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programmatic advertising

Contributor(s): Ivy Wigmore

Programmatic advertising is a system that automates the processes and transactions involved with purchasing and dynamically placing ads on websites or apps. Programmatic advertising makes it possible to purchase and place ads, including targeted advertising content, in less than a second.

Ads are placed through an auction system known as real-time bidding (RTB) that manages transactions between the site or app publisher (the supply side) and the advertiser (the demand side). The advertiser sets criteria for buying ads through a software interface, such as a demand-side platform (DSP). When a publisher's software notifies the system that they have ad inventory (spaces for ads) available, those spaces are offered for real-time bidding.

Through automated processes, advertisers bid for the impression (a single view of an ad by a single individual) based on its perceived value, according to established criteria. All these processes and the placement of the ad occur within the time it takes for the requested web page to load. The entire process takes place between the time that a user requests a web page and the time it takes for that page to load in the browser. (For a more in-depth explanation, see our definition of real-time bidding.)

Programmatic advertising has been promoted as a way of optimizing the advertiser's investment and the publisher's profit, while also automating tasks and making it possible to serve consumers with the most relevant purchase opportunities, which are more likely to result in sales. However, there are significant downsides to all this automation. Low bids on impressions can lead to ineffective ad purchases or placement on inappropriate websites, for example, and even ad fraud. Similarly, the publisher can end up with inappropriate ads appearing on their sites. From the customer's perspective, there are concerns about data privacy, as well as the annoyance of being targeted with ads that follow you from one site to another, possibly for something that you've already purchased elsewhere or decided not to buy.

This was last updated in February 2017

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