Programmatic advertising explained: Strategies, benefits & future trends

Allowing for highly-targeted, automated ads, programmatic advertising offers several benefits over traditional display marketing. 

The programmatic advertising market market is currently valued at $26.74 billion. Experts predict it will hit a compound annual growth rate (CAGR) of 30.1% between 2025 and 2034 — forecasted to reach $370.12 billion by 2034. 

In this post, I’ll explore programmatic advertising in more detail — covering how it works, the main types of programmatic advertising, how to measure success and more. 

Programmatic advertising allows you to trade time-consuming manual advertising processes for automated ones. Alongside automation, it uses data analysis techniques to analyze a variety of datapoints, from online behavior to demographics, to help you more effectively target your ads and reach ideal prospects. 

In the past, buying media was a manual, time-consuming process in which advertisers and publishers negotiated via agencies on audience research, ad targeting and ad placement. Programmatic advertising brought automation, data analysis, targeting and real-time bidding to the ad industry. It enabled advertisers to ditch their reliance on agencies for media placements, allowing them to target, place and optimize ads at scale.

In 1996, the first ad server DoubleClick was founded. It was then bought by Google in 2007. This set the trend, leading to the founding of a number of ad servers like Ad Stream and Zeo. Soon after that, Google launched Google AdWords in 2000 —  allowing site owners to use Google's network of advertisers to monetize their site, followed by Google’s Display Network (GDN) in 2013. This period marked the shift from the old-school manual media buying process to democratized, automated, data-driven advertising. 

From a user visit to ad delivery, let’s explore the ins-and-outs of how programmatic advertising works. 

How does programmatic media buying work? Here’s what happens during a programmatic ad auction: 

1. Targeting: In response to a user visiting a website, the publisher’s platform triggers an auction for available ad inventory while the demand-side platform (DSP) draws on activity data to get insights into which ads would be a good match. 

2. Bidding: In a matter of milliseconds, the DSP automatically calculates and places bids for the open ad space. 

3. Ad serving: The advertiser with the highest bid wins the placement, instantly displaying their ad to the visitor. 

4. Optimization: With each ad impression, advertisers continue to collect performance data that they can use to optimize their future bids and improve the accuracy of their targeting.

In this form of advertising, the role of data and algorithms is essential — allowing advertisers to reach and effectively target a number of different audience segments. It typically combines first-party (from ad advertisers' own software and systems such as CRMs and customers' purchase history), second-party data (shared between trusted partners) and third-party data (data from third-party sources). This data may include: 

• Demographics: Such as age, ethnicity and location.   

• Behavioral data: Such as website visits, interactions on social media and purchase history.

• Contextual data: Such as keywords and site images and text. 

• Device data: Such as the type of device used such as mobile or desktop and the operating system. 

The use of such a wide variety of audience data alongside algorithms supports accurate real-time bidding decisions, efficiently targeting the relevancy of an ad to a particular user and giving advertisers the opportunity to place ideal bids on the most promising impressions. Once campaigns are up and running, data is automatically collected and analyzed —  allowing advertisers to strategically adjust their bids and targeting and improve their campaigns based on the story their data is telling them. 

Explore data storytelling in our past post. 

What are some of the key components of the programmatic media buying ecosystem? Read on for a breakdown.

Demand-side platforms (DSPs)

Demand-side platforms (DSPs) are advertiser tools for campaign management. Advertisers use this software to buy ad inventory and manage and optimize ad campaigns across ad exchanges, supply-side platforms, direct integrations and ad networks programmatically.

Supply-side platforms (SSPs)

Supply-side platforms (also known as SSPs) are the publisher tools used for inventory optimization. Publishers use these tools to automatically sell their digital ad inventory through ad exchanges, demand-side platforms and networks at the same time — allowing them to sell impressions to the highest bidder. 

Data management platforms (DMPs)

Data management platforms (DMPs) effectively act as centralized data warehouses, centralizing first, second and third-party data used for audience segmentation and targeting. These platforms organize and segregate data based on demographics, behavior and interests. 

Advertisers and publishers then use these data categories to create targeted audience profiles for their ad targeting. Alongside audience data centralization and categorization, DMPs also offer in-depth data analysis, offering insights into both audiences and campaign performance.

Real-time bidding (RTB)

Real-time bidding (RTB) automatically runs instant auctions for ad impressions. After a user visits a site, RTB triggers an auction that gives advertisers the opportunity to bid for that ad impression — selling the ad space to the highest bidder in real time and displaying the winning ad to the visitor.

