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Programmatic Advertising Explained: 18 Essential Terms [2019 Update]

Programmatic Advertising Explained: 18 Essential Terms [2019 Update]

A comprehensive understanding of programmatic advertising can be difficult to attain.

One of the reasons explaining programmatic advertising is so difficult is that the channel utilizes a lexicon of terms seldom seen elsewhere. Demand side platforms get confused with data management platforms, programmatic deals get mixed up and waterfalling is unique from any other form of advertising.

Despite the complicated terms, it’s vital for publishers to fully understand the benefits and process of programmatic. While there may be some brand safety concerns along the way, programmatic advertising still presents a more efficient way to buy and sell online ad space – and it will only continue to evolve.

In an effort to further breakdown the process and make it as digestible as possible, we have compiled a list of definitions to take with you moving forward – or perhaps to help you read through our previous posts.

Knowing the specifics of each programmatic term can make the programmatic advertising process in its entirety much easier to grasp.

Here is our brief glossary for programmatic advertising, explained.

Short on time? Click here to download our free report, Programmatic 101: What You Need to Know

#1 Ad Exchange

An ad exchange is a digital marketplace where publishers and brands can buy and sell ad inventory.

Mostly used for video, display, and mobile placements, ad exchanges hold real-time auctions, collecting bids from brands that want a specified ad placement.

Whether in the traditional process of waterfalling or in header bidding, ad exchanges make filling ad inventory more efficient, and easier for both buyers and sellers.

#2 Ad Inventory

Ad inventory is the available ad space that a publisher can sell to advertisers.

In a general sense, inventory is a stock of goods held by a business to eventually be sold.

Ad inventory is the same, simply less tangible than what most of us think of when considering inventory.

Whereas an auto parts store stocks brake pads, rotors, oil, and headlights as inventory, publishers stock display, mobile, and video ad space as their inventory.

#3 Ad Server

An ad server is a digital technology that quite literally serves advertisements to website visitors.

In the programmatic process of ad buying, the ad server works as a mediator in between ad exchanges holding auctions for advertisers and a web page with an open ad placement.

The server communicates with exchanges to find a brand, then serve that brands advertisement on the given web page.

#4 Ad Space

Ad space can be considered the available spots on a webpage where an advertisement can be placed.

On a web page, ad space can typically be found in the header/footer areas, in the sidebar, within the content itself, and so on.

Publishers often host many webpages, thus allowing them to offer a great deal of ad space. All of that ad space combined is what makes up their ad inventory.

#5 Attribution

With attribution, advertisers are able to see where their incoming traffic is coming from. For brands advertising with PPC, social media, display ads on publications and more, attribution becomes important for figuring out which channels have the biggest impact.

Selling an ad to a brand may just be part of their larger digital campaign — and they need a way to determine the touchpoints of the campaign and the impact that each touchpoint has. This is typically achieved with tags embedded in the display ad.

#6 Audience Extension

One of the most appealing elements of ad networks and demand-side platforms is the ability for brands to follow their audience from one site to the other.

Audience extension and its cousin retargeting are what allow brands to offer highly targeted, personalized ads to their audience not only based on demographics but also browsing behavior. It’s also what allows advertisers to retarget consumers when they bounce from site to site.

#7 A/B Testing

Since programmatic ads are built digitally, brands have the ability to test the efficacy not only of an entire campaign or advertising channel, but also each creative that they put to use.

A/B testing is an automated comparison of different ad versions to determine which perform best. In many cases, the higher performing ad will be automatically prioritized.

#8 Container

Also referred to as a “wrapper,” a header bidding container is a technology used to make communication with header bidding partners easier and make the header bidding process less disruptive for websites.

The container minimizes the code needed in the process of header bidding.

Instead of individual lines of code needing to be added for each demand source, the container allows for a single line of code to be added.

As demand sources come and go, only the container needs to be updated, not the entire webpage. It is a way to make sure that website load times are not affected by the automated process of header bidding.

#9 Contextual Targeting

Instead of (or in addition to) targeting ads based on browsing behavior or demographics, contextual advertising automatically places different ads on pages based on the content of the page.

A travel publication, for example, may offer the ability to automatically display ad creatives related to a specific destination as a consumer is viewing the page. The text- or image-based ad is typically dependent on the keyword related to the page.

