Programmatic Advertising Guide: Definition, Types, & More

What Is Programmatic Advertising?

Programmatic advertising is a type of advertising that automates buying and selling ad space. It uses technology and tools to serve the right ads to the right people automatically.

This way, advertisers can efficiently target their desired audience without the need for manual decision-making or action.

Programmatic Advertising vs. Display Ads

At this point, you might be wondering how programmatic ads differ from display ads.

To put it simply: 

Programmatic advertising refers to the way ads are bought and sold, while display ads are a type of ad format.

Here’s an example of a display ad:

Source: Instapage

While display ads can be used in programmatic advertising campaigns, they’re most commonly bought through display ad networks, such as the Google Display Network. 

That’s another difference between programmatic and display ads: While programmatic ad buying usually involves using multiple platforms to run a campaign, display ad campaigns rely on a single ad network for the whole process.

Further reading: Online Advertising: All You Need to Know

Pros and Cons of Programmatic Advertising

In our programmatic advertising overview below, we cover the pros and cons so you can decide whether this marketing tactic is right for you.

Pros

Thinking about trying programmatic ads? Here are the biggest benefits: 

• Advanced targeting options: Programmatic digital advertising supports advanced targeting options, including contextual targeting and interest targeting. This allows you to pinpoint people who fit your target audience exactly and reach them with your ads.
• Ability to use first- or third-party data: With programmatic ads, you’re usually able to upload your own first-party data to target people who fit your target audience. Alternatively, programmatic advertising networks often have third-party segments you can target if you lack first-party data.
• Scale quickly: If you want to scale your programmatic ad efforts, all you need to do is increase your ad budget. It’s that simple.
• Real-time reporting: Programmatic ads offer real-time reporting and data insights, allowing you to adjust your campaigns quickly to achieve better performance

Cons

There are a few disadvantages of programmatic advertising you should keep in mind before deciding whether it’s right for you: 

• Inability to choose publishers manually: Due to how programmatic ads work, you won’t be able to select the websites your ads appear on manually (at least not in real time). This means your ads may occasionally appear on websites that aren’t the best fit for your brand or content.
• Risk of traffic fraud: Most programmatic ad networks have caught on to techniques like using software to generate invalid clicks (usually done by competitors or unethical publishers). But there’s always potential for traffic fraud, which could put your ad budget at risk.

How Does Programmatic Advertising Work?

Multiple platforms are involved with running programmatic advertising campaigns. 

These include:

• Supply-side platform (SSP): Publishers use supply-side platforms to sell ad space to advertisers automatically. SSPs allow publishers to manage their ad inventory and connect it to multiple demand-side platforms and ad exchanges.
• Demand-side platform (DSP): Advertisers use a demand-side platform to purchase ad impressions on publisher websites at a predetermined bid price. A DSP allows advertisers to purchase ad space from different sources and manage all their ads from a single location.
• Ad exchanges: DSPs and SSPs use ad exchanges to buy and sell ad inventory. Ad exchanges are crucial in facilitating ad deals since they enable advertisers and publishers to buy and sell ad space using real-time bidding.
• Ad servers: Once an ad space has been purchased successfully, ad servers place the ad on a publisher’s website.
• Data management platform (DMP): These platforms store and organize audience data from a variety of sources. This data is then made available to DSPs and ad exchanges to improve targeting.

Here’s an example of how they all come together:

• A publisher puts up their ad inventory on an SSP
• Advertisers use a DSP to bid for an ad impression, using targeting options provided by a DMP 
• The highest bid wins the impression, and the ad gets served to a user on the publisher’s website through an ad server.

If you’re interested in trying programmatic advertising, a great place to start is with competitor research. 

Use Semrush’s AdClarity tool to analyze competitors’ ads and gain insights to create or improve your own programmatic advertising campaigns.

Here’s how to do it:

From the AdClarity app, click the blue “+ Add” button and type in the domain of a competitor you’d like to analyze.

Once the matching search result appears, click on it to select it. Repeat the process for all the other competitors you’d like to add.

Then, click the “Compare” button. In the window that pops up, you’ll be able to add additional domains or rearrange the ones you already added. Once you’re happy with the selection, click the “Compare” button.

You’ll then be presented with a report detailing your competition’s advertising activities.

Here, you’ll be able to see:

• Which types of ads your competitors use
• Estimated ad impressions and ad spend
• Detailed campaign reports

Use the information you gather to create a programmatic ad strategy for your business.

Types of Programmatic Advertising

Programmatic advertising comes in different shapes and sizes. There are auctions, marketplaces, private deals, and more. 

Here are the four most common types:

• Real-time bidding (RTB): As its name implies, real-time bidding is a type of open auction where advertisers bid for ad impressions in real-time, with the highest bid winning the impression
• Private marketplaces: Publishers use private marketplaces to offer their ad space inventory to a limited number of advertisers. Private marketplaces give publishers more control over who can purchase their inventory while also allowing them to command higher ad pricing.
• Preferred deals: With this type of programmatic advertising, publishers offer their premium ad inventory to a select few advertisers at a fixed cost before it goes on to be sold on private or open marketplaces
• Programmatic direct: Involves programmatically negotiating on ad spots on a one-on-one basis between an advertiser and a publisher.

Programmatic Ad Formats

Programmatic ads aren’t just limited to the web. They also include TV ads, out-of-home ads, and more. 

Here are some of the most common formats:

• Display ads: Banner-style ads that are displayed at different locations throughout a website, most commonly in the header, sidebar, or footer.

• Video ads: Multimedia ads that can be displayed either in-stream (e.g., within a YouTube video) or out of stream (e.g., as standalone videos on a website).