With real-time bidding, advertisers determine their bids based on data, targeting, and perceived value. After receiving the bid request, demand-side platforms analyze demographic, behavioral, contextual and device data to understand the interests and intent of the user. Advertisers also use audience data to help categorize their audience into different segments and refine their ad targeting, making sure their ads reach the users that are the best fit for them. 

Contextual targeting also comes into play: RTBs analyze site content to make sure it's a good fit for that ad and place ads accordingly. If ads are being placed for a local business, users will also be targeted geographically — for example, a bakery in Philadelphia will only be sure to promote to people living in the city. 

Advertisers will also assess the value of an ad before bidding — calculating whether it's worth putting in a higher bid for ads with prospective high conversion rates or users that offer a higher potential customer lifetime value.

Here are the main programmatic buying methods: 

1. Programmatic direct (also known as programmatic guaranteed)

This approach involves pre-negotiated agreement between the advertiser who wants to buy an ad and the publisher who sells it. It automates the negotiation and sales of your direct-sold inventory. Google discusses how Programmatic Direct works in Google Ad Manager: 

"You can negotiate terms of campaigns and finalize details with a buyer right within the Ad Manager. Buyers can then accept terms or suggest changes during negotiation. Once both parties have agreed terms, the Ad Manager automatically sets up a campaign for delivery. Programmatic Direct also reduces overhead of creative management as buyers host and manage creatives in their system." 

2. Open auction

With an open auction or open marketplace, a large pool of publishers offer their inventory to each participating buyer for a minimum price. Buyers use real-time bidding to bid on individual impressions with the highest bid winning. 

Adrian D’Souza says: "Think of an online art auction where registered users can bid and the highest bidder wins the work of art. That is exactly how digital advertising's programmatic open auctions work - an ad impression is offered up in an online real-time auction, multiple buyers quote a price they are willing to pay. The highest bidder wins that auction and gets to serve their ad into the ad slot on a given web page." 

Private marketplace programmatic (PMP)

A private marketplace refers to a private auction in which a select number of advertisers are chosen by the publisher. The publisher offers these buyers access to premium inventory. PMPs is essentially a middle ground between the above two options.

Read on for the most common programmatic advertising examples: 

Display ads: Display ads are targeted visual ads that show up to users across websites. They are shown to users in the form of banners at the top or sides of a webpage or embedded in the the content of a page. 

Video ads: Video ads refer to programmatic delivery on streaming platforms. Programmatic video ads target users across streaming platforms. Whether that’s videos embedded into written content or ads shown before, during or after a video plays. 

Social media Ads: Several of the most popular social media platforms offer programmatic advertising. You can use Facebook’s Ads Manager to run targeted, cross-platform campaigns on Instagram and Facebook. While Twitter Ads platform offers automated bidding. TikTok also uses several programmatic advertising approaches including auction-based ad placements and targeting capabilities that combine demographic, interest and behavior-based targeting. 

Connected TV (CTV): With 76% of consumers streaming daily, Connected TV is another one of the top channels for programmatic advertising. Advertisers offer full-screen ad inventory that can be targeted to users based on their viewing habits. 

Read up on advertising effectiveness in our past post. 

To measure success and improve the effectiveness of your campaigns, there are several key performance indicators (KPIs) you can track. These include: 

1. Impressions

Impressions take place whenever a user sees an ad. For example, if a user opens an app and sees your ad, that counts as an impression. By measuring your impressions, you can also measure and calculate other metrics like your click-through-rate (more on that below). 

2. Clickthrough rate (CTR)

Clickthrough rate refers to the number of users who click on an ad that’s shown to them. You can calculate it by dividing the number of clicks your ad receives by the number of impressions.

Adjust says: 

"An Impression occurs when a user sees an ad, but it doesn’t imply engagement. A click happens when the user actually clicks on the ad. While clicks are more valuable for direct measurement of conversions, impressions help measure ad visibility and can have a significant impact on campaign uplift and performance." 

3. Conversions

Conversions tell you how many users complete your desired action after they click your ad. For example, maybe they make a purchase, download an ebook or sign up for an event — it all depends on your CTA. 

Basis Technologies says: 

"An Impression occurs when a user sees an ad, but it doesn’t imply engagement. A click happens when the user actually clicks on the ad. While clicks are more valuable for direct measurement of conversions, impressions help measure ad visibility and can have a significant impact on campaign uplift and performance." 

4. ROAS

Return on Ad Spend (ROAS) is a metric that you can use to find out how much revenue you create from every dollar you spend. ROAS is typically formulated as a ratio with a high ratio showing better performance. If you generate $5 in revenue for every $1 you spend on ads then you'll get an ROAS of 5:1. This metric can help highlight how profitable and effective both your ad placements and campaigns are.