#10 CPM (Cost Per Thousand Impressions)

CPM is a way to measure the cost effectiveness of ad space. It is typically the measure of cost accrued by an advertiser per 1000 viewer impressions of an online advertisement.

CPM represents what advertisers are willing to pay for certain ad space. For publishers, higher CPMs represent more valuable ad space.

Cost Per Click, in comparison, is typically used for PPC search ads — but it can still be a viable pricing model for programmatic display ads as well.

#11 Data — First-, Second- and Third-Party

First-party data is offered by publications as information gathered on their viewers or customers first-hand — through a CRM, website analytics, and cookies.

Second-party data is essentially someone else’s first-party data. The key difference of this type of data is that is does not come directly from the publication. Second-party data, on the other hand, is purchased directly from the company that owns it.

Third-party data is aggregated from several sources. Unlike second-party data, it is not bought directly from a company that is selling its own data. Instead, third-party comes from huge data aggregators that purchase first-party data from many publishers and other data owners.

#12 Data Management Platform

A DMP is what keeps programmatic advertising offerings and campaigns organized. Brands and publishers alike can use the platform to, well, manage data.

Brands typically use DMPs to track campaigns with first-party data and integrate it with third-party data so that onsite and audience extension activities are coordinated.

Publishers typically use DMPs to organize in-house data about users that then can be packaged in audience segments for brands.

#13 Demand-Side Platform

A demand-side platform is a piece of technology that automates media buying for advertisers.

DSPs are what enable ad buyers to communicate with ad exchanges, allowing them to automatically place bids on the ad space they desire. It is a web-based manager for advertisers to find available ad space.

Amazon, for example, has its own DSP. Our post on the unveiling of Amazon Advertising goes into more detail of the uses of a DSP and how it interacts with other facets of the programmatic landscape.

#14 Header Bidding

Header bidding refers to a specific process of how programmatic advertising is executed.

It is one of the latest advancements in programmatic, making the process even more efficient by considering multiple bids simultaneously, and considering pre-existing direct buys alongside programmatic buys.

By letting multiple advertisers bid on placements at the same time, publishers can truly maximize the value of their ad inventory, while letting less inventory go to waste.

#15 Price Floor

In programmatic advertising, the price floor refers the minimum price set for any single ad placement.

This is a way for publishers to non-directly negotiate with advertisers. By setting a price floor, publishers ensure a minimum return on purchased ad space.

No ad will ever be placed programmatically unless it meets or exceeds the price floor.

#16 Programmatic Direct

Programmatic direct is a way for ad buyers and sellers to automate direct ad buys.

In programmatic direct, there is no bidding for ad placements. There are fixed pieces of inventory being sold for fixed prices. But each deal is executed programmatically.

It is essentially the middle ground between direct, human-based ad buying, and the completely automated processes of waterfalling and header bidding.

#17 Supply-Side Platform

A supply-side platform is very similar to a demand-side platform, except, instead of being on the buyer-side of the transaction, it is on the seller-side. DSPs would aid advertisers, while SSPs would aid publishers.

An SSP is a way for publishers to automate the filling of their ad inventory. The SSP interacts with ad servers to find advertisers. It is a publisher’s automated inventory manager.

#18 Waterfalling

Waterfalling is the name for the traditional process of how programmatic advertising is carried out.

In this process, when a web page is loaded, a request gets sent to an ad server, and that server reaches out to ad exchanges to discover bids made for a single ad placement.

Bids are considered one at a time, sequentially, thus not always gaining the highest possible return for publishers. This process was a breakthrough at first, but left the door open for further advancements to be made – header bidding, the prime example.

Programmatic Advertising Explained: Build, Test, Tweak

The explanation of each of these key programmatic advertising terms makes at least one thing clear: success in programmatic requires a strategic approach. It’s not something to take on without a clear plan of action and the ability to make tweaks to optimize along the way.

Media buyers with a good portion of their ad spend dedicated to programmatic advertising expect the a la carte ability to build out their creatives as they see fit, test the results of display ads in real time and make tweaks quickly and easily.

“It takes more than just money to make a success of programmatic advertising and relies on brands optimizing their campaigns to get the most for their money,” writes Emily Atkinson at Ve, a digital ad agency.

While this list of programmatic advertising terms does not cover the entirety of the advertising avenue, it will definitely help further your understanding of the process.

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