A visitor opens a news page and an ad is already there. So how does programmatic advertising work? Software auctions each ad slot to the highest bidder as the page loads, so no salesperson negotiates that placement.
The main condition is that this describes the auction route, and programmatic buying also includes other deal types, covered further down. Readers new to the industry can start with what is ad tech and return here for the walkthrough.
Following one impression from page load to display
Amazon Ads describes programmatic advertising as the practice of automating media buying and creating digital ads with marketing technology. The easiest way to understand it is to follow a single ad impression, meaning one showing of an ad to one visitor, through the chain of systems that decide who gets to fill the slot.
- The page loads. A visitor reaches a website that is integrated with a supply-side platform (SSP). The empty ad slot on that page becomes an impression that can be sold.
- The publisher offers the impression. According to Amazon Ads, the publisher puts the impression up for auction through header bidding and one or more SSPs. Header bidding is a technology that lets publishers request bids from multiple demand sources simultaneously, so the slot is not offered to one buyer at a time.
- Bid requests go out. A walkthrough of the SSP role explains that the SSP sends bid requests to various ad exchanges and demand-side platforms at the same time.
- The buyer’s platform bids. The demand-side platform (DSP) bids on behalf of the advertiser for that impression, using inputs such as campaign strategy, budget and creative sizes.
- The auction picks a winner. The publisher assigns the impression to the winning bidder, which is the advertiser or DSP offering the highest CPM. CPM is the cost per one thousand advertising impressions, so it is the unit in which bids are compared.
- The ad appears. If the bid wins, the ad is displayed instantly on the publisher’s site and the visitor sees it as part of the page.
Every step is software talking to software, which is why the whole sequence can finish before the visitor notices anything missing from the page. Readers who want to see how results are measured once the ad has shown can read what is a tracking pixel. First, it helps to know who sits at each stage.
The parties in a programmatic transaction
A programmatic transaction connects a seller of impressions with a buyer through several intermediaries, and each intermediary has a narrow job.
- Demand-side platform (DSP). Amazon Ads defines it as programmatic software for advertisers. It helps facilitate media buying from numerous publishers through SSPs, ad exchanges, ad networks and direct integrations. For a deeper look, see what is a demand side platform.
- Supply-side platform (SSP). This is programmatic software for publishers to facilitate sales of advertising impressions via ad exchanges. It is the publisher’s route into the auction.
- Ad exchange. This is an online marketplace where advertisers, agencies, DSPs, publishers and SSPs can bid, using real-time bidding on inventory from many publishers. Advertisers determine the price by participating in the bidding process.
- Publisher. The website owner whose page carries the ad slot. The publisher decides to put the impression up for auction and receives the winning bid.
- Advertiser. The party whose campaign strategy and budget the DSP follows when it decides whether to bid.
Seen this way, the chain is a pipeline with buyer-side software at one end and seller-side software at the other. The alternative to that pipeline is to deal with the seller directly.
Programmatic versus direct buying
Programmatic media buying uses an automated process to buy digital space for ads, while direct buying relies on people agreeing terms before anything runs. The contrast shows up in time, control and how the price is set.
| Criterion | Programmatic buying | Direct (traditional) buying | Planning use |
|---|---|---|---|
| How the purchase happens | Automated process buys digital ad space, impression by impression | Requests for proposals (RFPs), quotes, negotiations and insertion orders | Expect more up-front paperwork and conversation with direct buying. |
| Control over placement | Advertisers know where their ads will appear | Ads are purchased in bulk with little control over inventory and placement | Choose programmatic when knowing the placement matters to the brand. |
| How price is set | Advertisers determine the price by participating in the bidding process | Agreed through negotiation | Bids reflect the value an advertiser puts on each impression. |
The comparison above draws on the Amazon Ads guide to programmatic advertising, which sets automated buying against the traditional model.
Direct buying suits a buyer who wants a negotiated relationship with a specific seller, and it is the slower route because proposals, quotes and insertion orders all take time to develop. Programmatic suits buyers who want to reach audiences across many publishers without repeating that process for each one.
Amazon Ads also lists the ways inventory can be bought programmatically: open marketplaces, private marketplaces, preferred deals and programmatic guaranteed. The practical point for beginners is that programmatic names the automation, not a single auction format, so a buyer should check which deal type a given offer uses before comparing prices.
Misunderstandings worth clearing up
Programmatic is not the same as real-time bidding
Real-time bidding is one way to buy ads programmatically: advertisers participate in an auction when an impression becomes available, and a winning bid means the ad is displayed instantly on the publisher’s site. Programmatic advertising is the wider practice of automated buying. Because the deal types above are also programmatic, the two terms should not be used interchangeably.
Automated does not mean uncontrolled
It is easy to assume that handing buying to software means giving up oversight. Amazon Ads says the opposite: with programmatic advertising, advertisers know where their ads will appear and can have greater confidence in them, whereas bulk purchases under traditional buying leave little control over inventory and placement. The DSP also bids according to the campaign strategy and budget the advertiser sets, so the advertiser’s choices drive each bid.
Automation is not a reason to skip the basics
The auction rewards the highest CPM, so a bid is only as good as the targeting, budget and creative sizes behind it. Beginners should settle those inputs before launching, because the software will act on them faithfully whether or not they are well chosen.
Frequently asked questions
| Question | Answer |
|---|---|
| How long does an automated auction take? | Amazon Ads says programmatic advertising serves ad impressions to audiences through automated steps in less than a second. |
| What is the difference between an ad network and an ad exchange? | An ad network connects advertisers with a range of publisher websites to facilitate the buying and selling of ad space. An ad exchange is the marketplace where participants bid, with advertisers setting the price through bidding. |
| Where does a floor price come from? | According to an SSP explainer, the SSP analyses the historical price information of an ad space and sets a floor price for each space. |
| What is the main promise of programmatic technology? | A programmatic advertising report states that the technologies help ad buyers find the right audience at the right price at the right time. |