Analyzing data for optimization

Use the above metrics to analyze the performance of your campaigns and support your goals. 

For example, you could focus on reaching new audience segments, reducing acquisition costs or improving your clickthrough rates. Optimize your campaign performance by setting clear, measurable goals and assessing relevant metrics to track which placements, ads and audience segments perform the best.

Advantages

Efficiency: Programmatic advertising is a more efficient form of advertising as it automates the buying process. While traditional ad buying involves lengthy negotiations and manual ad placements that can demand a lot of time, programmatic advertising allows you to buy and sell ad space instantly with real-time bidding. 

Targeting: As we cover above, programmatic advertising offers a number of targeting options, allowing you to place your ads in front of ideal-fit audiences with a selection of:

• Demographic targeting

• Behavioral targeting

• Contextual targeting

• Geographic targeting

• Device targeting

Scale: In addition, programmatic advertising also offers impressive scalability. You can easily scale your ads and campaigns across several channels — targeting a larger number of targeted users as your business grows. You also have full control over your bid pricing, you can easily adjust spending based on your audience segments, ad and campaign performance and impressions. 

Optimization: As programmatic advertising gives you a wealth of real-time data on both your audiences and ad and campaign performance, it’s easy to optimize your ads in real time. While adjusting traditional advertising can take weeks or even months, you can adjust your ads, bidding strategies and targeting instantly. 

Challenges

Ad fraud: Ad fraud is one of the biggest challenges with programmatic advertising. Fraudsters and bots are on the rise, using automated systems to register fake impressions. According to the latest figures, 22% of all ad spend goes towards fraudulent ad activity. 

One way you can help monitor this is by focusing on viewable impressions that show you whether ads have actually been seen by users. You can also use third-party verification tools like Moat to help you spot any fraudulent activity in your ad traffic. 

Brand safety: Brand safety means making sure your ad doesn’t appear in a context that has the potential to damage your brand reputation. One downside of automation is that it’s not subject to the rigorous reviews that come with manual advertising, this means that your ad is more susceptible to appear within or alongside inappropriate or poor-fit content. 

For example, your ad may show up alongside fake news or with videos containing hate speech. To help avoid this, use contextual targeting to help make sure your ads are seen by the right users. In addition, you can also use whitelists and blacklists to help get greater control over where your ads are placed. 

Transparency: Lack of transparency is another important issue you need to know about. It can be difficult to have full transparency into where your ads are placed, who they’re seen by and how your given budget is spent. This can make it hard to reliably track your ad performance and metrics — making ads and campaigns harder to monitor and optimize. To help address this issue, Outbrain says:

“To overcome these challenges, you should opt for ad networks that are simple to use. Make sure they integrate well with other systems and offer detailed reporting on ad placement, audience reach, and performance metrics."

What’s ahead for programmatic advertising? Let’s take a look at some of the main trends and innovations.

• Rise in CTV and over-the-top (OTT) advertising: Experts predict that they’ll be a growth in CTV and OTT advertising as more consumers move from traditional TV viewership to streaming with 76% streaming TV shows daily. CTV's programmatic ad share of impressions jumped during the presidential elections in 2024 — hitting 24%, up from 11% in 2022, while CTV's share of ad spend reached 50% in 2024. Programmatic video ad spending is predicted to surpass $110 billion in 2025 — accounting for around 75% of new programmatic ad dollars from 2024 to 2026.

• Increase in digital out-of-home (DOOH): Programmatic DOOH is also on the rise with advertisers displaying targeted ads across digital billboards with both indoor and outdoor displays currently trending. Advertisers are showing highly-targeted ads across highway billboards, urban panels, transit screens and bus shelters. 

• Growth for private marketplaces and programmatic direct: In 2025, over 91% of total US programmatic display ad spending will be on private marketplaces (PMPs) and programmatic direct over the open exchange. 

As we explore above, one of the challenges of programmatic advertising is that ads can show up in contexts that can damage brand reputations. PMPs and programmatic direct options offer more control over where ads appear. In addition, advertisers also get access to premium inventory — making these spaces a bigger draw than the open exchange. 

Taking media buying from lengthy and expensive to effective, automated and hyper targeted — programmatic advertising has revolutionized media buying. 

From scalability to optimization options, programmatic advertising offers advertisers several benefits. For the year ahead, look out for a rise in CTV and OTT advertising and focus your budget on programmatic direct and PMPs for greater control over your ads.