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Each month, Basis Technologies' Programmatic 101 series tackles a different facet of programmatic advertising—from best practices for buyers, to competitors in the space, to trends you should know.
Programmatic advertising has been around since 1994, but like a 90’s trend, it’s really blown up in the 2020’s. There’s no overstating the prevalence of programmatic: AdAge predicts that by 2025, 90 cents on the dollar of digital ad spend will be allocated to programmatic channels (up from 70 cents on the dollar currently).
In general, programmatic advertising can be defined as the automated buying and selling of digital advertising. In this post, we’ll take a look at the benefits of using programmatic technology, as well as the history that led to the automation, transparency, and accessibility we all enjoy today.
Back in 1994, AT&T signed a three-month agreement with Wired.com to showcase the internet’s first banner ad, pictured below:
By today’s best practices, this ad shouldn’t have performed well. It doesn’t contain a strong call to action and it doesn’t communicate any messaging about AT&T or even mention the brand itself. However, it delivered click-through rates (CTR) of 44%! That's pretty darn good, given that average CTR rate today ranges between 0.05-0.09%.
This one-to-one buy was the start of direct buying and while it had its advantages (relationship building, premium placements, flexibility with ad sizes and inventory) it was very manual. As the number of online websites increased, there needed to be a way for advertisers to automate buying so that marketers’ ads could serve a variety of websites. This led to the birth of ad networks.
A year after the first display ad graced the internet, the first display ad network was founded by an ad agency called WebConnect. Marketers no longer had to go from one publisher to the next, but instead could save time and money by working with brokers who could sell inventory across websites. Adoption was slow at first, but by 1998 there were a variety of competitors in the space who specialized in different types of inventory.
While this solved the problem of automation, advertisers started to realize that there was duplication across ad networks and that the intermediary cost of working with those networks was driving down efficiency.
In 1999, GoTo.com introduced pay per placement (what we know now as pay per click) and this new buying model had advertisers questioning what margins or fees they were paying to run on these networks. In 2000, when Google released AdWords, marketers started seeing the transparency that was possible and wanted greater control over their campaigns.
In 2005, the first ad exchange was born. An ad exchange is a technological platform that facilitates the buying and selling of digital media inventory, allowing billions of impressions to be bought and sold in real time via real-time bidding (RTB). What a mouthful!
This meant that marketers were able to use technology, instead of publisher contact or a 3rd party network rep, to inform their decisions about what advertising inventory they should buy in real time—aka RTB.
The evolution from ad networks to ad exchanges had a gigantic impact on the advertising industry as we know it. There were no longer fixed site lists, fixed pricing, or even fixed impression amounts. Instead, marketers were able to pay only what the demand was at the time their impression was served. In addition, publishers were able to use technology to automate selling their inventory.
Unlike direct buying, where marketers had to rely on relationships and minimum spends, ad exchanges and RTB allowed a more democratic approach to ad buying. Smaller brands and advertisers could tap into programmatic technology to stretch their media dollars further than they could before, and since everything happened in real time, there was no fear of premium inventory already being bought by the top advertisers in the industry.
So there you have it: The need for automation, transparency, and accessibility were key contributors to the development of programmatic advertising. But while the invention of programmatic technology brought more of these three elements to the advertising landscape, it also introduced more complexity. Our industry continues to strive for increased automation, transparency, and accessibility, an effort that paves the way for more innovation and better solutions for advertisers.
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Want to learn more about the fundamentals of programmatic advertising? Check out our free Digital Media Essentials course!