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Knorex Blog

The Relationship between Programmatic Advertising and Real-Time Bidding

February 26, 2019
 

            Just little over a decade ago, advertisements were still mainly distributed through mediums that are able to reach a broad set of people like newspapers, broadcast televisions, and billboards. Not only did traditional advertisement prove to be costly, with it affordable only to established MNCs, it has also revealed to be challenging in measuring success.

 

            However, the surge of the internet and mobile usage in recent years has boosted the popularity of programmatic advertising in the ad buying space, opening a whole new industry packed with acronyms like RTB, DSP, and SSP. As all the terms are interrelated, they are not interchangeable, as some might mistakenly perceive.

 

 

            What is Programmatic Advertising?

            Programmatic advertising refers to the use of automated programs to buy and sell online ad spaces. Unlike traditional ad buying where negotiations are carried out by the sales team, programmatic relies on technology to eliminate human error and to replace tasks historically handled by salespeople like submitting insertion orders. Programmatic advertising is targeted and more efficient as it uses audience data to precisely choose when and where to display your ad.

 

 

            ​​​​​​​The Programmatic Advertising Ecosystem

            There are many players that make up the programmatic advertising ecosystem: trading desks, ad servers, ad networks, DMPs and data aggregators, data supplier, measurement, verification and Fraud Bodies etc. But the three main players that make up the heart of programmatic advertising are these:

  1. Supply-Side Platform (SSP)
  2. Demand-Side Platform (DSP)
  3. Ad Exchange

 

            In concise explanations, publishers use SSPs to sell their ad impressions; advertisers use their equivalent platform, DSPs to decide which ad impressions to purchase, while the buying and selling are done on Ad Exchanges. The diagram below shows the relationship and the associated companies that provide these services:

 

 

 

            There are different types of programmatic buying: Non-auction buying includes preferred deal (fixed CPM but ad inventory is not guaranteed) and programmatic guaranteed (fixed CPM but with guaranteed ad inventory) while Private Marketplace (PMP) runs with a floor price that is only open to a select group of advertisers. Nevertheless, the most used and popular programmatic buying in the market is an open exchange programmatic buy that runs on Real-Time Bidding (RTB).

 

 

            ​​​​​​​What is Real-Time Bidding?

            Real-time bidding is a type of programmatic buying and as the name suggests, real-time bidding is done in real-time. 

 

            For instance: As a user enters and loads a webpage, the website publisher connects to an SSP. The SSP analyzes the user's audience data before sending an ad request to an Ad Exchange. Here, the Ad Exchange starts the bidding process by setting a price for this opportunist ad space. DSPs that are willing to pay place their bid within 10 milliseconds (it takes 300 milliseconds to blink your eye!) and the Ad Exchange selects a winning bid.

 

            The winning DSP passes the ad details to the Ad Exchange, which passes it back to the SSP, which passes it to the website publisher before rendering the ad on its website. All these occur within fractions of a second, hence, in real-time. The Interactive Advertising Bureau (IAB) explains it in more detail in their video.

 

            In conclusion, despite the misconception that programmatic advertising and RTB are interchangeable, there are in fact many types of programmatic advertising buying, and RTB is merely one of them. Knorex offers all types of programmatic buying, including open exchange RTB that runs on its in-house proprietary DSP. Contact us for more information on how to enhance your ad campaigns.

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