In today’s world, there are literally billions of impressions bought and sold every day. In order to organize these transactions, the process of buying and selling needs to be efficient. Imagine if there was a salesman meeting with every website owner to negotiate every advertisement sale. It would be impossible! Half of all ads are served programmatically. The other half are done through direct deals. A direct deal is when a brand knows they want to advertise with a certain publisher so they contact the publisher directly. That publisher gives the brand a first look at their inventory, so the advertisers pay a premium price.
There are more than a billion Google searches taking place every day. There just isn’t enough time for every advertiser to sit down and talk with every publisher about setting up ads. That’s where programmatic advertising comes into play.
Programmatic advertising is the buying and selling of digital inventory on a pre-programmed basis. Ad exchanges are what make programmatic auctions possible. This technology organizes and automates the billions of ad transactions that take place every day in exchanges. Programmatic software allows ad providers to buy impressions in advance from specific publisher sites.
So how does programmatic actually work? When someone clicks on a link to a webpage, the page starts to load. This creates an ad call that is sent out to an ad exchange. The ad exchange is divided into two parts. Think of it as a cylinder. The top of the cylinder is the Supply Side Partner, referring to the publisher. The bottom of the cylinder is the Demand Side Partner, referring to the advertiser.
The webpage makes a call to the Supply Side Partner first. In the Supply Side Partner, the publisher sets some criteria for the ads they want displayed on their webpage. These criteria are called controls. Publishers often set controls that do not allow things like pornography or alcohol to be advertised on their site. These controls are set on the Supply Side Partner by the publisher.
On the Demand Side Partner, there are many media buyers. These media buyers represent brands (for example, Nike or Levi’s). Each media buyer uses targeting to show their ad to a target demographic. Targeting may be done on the basis of demographics, geographics, psychographics, or frequency. Each of these media buyers is willing to pay a certain price for any given impression. Media buyers are given information about the type of impression and what the characteristics of the reader is behind that impression. The price of the impression is based on those characteristics.
Impressions are sold in an auction. Brands set the price they are willing to pay for each impression. Multiple brands bid on an impression, and the highest bid wins. The format of the auction is called a second price auction. This means the person who bids the highest wins, but they pay the price of the second highest bidder plus one cent. This is done so the price paid represents the true value of the impression.
Let’s use an example to see how this would work in the real world. Say there are three brands competing for one impression: Breyers, Nike, and Levi’s. These three brands all set the price they are willing to pay for the impression. Breyers is willing to pay $2.00, Nike is willing to pay $1.04, and Levi’s is willing to pay $1.50. Based on this information, who will win the bid and how much will they pay for the impression?
The correct answer is: Breyers will win the bid and will pay $1.51. Breyer was the highest bidder so it won, but it will only pay one more cent than the second higher bidder. The second highest bid was $1.50, so we’ll add one cent and Breyer ends up paying $1.51 for that impression.
Once the auction has been won, the impression is ready to go. It will pass back through the Demand Side Platform and through the publisher’s controls in the Supply Side Platform. Then the creative is served on the webpage for the reader to view.
The truly amazing thing about this whole process is that it’s happening in real time. The whole programmatic auction takes place in the time it takes for a webpage to open! Setting the target price and setting the controls are usually done in advance. But the bidding and transferring of information all happens the moment you click on a webpage. Isn’t it incredible to think that the little ad on your side bar is such a sophisticated piece of technology?
Schedule Your Free Revenue Audit Today!
Do you feel like your site should be bringing in more revenue? Would you like a data analyst with a background in website advertising to evaluate your current revenue strategy? If you answered yes, schedule a revenue audit today and learn how you can dramatically grow your revenue!
- Analyze your current ad-setup and earnings
- Evaluate your information compared to industry-leading data
- Evaluate your current ad-placements across your site
- Calculate current performance and recommend new strategies to increase overall revenue