What is Programmatic Advertising? [Brief History & Future]

What is Programmatic Advertising?

Programmatic advertising has a few definitions depending on the context of how it is used. The textbook definition refers to the automation of the media buying and selling process for digital ads. However, when most people in the media industry use the term programmatic advertising today, they are often speaking more toward the automated process of data-targeted media buying and selling. 

The difference between these two definitions is data

Sure, automation saved publishers and advertisers significant time in contracting digital media buys. But, it is the addition of information such as previous ad performance, target audiences, and cross-domain behavioral data that are essential to what programmatic advertising is today.

The past 25 years have been an interesting journey from the first online banner ad to major advancements in automation. Now is another time for shifts and innovations as cookie deprecation adds a new challenge for programmatic advertising. Following the history of programmatic advertising shown in the illustration below, this article will explain the complex layers of automation used to conduct programmatic advertising and highlight lessons learned for a cookieless future.

Table of Contents:

When Did Programmatic Advertising Start?

The History and Automation Layers of Programmatic Advertising

AT&T and Hotwired.com are often credited as the first banner ad on a website (shown below). That very ironic ad went live in 1994 and resulted in a 44% click-through and cost AT&T $30,000 for a 3-month placement. 

Others claim that the law firm Heller, Ehrman, White, and McAuliffe first placed a banner ad on Tim O’Reilly’s Global Network Navigator (GNN), which later was acquired by AOL. Regardless of which ad went live first, it was quickly apparent that a new channel for advertising was here and both website publishers and advertisers scrambled to figure out this new medium.

One of the first banner ads—AT&T advertising on Hotwired.com
(Image credit: Wired)

This began the phase of one-to-one digital media buying. Media buyers would go to sites one by one, based on if they had a similar audience or relevant topic, then directly negotiate a deal with them. An insertion order would be manually created and the advertiser would wait for results, hoping their gamble would pay off. 

Going one by one to individual outlets to make these purchases was a very labor-intensive task for advertisers. Often ad agencies helped to do this manual work, but it was still a very painful process. That said, going directly to a website to negotiate a digital media buy is still a practice done today. Why? Mostly because it is a unique opportunity to customize, get premium sponsorships, and unique ad placements. 

While digital advertising took off rapidly in the mid-1990s, it didn’t become programmatic advertising until automation came into play with the first ad network created in 1997.

What is an Ad Network?

Ad networks were a “middleman” solution to try to streamline the pains of the buy/sell process for digital ads. These are a one-to-many model where resellers (like a Costco in retail) buy media and data at scale and resell it to a buyer for a discounted bundled price. 

Ad networks buy publisher site ad space in bulk and repackage ads from across multiple publishers to sell to advertisers. This took some of the hassle away from advertisers who no longer needed to go to each publisher directly. It also provided ad sellers with a way to sell off low-interest ad space.

Over the years, ad networks evolved to handle different markets. The most common types of ad networks are:

  • Vertical ad networks: focus on a specific industry, such as fashion or automotive.
  • Premium ad networks: offer inventory from the most popular publishers.
  • Inventory-specific ad networks: provide a specific type of ad inventory, such as video or mobile.
  • Targeted ad networks: offer specific targeting capabilities that are built into the ad server.

How Do Ad Networks Work?

Ad networks work by aggregating a large number of publishers with available inventory and installing ad network tags on their websites. An advertiser inputs their advertising goals, including budget and target audience, into the ad network’s campaign panel. The ad network searches for a match between an advertiser’s campaign and a publisher’s supply (per the tags on the site). When a match occurs, the ad details are sent to the publisher to execute the ad placement. 

The ad network earns money by either taking a cut of the ad revenue or by marking up inventory before selling it. Once the ad is live, the advertiser can track and manage its performance in the ad network’s campaign panel. 

Unfortunately, the buyer often can’t see where its ad actually goes live, nor does the publisher have a solid grasp of the buyers paying for the ads they are displaying.

How Do Ad Networks Work?

What Are the Benefits and Challenges of Ad Networks?

The biggest benefit of ad networks is that they significantly streamlined the buying process for advertisers. Needing one contract instead of thirty was a big time saver for advertisers. Ad networks also enable targeting and have a high reach. This helps advertisers find inventory that fits their audience and budget. For publishers, ad networks help them secure buyers for unsold ad space. While this may be at a lower price point than they would get from direct sales, it is still better than nothing.