• Native ads: These types of ads are designed to look like native content on a website, matching the look and feel of other non-ad content on the website.

Source: Adsterra

• Television ads: Traditional TV commercials, which usually last between 30-60 seconds.

• Digital out-of-home (DOOH) ads: Ads displayed on digital billboards and signage found in public spaces.

Other ad formats that can be bought and sold programmatically include over-the-top (OTT) ads, connected TV ads, and in-app ads.

Further reading: Advertising Trends: The Most Popular Types of Digital Ads [Study]

How Much Does Programmatic Advertising Cost?

Programmatic ads are usually bought on a cost-per-thousand basis, which means advertisers pay a specific dollar amount per 1,000 ad impressions. 

You also may hear cost per thousand referred to as cost per mille. 

The exact CPM will depend on multiple factors, including the DSP, the publisher, and the target audience.

According to Google News Initiative, the average CPM for programmatic advertising is $1 to $5. 

Usually, the more niche your audience is, the higher the CPM is going to be (e.g., it’s going to be more expensive to advertise to orthodontists in Chicago than to PC gamers).

How to Get Started with Programmatic Advertising in 5 Steps

Ready to get started with programmatic ads? Follow these steps:

1. Set Goals

The first thing you need to do before getting started with programmatic ad buying is to decide what goals you’re looking to accomplish.

Are you looking to improve brand awareness, drive website traffic, generate leads, or something else?

Each ad campaign should be focused on a single goal. This will allow you to optimize your ads to get the best results.

2. Segment Your Audience

Use your existing buyer persona documentation to help you target the right users with your programmatic advertising campaign.

If you haven’t already created personas, you can use the Semrush Persona tool to quickly build them from customizable templates. 

Depending on the DSP you use, a variety of targeting options might be available to you. Such as:

• Demographics (age, gender, income)
• Location
• Interests
• Buying intent (e.g., people looking to purchase B2B software)
• Device

Be as specific as possible when choosing a target audience for your campaign to avoid wasting your ad budget on people who don’t fit your target customer profile.

By creating a highly targeted audience segment, you’ll also be able to tailor your ad messaging to resonate with ideal buyers more effectively.

3. Choose the Right DSP

Choosing the right DSP is essential for a successful programmatic advertising campaign. 

It can mean the difference between unprofitable campaigns and highly successful ones with a healthy return on investment.

Here’s what to look for in a DSP:

• No monthly fee: Some DSPs have a platform charge in the form of a fee that you need to pay every month, on top of what you spend on the ad campaigns themselves. Before settling on such a DSP, shop around and see if you can find one that has similar targeting and ad options but no monthly fee.
• Plenty of targeting options: Your DSP should offer extensive targeting options to help you reach your target buyers. Put some thought into what kind of targeting options you’ll need for your campaign, and then look for a DSP that offers that type of targeting.
• Multiple ad formats: Opt for a DSP that supports multiple ad formats, such as banner ads, video ads, and native ads. You’ll likely need to experiment with different ad formats to learn what format is the most effective at grabbing your target audience’s attention.
• Real-time analytics: Your DSP should offer real-time reporting on the performance of your campaigns. This will allow you to act quickly when you see a drop in performance.
• Responsive customer support: If you run into an issue at any point during a campaign, you’ll want the DSP’s customer support team to solve the problem quickly. Look for a DSP that offers multiple support options, including live chat support. 

4. Create Effective Ads

Once you’ve chosen and signed up for a DSP, the next step will be to set up a campaign and create your ads.

The process of setting up an ad campaign will differ between DSPs, but what constitutes effective ads is the same across all platforms. Follow these tips to make sure your ads attract attention and clicks:

Choose the Right Ad Format

Your DSP might support multiple ad formats. So which one should you choose?

Here are a couple of things to consider:

• Your target audience’s preferences: Do you have any data on what kind of content or ad formats your target audience prefers? If you do, focus on ad formats that are more appealing to your audience.
• Available resources: Some types of ads (e.g., video ads) take more time, effort, and budget to create compared to others (e.g., banner ads). Consider the resources you have at your disposal when choosing an ad format.

Use Personalization

Using personalized, dynamic ad creatives can help your ads get better click-through rates and also lead to higher conversion rates.

Source: Pathlabs

Depending on the DSP you use and the data you have available, there might be different data points you can use to personalize your ads, including geographic location, interests, buying intent, and more.

In some cases, you might even be able to combine multiple data points to create highly personalized ads.

Refresh Creatives Regularly

Even if you design amazing ads that drive great results, their performance will suffer over time.

The most common culprit for reduced ad performance in cases like this is ad fatigue.

Ad fatigue is what happens when people see the same ads over and over, so they start ignoring them.

To avoid ad fatigue, strive to design new ad creatives every week and use them to replace the old ones. This will also give you the opportunity to split-test creatives to see which ones drive better performance.

If you’re having trouble designing effective ads, AdClarity can help. Use this tool to learn what your competitors’ ads look like and, more importantly, how they perform. 

5. Launch and Monitor Your Campaign

Once you’ve signed up with a DSP, nailed down your targeting, and created your ads, you’re ready to launch your campaign.

After your campaign goes live, it’s crucial to keep a close eye on it to evaluate performance and make any necessary adjustments promptly.

You’ll also want to look for any signs of potential ad fraud to protect your ad budget and get the most out of your campaign.

Add Programmatic Advertising to Your Digital Strategy

You now have a solid understanding of how programmatic ads work.

Now, it’s time to go out there and create your first programmatic advertising campaign. 

You can start by using the AdClarity app to review your competitors’ ads for inspiration.

Then, use the tips we outlined above to help ensure your campaign provides a positive return on your investment.