Whether you’re privy to the online advertising industry or not, chances are, you’ve heard of programmatic advertising. While programmatic is still far from taking over the digital advertising market, it has been growing steadily.

In 2014, the spend on programmatic advertising added up to $10.6 billion. This figure will double by 2016 and will be 63% of the total spend on display ads in the U.S.

Despite its rapidly increasing popularity, some don’t exactly understand what programmatic advertising is, and how it works. Here is the brief and simple introduction to programmatic advertising to get you started.

A simple definition

The easiest way to understand programmatic advertising is to look at it as an automated way to buy and sell online ads whether in web display, mobile, and video. The decision-making process of each campaign — where to place the ads, who to target, etc. — is done through artificial intelligence (AI).

Programmatic advertising uses real-time bidding (RTB) technology where ads are auctioned off programmatically on a per-impression basis. The entire auction occurs within milliseconds.

Of course, despite the use of machines, programmatic advertising still needs the human element to design and prepare the creatives, launch and optimize campaigns, and come up with strategies that work on a short- or long-term basis depending on the campaign.

How does programmatic advertising work

The first step is the gathering of visitors’ data (behavior, location, and other parameters) from websites, mobile, and other display platforms. Artificial intelligence then analyzes these data, which will be essential to facilitate real-time campaign optimization.

Marketers and advertisers can access the data, whether first-party or third-party, from data management platforms (DMPs). DMPs are databases that store visitors information that can later on provide in-depth insights into the advertisers’ target audience.

A demand-side platform (DSP) is a technology that buys advertising based on the information from DMPs.

The real-time bidding (RTB) technology can then process the auction of ad impressions on certain websites, mobile, and other display channels. RTB is usually run through a DSP.

Real-time bidding can process the winning bid based on a pool of existing bids from multiple competing advertisers at any given time. The winning advertiser’s ads then appear on the publishers within their chosen audience. The winner for each bid depends on several factors such as bid price, budget, and category.

Why use programmatic advertising

One of the many benefits of programmatic advertising is that A.I. does a lot of the work. After you input your campaign information and campaign objectives, the A.I. works to place the ads, deliver the audience, and optimize the campaign. It chooses what works and what doesn’t in a very short period of time. This gets you to reach your campaign objectives faster and more efficiently.

In addition, agencies can react instantly to changing dynamics in the market because AIs run 24/7 and continually evolve and react to these changing dynamics.

Programmatic is also cost effective as it cuts off wasted ad spend from trial and error. Marketers can also adjust the cost per thousand impressions (CPM) through RTB depending on how valuable a certain impression is.

Finally, programmatic provides ease of buying ad impressions. With a click of a button, and from a single platform, advertisers can reach more with less time and effort. They can also allocate resources more efficiently to ad strategy and campaigns instead of the grunt work.