Ad Network BenefitsAd Network Challenges
– Streamlines buying process Broad reach
– Enable targeting
– Finds buyers for unsold ad space
– No info on where ads placed
– No info on when ads go live
– No way to repeat high-performing buys

The biggest challenge to ad networks is that they are a bit of a black box. Advertisers don’t get the information on where and when their ads will go live. Furthermore, their ads might be displayed on low-traffic or non-relevant sites. This means that buyers might not get the performance they were hoping for from their ad spend and if it does perform well, they don’t know what occurred so they can’t repeat the buy to get the same great results.

How Does an Ad Exchange Compare to an Ad Network?

Ad exchanges came out six years after the first ad network. Ad exchanges were an evolution of the fixed cost ad networks to a dynamic cost network with real-time bidding. Ad exchanges have the same technology to tag publishers’ websites for available ad space. 

The difference is the pricing model. With ad exchanges, every time an ad impression becomes available for sale on a publisher site, a micro-auction occurs. Billions of these micro-auctions happen every day. 

How Do Ad Exchanges Work?

When an auction occurs, the publisher will send detailed information about itself and the anonymized user to the exchange. The exchange then cross-references the information provided by the publisher with specific targeting and bidding information provided by thousands of different advertisers to select the most optimal ad to fill the available placement.

How Do Ad Exchanges Work?

What Are the Benefits and Challenges of Ad Exchanges?

The benefit of ad exchanges is that buyers can take advantage of cost changes to optimize spend while having full transparency to set limits to ensure costs don’t exceed budgets. Ad exchanges also benefit the publishers, getting a higher price for their ad space than they might get working through ad networks.

Ad Exchange BenefitsAd Exchange Challenges
– Buyers can optimize spend 
– Can set limits and keep within budget
– Full transparency on ad placement and performance
– Not great for advertisers with smaller budgets
– Real-time bidding can trigger bid wars
– Price can escalate higher than value

Of course, ad networks still exist, so ad exchanges clearly have some drawbacks. 

For instance, advertisers with smaller budgets struggle to reach their target audience with ad exchanges. Real-time bidding can also trigger bidding wars that drive up the price, making it more expensive for the buyers.

Ad networks and ad exchanges solved some of the problems in the complex buy/sell process with automation. However, they really didn’t help the buyers get a clear picture of efficient ad spend relative to outcomes. And both buyers and sellers were reliant on these third parties to broker their business—which was not ideal. 

With continued pain comes continued innovation. By 2007, the first supply and demand side platforms arose to help publishers and advertisers better navigate programmatic advertising.

What is an SSP (Supply Side Platform)?

A supply-side platform (SSP) is a software platform sold to publishers as a tool for them to sell their website ad space on the shelf for anyone to buy at any time. This platform could replace their direct sales efforts while also streamlining their ad network and ad exchange contracts. 

This was a much more seamless solution for sellers and provided another automated revenue stream. SSPs are a way for publishers to reach the masses, without having to go one by one, and it allows them to optimize their price points dynamically.

How Do SSPs Work?

Publishers use supply-side platforms to automate the process of selling their digital ad inventory. A publisher lists its ad inventory on an SSP. Each time the publisher’s webpage loads, an ad request is sent to multiple ad networks, ad exchanges, and sometimes demand-side platforms (DSPs). In the case of real-time bidding, various DSPs place bids on the impression being offered by the publisher. The winning bid is then delivered to the website via the SSP and displayed to the visitor. The SSP collects the data on ad performance and sends that to the appropriate platform that contracted the ad space.

How do SSPs work?

What Are the Benefits and Challenges of SSPs?

SSPs provide publishers with much more efficiency in how they sell. Publishers no longer have to strike new insertion orders/deals if something changes. Fundamentally, SSPs allow publishers to sell digital ads at scale thanks to complete automation of the purchase.

SSP BenefitsSSP Challenges
– More efficient for publishers 
– Publishers can be more agile
– Publishers can optimize sales
– Haven’t kept up with improvements
– Fees cut into publisher revenue
– No longer needed by large publishers

Fast forward to today and most SSPs are considered slow and inefficient. 

Combined with the fees that cut into publisher revenue, most sellers would like to eliminate SSPs. Header bidding and server-to-server connections have made it possible for publishers to cut out SSPs and connect directly to DSPs. That said, smaller publishers don’t have the resources to do this, which is what is keeping SSPs in the mix.

