As online advertising becomes ever more popular and is used on an ever wider scale, there is a demand for more sophisticated technologies to handle it.

One result of this, is the development of programmatic buying, which uses computer algorithms to create more profitable advertising campaigns.

Programmatic buying is still in its early stages, but its already having a profound influence on the world of online advertising

Just as professional traders are increasingly relying on software to plan their stock, futures, Forex and other types of trades (automated trading), so advertisers are seeking the help of software that can help them advertise in a way that is efficient, automated and highly profitable.

What is Programmatic Buying?

Programmatic buying is a way to fully automate the many often complicated processes that advertisers must consider when purchasing ads.

One of the major components of programmatic buying is real time bidding or RTB. This is an extremely efficient system that is organized by advertising exchanges which allows advertisers to bid against each other for inventory offered by publishers.

Real time bidding is something that is growing really fast in the display advertising market right now. Current annual revenues attributed to RTB are close to $2 billion, and this is projected to rise in the coming years.

The fact is that both advertisers and publishers are demanding ever more efficient and scientific methods for buying and selling ads.

Real time bidding is the technology that allows advertisers to target consumers based on their recent online behavior. Whereas in the past ads could be targeted according to certain demographics, such as age, gender, geography and income, real time bidding takes targeting a step further.

It should be mentioned that while real time bidding and programmatic buying are related, they are not exactly the same thing. Programmatic buying refers to large scale automated buying using sophisticated algorithms. RTB is actually one important feature of programmatic buying, but the two terms are not synonymous.

Programmatic buying is conducted through ad exchanges, such as Google’s Doubleclick Ad Exchange. Google either owns or has relationships with many different websites and companies that it is in the perfect position to leverage this technology. For example, a person may click on a Google AdSense ad and then move on to other pages.

Yet this person is likely to see a related ad when he or she logs on to Gmail – or a host of other websites within Google’s display network. A similar sequence of events occurs with Amazon’s recently created ad exchange, which is why Amazon ads are now frequently seen on a wide variety of websites.

These ads are increasingly related to recent searches conducted by the user. Real time bidding allows advertisers to bid against each other and almost instantly start pursuing the consumer with relevant ads. Of course, all of this is done using highly sophisticated technology. This is all part of programmatic buying.

Programmatic buying gives marketer the power to include a large number of variables when advertising. Whereas in the past, it might take days, weeks or even longer to track the results of advertising, programmatic buying allows this to occur in real time.

This lets the advertiser calculate return on investment almost immediately, and makes it possible to adjust the parameters of the campaign very quickly.

Main Advantages of Programmatic Buying

There are several distinct advantages that programmatic buying has over other, less advanced methods of purchasing advertising.

One of these benefits is that it produces completely transparent pricing. Buyers can decide exactly how much they are willing to bid for impressions.

The most powerful advantage, of course, is that ads are shown to specific people rather than simply displayed on websites.

No matter how relevant a certain website might be for an ad, there is always the question of whether the right visitor will show up and click on it.

With a programmatic campaign, however, the advertiser can be certain that the person who sees the ad has at least some proven interest in the product.

To put it in slightly different terms, programmatic buying lets the advertiser display ads to people who are already at least partially pre-sold on the product.

While no type of advertising is foolproof, in this scenario there is some history between the visitor and the brand. This often makes for substantially better click throughs and conversions than with other types of advertising.

Concerns For Publishers

Programmatic buying has some definite benefits for publishers who are looking to sell inventory in the most efficient way possible. By working with an ad exchange, a publisher can automate the process of finding buyers.

On the other hand, many publishers have concerns that programmatic buying can lower the value of their inventory and cause them to lose control over the selling process.

There are also concerns over brand image, as ads are placed based on visitors’ behavior and preferences rather than on the qualities of the online properties themselves.

While some publishers are reluctant to give up direct relationships with buyers, many are also seeing the benefits of programmatic buying.

As this technology advances, it will become ever easier to ease publishers’ concerns such as maintaining ad quality. And while lowered costs are obviously more attractive to media buyers than to publishers, this is simply a typical outcome when a process becomes automated and more efficient.

It is also unlikely that, no matter how popular programmatic buying becomes, that it will ever completely displace other types of display advertising. In other words, publishers can still reserve some of the prime space for ads sold directly to buyers.

Possible Drawbacks of Programmatic Buying

Despite its many advantages, some people are still skeptical regarding programmatic buying. One reason for this is that it involves something known as remnant inventory.

