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November 16, 2015

Behind Programmatic Advertising: The Trading Desk

What is a trading desk for digital marketing, and how does it work?

By now you have surely heard of programmatic advertising. Since its inception in 2009 when tech companies like Google created a new way of trading advertising space, to the near $15 billion dollars US advertisers will spend on programmatic buys this year, the use of technology to automate the buying and selling of ads is becoming the standard for advertisers. But while some advertisers believe programmatic to be the future, many still do not understand from a tactical side how it all works.

The practice of negotiating advertising deals by phone, fax and e-mail are being substituted for trading desks – a central location of computerized systems that house thousands of digital marketplaces for the purpose of purchasing and selling online ad space. The whole method is comparable to the stock market, though instead of trading shares, these markets trade digital ad space, or impressions. Like Wall Street, companies with advertising space to offer list the space with the trading desk. Advertisers can view this space listed within the trading desk and decide which will earn them the most return for their investment.

The tech-tonic shift the industry is feeling stems from advertisers now having the power to make purchase decisions based on the user rather than the content.  Trading desks give advertisers more control over their ad dollars by reporting actionable data in real-time. “Data will continue to be the currency of the internet,” says Jeff Green, CEO of TheTradeDesk. The key to smart decision making is in the data, and with the volume of information that is now being gathered through automated bidding, advertisers are able to bid on ad space on a page where they see a “40-year-old in Macon, Georgia who is in the market for a truck”.

Programmatic buyers are making decisions in real-time. In an open exchange, bids are set by the advertiser based on what they are willing to pay for that user at that exact moment and the transactions occur within milliseconds. As multiple buyers are bidding for the same space at any given time, the exchange functions like an auction awarding the winning bidder’s ad to appear on the website.

Advertisers can study a campaign’s performance in real-time too and make optimizations based on those insights. Analyzing from a number of different set data points, buyers can adjust their bids to be more or less aggressive depending on criteria such as:

    • -Ad size
    • -Ad position (on page)
    • -Day of week
    • -Device type
    • -Frequency
    • -Geography
    • -Time of day

For example, an advertiser may realize a greater return on ad spend (ROAS) for an ad that serves on in the state of Arizona, appears above-the-fold, on a weekday between 5PM – 9PM. Rather than increase overall spend or shift all of their dollars to that market, advertisers can simply bid more against those exact parameters without changing the overall strategy of the campaign.

The buyers aren’t the only ones benefiting from the data. Sellers too, have analysts evaluating the absolute optimal price for each publisher to sell ad space – not just the highest price they can sell at, but the highest price that has commanded the most sales for a given piece of ad space. This helps publishers understand exactly what their inventory is worth to an advertiser and what they can sell for. For either party, it’s all about protecting your investments.