While the development of SSPs radically improved programmatic advertising for sellers, buyers also needed a way to streamline the buying process while getting more control over ad quality. So it is no surprise that at the same time that SSPs came out in the market, DSPs surfaced simultaneously. 

What is a DSP (Demand Side Platform)?

DSPs (Demand Side Platforms) arose in 2007 alongside SSPs. DSPs are software platforms made for ad buyers to help them access the sell side options from SSPs and manage campaign optimization in one place. 

DSPs help streamline the ad placement process for the advertiser by handling much of the ad sizing. Buyers can input data sources to the DSP (from first-party data to third-party behavioral data) to provide a richer understanding and connection to their targets. DSPs also often include optimization tools that advertisers use to enhance their ad performance, maximizing user acquisitions and return on ad spend.

How Do DSPs Work?

Demand-side platforms allow advertisers to find and select their target audience and upload the ads they want to publish. Publishers make their ad inventories available on the DSP through ad exchanges and supply-side platforms (SSPs). These platforms offer the ad impression to the DSP, which makes a decision to send a bid to buy the impression based on relevance to the targeting criteria. The advertiser competes with other advertisers for the ad impression by placing bids in real-time. The DSP buys the impression and the ad is shown on the publisher’s website.

How do DSPs work?

What Are the Benefits and Challenges of DSPs?

Demand side platforms (DSPs) are the first technology in programmatic advertising that puts the ad buyer in control. With DSPs, buyers can filter or segment what they want to buy. Advertisers can plan, execute, manage, optimize, and measure campaigns all from a single platform. And assuming buyers have the information on who to target, DSPs can help them get very specific to put ads in front of that audience. 

DSP BenefitsDSP Challenges
– Buyer in control of filters and segmentation
– Can do everything from one platform
– Results in high target accuracy
– Lacking performance metrics for data to media
– No audience optimization after ads are live

The biggest challenge of DSPs is that they separate targeting data and media, so buyers have no way to measure the performance of data to media. Without media feedback, optimization is not possible and ad buyers are stuck with using their first iteration of an audience when they would typically optimize the audience selection daily or weekly. 

Many targeting companies look at a variety of social, search, and site data to compile in-market audiences, but without performance feedback, it’s impossible to determine which signal is appropriate for a given campaign. So while DSPs have incredible potential for advanced targeting, performance optimization is often missed.

How do SSPs, Ad Networks, Ad Exchanges, and DSPs Work Together?

How Programmatic Advertising Works
How Programmatic Advertising Works

DSPs and SSPs can work directly together to dynamically transact programmatic advertising sales. They can also work indirectly via ad networks or ad exchanges. Both DSPs and SSPs automate complex transactions whether it be matching up advertising requirements to appropriate publishers, then contracting a buy via the SSP, or by contracting via ad networks, or managing the real-time bidding process of ad exchanges. 

In order to describe how DSPs and SSPs work together to conduct programmatic advertising, it may be easiest to break down their functionality. 

How SSPs and DSPs Handle Programmatic Advertising Tasks

  • Ad-network optimization: Based on historical data, both SSPs and DSPs determine which ad network to connect to when impressions become available on a publisher’s website. An SSP is looking at the best historical price and DSPs are looking at the best fit.

  • Frequency capping: SSPs and DSPs often sync and match cookies to run frequency capping, which is the process of recording the number of times a specific visitor is shown a particular advertisement and then limiting the number of times that visitor sees that ad. This restriction is applied to all websites that serve ads from a campaign in a DSP.

  • Geography selection: With an SSP, the publisher can make sure that only relevant ad networks are considered in the selling process. Similarly, DSPs ensure only relevant geographies are a part of any ad buys.

  • Managing latency: An SSP platform automatically selects ad networks that consistently offer the best level of latency, which improves the overall real-time bidding process.

  • Streamline buying process: Both SSPs and DSPs have capabilities to simplify the process for ad buyers to input their ads to ensure appropriate sizing and tracking.

The many various SSPs, DSPs, ad networks, and ad exchanges all have differentiated features, which makes it a very confusing market for both ad buyers and sellers. The market is becoming further muddied with the entrance of Universal IDs and the surrounding technology changes happening as cookies deprecate. Consolidation will continue to happen in this market and new solutions may arise that streamline the programmatic advertising process further.