This is inventory that was not purchased directly by other advertisers and is therefore still available. One objection that is often raised concerning programmatic buying is that it doesn’t allow for the type of branding that other types of direct advertising do.

For a company that is seeking to develop a certain image and build relationships with its customers, programmatic buying can seem a little too unfocused.

While ads are indeed targeted to the utmost degree, the quality of the inventory may vary a great deal. A related concern is that the long term value of customers gained through tactics such as RTB may not be as high as those gained by traditional means.

The assumption here is that this type of buyer is someone making a purchase on a whim rather than someone who has truly been sold on the value of the brand.

How important this point is depends a lot on the goals, marketing philosophy and also the budget of the company.

Businesses with a more traditional approach to marketing are likely to feel that the context of advertising is just as important as the ad itself.

From this point of view, it may not seem so appealing to be able to place a low cost ad in front of an interested potential customer if it appears on an irrelevant website.

On the other hand, this objection is partly rooted in traditions that may not be in place much longer. As people get more accustomed to programmatic buying, it may not matter so much where the ads are seen.

This is, however, still something that each company must decide for itself. There’s no doubt that programmatic buying can allow marketers with limited budgets the capacity to reach more targeted customers than they otherwise could.

Larger companies can afford to be more discriminating, though they too are using these types of advertising platforms in ever greater numbers.

While remnant inventory doesn’t necessarily mean that it has low value to advertisers, it is a reason to do your due diligence before making any purchases.

Even though programmatic buying is extremely efficient, that doesn’t take away the need for marketers to do thorough research and find out who are the most likely candidates for their products.

People sometimes have a tendency to rely too much on technology, thinking that software can make all of the vital decisions.

While programmatic buying does substantially lighten the workload for advertisers, it cannot do everything. Nor are programmatic campaigns guaranteed to be profitable (the same can be said for any type of advertising, naturally).

There is also the need to be vigilant when it comes to the placement of ads purchased in this manner and the factors used to finalize the placements.

Privacy Concerns

One objection to programmatic buying and real time bidding that is also worth noting is that it’s an invasion of privacy. It cannot be denied that some people find it annoying to see ads that follow them from one website to another.

This is an issue that everyone needs to be concerned with regardless of their personal feelings or interests in the matter. That’s because enough complaints could theoretically lead to the banning or strict controls over this type of advertising.

Yet it seems that market forces will prevail on this issue. After all, if people want to enjoy more privacy from advertising they will have to pay for it in another way.

And recent history shows that even if people complain about ads, they prefer them to the alternative of paying out of pocket for services.

At the same time, it’s important for marketers to be sensitive to the concerns of consumers and privacy rights advocates. Part of marketing and branding, after all, is creating a positive image in the minds of your potential customers.

Is Programmatic Buying the Future of Advertising?

There are compelling reasons to believe that programmatic buying is far more than a trend that is currently popular among online advertisers and publishers.

In truth, this is part of a larger trend that encompasses not only the internet, but all types of media. If you have your pulse on the direction of technology and marketing, you will have noticed that there is an increasing emphasis on personalized advertising.

As TV and print media become more integrated with the internet, it is going to become increasingly attractive for marketers to seek ways to deliver highly targeted ads to readers and viewers. For this reason, the whole question of whether programmatic buying is a good idea is largely moot.

Forces are already in place that makes it practically a certainty that this is the wave of the future. The public is still adjusting to this, and some people are still resisting advertising that seems too personalized or intrusive.

Companies that depend largely on selling display advertising are starting to feel the heat as advertising exchanges take away some of their business. Yahoo, for example, has seen a decline of ad sales for this very reason.

Programmatic Buying is Here to Stay

Programmatic buying is a trend that has been gathering steam over the last few years. It has incorporated real time bidding, a practice that has actually been in place for several years now. As the internet becomes ever more populated, marketers are seeking ways to reach consumers in the most effective possible manner.

As popular as programmatic buying is right now, it’s also important to keep things in perspective. While programmatic buying certainly has an important place in the future of advertising, it’s unlikely to render other types of display obsolete.

There will always be a demand for more traditional type of advertising where the buyer and seller are in direct contact.

Nevertheless, the long term importance of programmatic buying is a virtual certainty. As the internet becomes ever more connected to other types of media, there will be more opportunities to automate advertising and tailor ads for every type of consumer.