Advertising isn't what it used to be. It's more precise than at any other point in history. According to LinkedIn Influencer Tim Cadogan, "programmatic advertising" is expected to "grow tens of billions of dollars" by 2020, but what is it? First there was "paid search" which peaked at the turn of the century and finally became a $58 billion industry--and paid search is still going strong. However, the growth of programmatic is outpacing even that of paid search. Is programmatic advertising set to leave paid search in the dust?

First, let's address what programmatic advertising is and why industries ranging from beauty, to retail, to telcom, to insurance globally are embracing it with such fervor. It's just what it sounds like: The technology allows buyers and sellers to engage in transactions via the programming, or automation, of sophisticated algorithms in a marketplace, or exchange. The "goods" exchanged are digital advertising. It's like the stock market, except ad impressions are getting traded instead of stocks. The sheer size is staggering: this is an industry that operates in trillions of transactions, billions of dollars, and hundreds of milliseconds but what's really interesting is the actual technology behind this movement.

Talk about High Tech

The tech behind programmatic advertising was born out of inefficiencies in processes and economics-- kind of like every other type of new technology. Prior to 2009, virtually all of digital advertising (except search) was available for bulk purchase and only from traditional, manual (ahem, non-automated) methods. Think banner ads, rich media ads, video ads and the like. If you were a buyer, you only had one option to buy advertising space: in bulk. Advertisers had lower ROIs since buyers didn't have much control over exactly what kind of inventory they were buying.

Then there was the processing side. This is where prices were negotiated, faxes were processed, and a slew of manual transfers took place. A (very!) multi-step process was the way things got done. Consider 2008 Yahoo!: There were more than 30 steps just to get ad campaigns to go live. Extra time, extra cost and extra work took place. It was time for a change.

Enter programmatic advertising. In the last six years this ad buying method has grown to become a huge portion of the overall industry. In just the last year, supply was up 26 percent, demand was up 64 percent, and 50 percent of all programmatic ad requests came from outside the US. This infographic by OpenX shows more about the current state of programmatic.

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A Massive Market for the Taking

Just how big is the market for programmatic advertising? It involves anyone and everyone who uses digital advertising--in other words, just about every business with an online presence. The market is tremendous. It is also more precise and thus more cost effective than, say, TV advertising, as a result. Programmatic advertising applies on a cross-device level. There's already heavy growth and investment in mobile and rumblings of using programmatic for broadcast advertising are already getting louder.

The birth of programmatic started in 2009 when a number of companies like Google started to dish up a new way of trading advertising space to publishers. It could be done instantly via real-time ad exchange from just about anywhere with internet access. Both sellers and buyers benefited. Buyers could consider every ad impression, figure out its value and then decide on a bid. It was the first time they were able to purchase just what their audiences were after with no waste like with bulk buying. In turn, they were also more likely to pay more since they were getting what they wanted.

As for sellers, they displayed unsold inventory in real-time, could set a reserve price, and ultimately score bigger bids via programmatic selling. There was no more guessing what buyers would pay or what they wanted in a bulk package. It was easy for sellers: They were told what their buyers wanted.

Once You Go Programmatic

It's pretty simple: programmatic can provide highly efficient, high quality, and advertising markets that deliver optimal value to both buyers and sellers. Programmatic advertising has been evolving quickly in order to support growth of the digital economy across screens and formats. The advantages that programmatic brings are something that fewer and fewer ad buyers are passing up. When you have the option to decide exactly who is going to see your ad, it's hard not to switch away from old-style bulk-inventory buying.

Published on: Mar 4, 2015
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