What are DMPs? And How Are They Different from DSPs and SSPs?

DMPs (Data Management Platforms) are shown in the illustration of How Programmatic Advertising Works as suppliers to both DSPs and SSPs and thus deserve some explanation. DMPs are a way to collect, organize, and analyze data. On the ad buyer side, this data might include their first-party customer data combined with third-party data sources like behavioral data and insights. On the publisher side, this might include the first-party data from their subscribers as well as on-site behavioral data.

DMPs are able to take the data sources available to them and create anonymized profiles that can be used by DSPs and SSPs. An ad buyer would create a profile of their ideal target audience and use that via their DSP to help improve targeting when matching up ad space. Publishers would create anonymized profiles of their subscribers to help buyers (DSPs) find a relevant match via their SSP.

Beyond programmatic advertising, DMPs are also used to improve marketing strategies with better understanding of their existing customers or target customers. Marketers can use this information to personalize their marketing messaging and better engage customers to improve loyalty and repeat business.

How do DMPs work?

Programmatic Advertising Experts Remain Throughout Technology Evolution

A mainstay throughout the decades of evolution in programmatic advertising has been the agencies that have teams of experts to help brands make advertising work for them. Advertising agencies have been around for decades—way before digital advertising was a thing. They have always provided value to ad buyers looking to make an impact with a multi-channel campaign. Ad agencies manually managed offline advertising with radio and tv, and eventually added online advertising.

Where there was complexity, ad agencies developed processes and expertise to help manage that complexity. And programmatic advertising is no different. Ad agencies receive briefs from brands, with budget and sales goals—information similar to what would be put into a DSP. The agency uses a plethora of data sources, including behavioral data, to help them understand the target audience and where they hang out in the digital world. The agency then determines the best channels to use, designs the ads, contracts the ad purchases, then executes and tracks success. 

Interestingly, many of the largest ad agencies were behind the innovation of DSPs as they developed them internally to help manage the programmatic advertising process. As long as programmatic advertising continues to evolve, which also means it stays complex, there will be a place for ad agencies to help brands manage and succeed with programmatic advertising.

What is the Future of Programmatic Advertising?

There is no question that cookie deprecation is forcing innovation in programmatic advertising. Soon, DSPs and SSPs will no longer be able to exchange third-party cookie information for frequency capping or to find matches for ad relevance. As cookies are eliminated, these technologies need to evolve with new ways to filter and match requirements between buyers and sellers.

Predictions for the Future of Programmatic Advertising

  • Audience segmentation will rule – With data privacy regulations continuing to restrict cross-domain identifiers, the focus for programmatic advertising will need to shift to audience segmentation as a way to navigate advertising fit between buyers and sellers.

  • Pricing models will change – SSPs, DSPs, ad networks, and ad exchanges won’t go away, but these programmatic platforms will need to put more investment into improving measurement and performance transparency. They will also need to consider new pricing models that tie spend to real results.

  • Data silos must converge – Currently, data is very separate within these various technologies. Consolidation is needed on the buy-side and on the sell-side for a more rich, yet anonymized, way to manage data. Vendors have an opportunity to play an important role here to bridge these data silos for consistency in programmatic advertising as well as better transparency in ad performance measurement.

  • CDPs will be power playersCDPs (Customer Data Platforms) are already evolving with new capabilities for adtech and martech personalization. DMPs will continue to play a very important role in programmatic advertising, but CDPs may infringe, or overlap, in that role.

For ShareThis, we are tackling this moment of opportunity by giving marketers valuable data at scale that is real-time and represents real consumer intent. This enables advertisers and publishers to see improved results from programmatic advertising—despite cookie deprecation. And of course, we are keeping privacy compliance at the forefront. Whatever the future holds for programmatic advertising, it is an exciting time to be a part of shaping that future with solutions where everyone wins.

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ShareThis

ShareThis has unlocked the power of global digital behavior by synthesizing social share, interest, and intent data since 2007. Powered by consumer behavior on over three million global domains, ShareThis observes real-time actions from real people on real digital destinations.

About Us

ShareThis has unlocked the power of global digital behavior by synthesizing social share, interest, and intent data since 2007. Powered by consumer behavior on over three million global domains, ShareThis observes real-time actions from real people on real digital destinations.