If you’ve been following this series from day one, you should now have a better understanding of the world of programmatic advertising. Congratulations, you are now more informed than most of the industry.
When I began writing on this topic back in the summer, my intention was to cut through the jargon and explain the intricacies of programmatic in plain English. I hope I’ve accomplished that. But beware: This next chapter may get a little confusing. Please bear with me, as I will now try to clarify and distinguish the many different types of programmatic ad buying strategies in the simplest way possible.
Real-time bidding (RTB)– the trading of online media in an auction-based environment – has always been closely associated with programmatic advertising. In fact, many are still guilty of using these terms interchangeably. However, RTB is simply another feature of programmatic; it’s one of many different ways to execute programmatic and not the crux of programmatic itself. While there are certainly benefits to the RTB model – namely providing buyers with the opportunity to pay for inventory they deem valuable, in real-time at scale – it also has some negative connotations. Some have even come with their own pseudo-acronym for RTB – “race-to-the-bottom.” In other words, many view RTB as a way to get cheap inventory that no one else seems to care about.
While that is not exactly true, it is important for marketers to understand that there are many different ways to execute programmatic advertising that can fulfill almost any marketing goal.
Real-Time Bidding (RTB)
Let’s look at RTB a little more closely, as it is the easiest form of programmatic advertising to comprehend. As simple as it is, it often gets confused with being another name for programmatic, as stated above, and it goes by many other names, including Open Auction, Open Marketplace and Open Exchange. Regardless of what you call it, it really is a simple process, I swear.
RTB refers to advertising inventory that is made available through an open marketplace where anyone can bid on it. It’s essentially an auction-based model where unreserved ad space is sold to the advertiser willing to pay the highest price to display their ad for any set amount of time. In 2014, 88% of programmatic was executed via RTB, though that number is projected to dwindle as new methods of programmatic emerge.
While RTB is a cost-efficient way to generate revenue for a particular ad campaign, it is not the most ideal mechanism for the publisher because there is almost no control on who shows the ad (quality) and how much they will pay (value). This has led publishers to develop new methods of programmatic that actually benefits both parties.
To assert some control over the quality of the ads showing up on their sites, publishers can choose to engage in what are known as Private Marketplace deals. These too go by several names, including Closed Auctions or Invite-Only Auctions. In this scenario, a publisher engages with a select set of advertisers that fit their predetermined criteria (thus controlling quality) and opens up inventory for this select group of advertisers. The publisher gets the value depending on who bids the highest but still has no control over exactly how much the advertiser will pay (still open on value).
Advertisers also come out for the better in this scenario because they have more knowledge of where their ads will run. They already know the sites they are bidding on and do not have to worry about their ads popping up on less than reputable sites even if it is the right audience on those sites. Private Marketplaces are quickly becoming the most popular forms of programmatic.
To help gain some control over the value generated through the inventory, a publisher can engage in a one-to-one relationship with an advertiser in what are called Preferred Deals. In this scenario, the advertiser agrees to pay a fixed price for the inventory and the publisher gives the advertiser the first right of refusal before they make their inventory available to anyone else. The publisher now controls the quality and has more control over the value because they know exactly with whom they have engaged and how much they will pay.
However, the advertiser still has the right of refusal, so they may choose not to pay at all (at which time the publisher will route the inventory into a Private Marketplace or an Open Exchange and try to generate some value from it). Think of it as the “friends and family” offer.
The best quality and value combination is gained through engaging in what is known as Programmatic Direct, also referred to as Programmatic Guaranteed, or sometimes Automated Guaranteed. (The ad-tech world loves using a variety of names just to keep us on our toes.) The publisher engages one-to-one with an advertiser and agrees to carve off a section of their inventory for them. The advertiser agrees to buy all of the inventory at a fixed price. No auction takes place and both parties agree that a transaction will take place at a given price. The "programmatic" aspect here is simply the automation of the buying and the selling process. Otherwise it is just the same as the "guaranteed" selling we’ve done for years but with machines instead of faxed insertion orders.
Programmatic Direct is more of an upfront relationship model where both the advertiser and the publisher agree in advance as to what exactly the deal is going to look like and may include reserved inventory space that is open for a set amount of time. This tends to favor both parties, especially the advertiser because they now can execute a sophisticated, premium buy but in an automated fashion.
So, does that all make sense? I hope so. As you will see when you begin looking at how you execute your own programmatic ad deals, there are many different ways to spend your budget. Most importantly, these buys are not just for display. You can execute a programmatic buy for mobile, video, social and even television and print. But we’ll dive into that in Part 6.
Read other posts in the "Programmatic Matters" series: