting list, making them more valuable to the advertiser.

Bid Algorithms: Advanced algorithms determine the bid amount based on the perceived value of the impression to the advertiser.

4. Bidding

Interested advertisers submit their bids through the DSPs. This bid includes the amount they're willing to pay for the impression and the specific ad creative they want to display if they win the auction.

5. Selecting the Winning Bid

The ad exchange reviews all the submitted bids and identifies the highest bidder. Some auctions may use a second-price auction model, where the winner pays $0.01 more than the second-highest bid, ensuring they pay the fair market value. Some auctions use a first-price auction where you pay what you bid if you win.

6. Ad Delivery

Once the winning bid is determined, the ad exchange instructs the publisher's site (or the SSP) to display the winning advertiser's ad to the user.

7. User Sees the Ad

The user's browser fetches the winning ad creative and displays it within the ad space on the webpage. The user can then interact with the ad, and the advertiser can record any relevant metrics, like clicks or conversions.

8. Post-Auction Analysis

Advertisers often analyze the results of their bids to refine their strategies. They might look at metrics like click-through rates, conversions, or viewability to determine the success of their bids.

The Fuel: Data in Programmatic Advertising

Programmatic advertising's prowess lies in data. Various sources, from websites, apps, social networks, to even offline sources, feed data into programmatic platforms. This rich data allows for:

Audience Segmentation: Advertisers can identify micro-segments within broader categories. Instead of targeting "males aged 25-30", they can target "males aged 25-30 who are vegan, enjoy hiking, and recently searched for eco-friendly products."

Retargeting: Users who have interacted with a brand but didn't convert can be retargeted. This increases the chances of conversion as the user is already familiar with the brand.

Types of Programmatic Purchases

Real-Time Bidding (RTB): This involves buying and selling ads in real-time auctions, much like stock trading. Advertisers bid for impressions based on the value of the user, and the highest bid wins.

Programmatic Direct: This is a more traditional approach where advertisers directly purchase guaranteed ad impressions from publishers. The price and volume are pre-determined.

Private Marketplaces (PMPs): These are exclusive RTB auctions where premium publishers invite select advertisers to bid on their inventory. It offers more control and transparency to both parties. PMPs can also be bought through using a DSP.

Advantages of Programmatic Advertising

Efficiency: Automation streamlines the ad buying process, eliminating the need for manual negotiations.

Precision: Advanced algorithms and rich data allow for hyper-targeted ad placements.

Flexibility: Advertisers can adjust campaigns in real-time based on performance data.

Scale: Access to a vast array of publishers means advertisers can expand their reach easily.

Challenges in Programmatic Advertising

Transparency: "Black box" operations of some platforms mean advertisers don't always know where their ads appear.

Ad Fraud: Automated systems can sometimes display ads to bots, leading to wasted ad spend.

Privacy Concerns: With data as the driving force, there's an ongoing debate about user privacy and data misuse.


Programmatic advertising has transformed the digital advertising sphere with its efficiency, scalability, and precision. By leveraging technology and data, it has allowed brands to engage with their target audience like never before. However, as with any technological advancement, it's essential to navigate the ecosystem with knowledge and awareness, ensuring that user trust and privacy are upheld, even as advertisers work to craft compelling, personalized ad experiences.

If you want to get started with programmatic advertising, you can either setup an account now in the Emerse DSP using this link. Or contact us to learn more and schedule a meeting.

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