Understanding Programmatic Advertising: A Brief Look at Its History

In the past, if an advertiser wanted to show their ads on a particular publisher’s site, they only had the option to do this manually. This is the traditional direct sales that so many marketers and publishers are familiar with. It is the same tedious process that advertisers use to put advertisement in traditional media. It requires a lot of back and forth emails, negotiations, insert orders (IOs) and manual tracking. Additionally, these purchased media typically uses a cost-per-thousand impressions (CPM) model, impressions are bought in bulk. The same ads are shown to everyone regardless of the user demographic and behaviour.

As the number of advertisers and publishers grew rapidly, a problem arose: it became impossible for advertisers and publishers to approach each other one by one. Advertisers will have to negotiate with thousands of publishers at a time in order to maximise their reach. Publishers also had a hard time of having to call thousands of advertisers to see if anyone is interested in their inventory.

Thanks to the availability of programmatic buying/selling, this is no longer a problem. Through ad networks, trading desks, DSPs and ad exchanges, marketers today can reach thousands of publishers with a click of a button. There are even tools for them to deliver personalized ads to different people across different devices and geographical locations. Publishers can also leverage on the power of programmatic sales to sell their remnant inventories automatically. With maturity of the technology, it is even possible to sell ads to advertisers at a premium price through ad exchanges and private marketplaces

To even better understanding how programmatic advertising became the way it is now, I will touch briefly on its history later in this article. For those of you who do not have the time to go through the whole article, here are an infograhpic for you:

The first display ad

The Oct. 27, 1994 issue of HotWired, the web version of Wired went down in history to be the first site to run true banner ads. The ad was for AT&T’s “You Will” campaign; clicking on the banner brought users to a microsite with lists of the top museums and other mind-expanding sites. The ad was a huge success and had a mind-blowing click-through rate of 44%. This was around 22 times more than the average 2–3% CTR of the “top performing” rich media ads today; the average current CTR of a regular banner now is around 0.1%.

1st ever display ad: AT&T “You Will” campaign

Rise of ad servers and ad networks

By 1996, the amount of internet users and number of websites grew tremendously with faster connection speed (the good old days when everyone was using 56K dial-up modems). Advertisers and publisher who initially brought and sold impressions manually found it increasingly difficult to keep track of their banners; imagine having to manage hundreds of different creatives from different advertisers at the same time.

Companies such as DoubleClick created ad servers which helped in producing and distributing ads on the web. Instead of having to manage creatives for different publishers separately, advertisers can use ad servers to manage all their creatives in one place; the opposite is true for publishers too.

Exponential growth of internet users

As the web grew exponentially, it became difficult to manage the complicated relationship between advertisers and different publishers to serve ads across different websites. As a result, the first ad networks were born in 1998. These ad networks bundled different sites together and sold their impressions to advertisers; so instead of having to contact various websites separately, an advertiser only had to contact one ad network with connections to these websites to get the impressions it wanted.

In 2000, Google launched AdWords (inspired by GoTo.com); it served ads that were nothing like that of other ad networks have been delivering . Users were shown contextually relevant ads while searching on Google’s search engine. This forever changed the landscape of digital advertising; advertisers get to bid for impressions in an auction to show ads to the right people at the right time.

Following up on its great success in Adwords, Google developed its own massive banner ad network (Adsense) in 2003. It later purchased Youtube in 2006 and DoubleClick in 2008. As of today, Google still holds the largest market share in digital advertising.

A New Era

In 2007, Apple reinvented the mobile phone and it changed the world forever; instead of being limited by bulky desktops or laptops, we now access the internet on-the-go and in random places using smartphones. Google followed shortly in Apple’s footstep with the Android OS.

Over the few years after the launch of the smartphones, the price of internet-connected devices plummeted and internet usage grew exponentially.

Even our consumption behavior changed. Daily usage grew by 50%.

The devices we use to surf the internet differ at different period of a day.

Targeting the increasing amount of mobile internet users, advertisers shift more of their ad spending budget to the mobile platform.

Other than drastically increasing the amount of internet users, the increase in mobile internet users also gave rise to geo-targeting. Not everyone will bring a laptop with them everywhere they go. However, it is pretty safe to say that most people in developed countries will bring their phone with them wherever they go. This made geo-targeting a lot more useful than before; now advertisers can even target consumers at the right place.

The Rise of Real-time Bidding

Born in 2009, Real-time bidding (RTB) is a method for buying and selling online display advertising placements in real time on a per-impression basis, via programmatic instantaneous auction, similar to financial markets. With real-time bidding, advertisers bid on an impression and, if the bid is won, the the relevant creative message is instantly displayed on the publisher’s site.

Taking place in ad exchanges such as Google Exchange, RTB is an elegant solution to increase the scalability of digital advertising and provide true audience targeting. RTB not only benefits publishers by allowing them to sell their inventory to the highest bidders, advertisers also benefit by being able to evaluate inventories impression by impression to increase their reach to target customers.

The digital advertising landscape has changed drastically since the first banner ad in 1994. The programmatic advertising that we see today is a combination of all the strengths in previous advertising technologies: the scalability of ad networks, ad auction from GoTo.com, contextual relevance from search engine ads and geo-targeting from mobile device. Together, ads delivered via programmatic means are able to target right people, at the right time, at the right place, at the right price.

And here you go, this is a brief history of programmatic advertising. Hopefully by becoming familiar with its history, you will be able to prepare yourself for more complicated programmatic ad buying/selling in the future.

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