Donald Draper, the protagonist of AMC’s hit 50s-era series Mad Men, is depicted as one of Madison Avenue’s smoothest advertising executives. He focuses on charm, style, and an innate understanding of the American consumer. Somehow, (in the show), he succeeds.
Modern advertising has changed so drastically that Don might find himself considerably out of date. Today’s advertising is more scientific and quantitative than ever before, and requires deep understanding of publisher metrics, customer behavior, and computer science. A large part of this is due to programmatic advertising, which has revolutionized the way marketers reach audiences through targeted digital ad placement .
What is programmatic advertising?
Programmatic advertising refers to the use of automated processes to buy, place, and optimize advertising. This is in contrast to the traditional model of advertising in which ad agencies (e.g., Ogilvy & Mather) or marketers (e.g., Kraft-Heinz) directly contract with publishers (e.g., ESPN.com). Exhibit 1 shows an overview of these two approaches.
Exhibit 1: Overview of traditional vs. programmatic advertising models 
Due to its real-time bidding structure, the programmatic approach is best suited for online advertisements. In 2017, global programmatic advertising spending totaled approximately $80 Billion – representing 45% of all online advertising, and 14% of all advertising . The sector is also expected to grow rapidly. TechNavio, a market research firm, estimates that programmatic advertising will grow at a CAGR of 21% from 2017 to 2022, and come to represent $210 Billion, 29% of global ad spending . It is clear the industry’s shift to programmatic advertising is significant and will continue into the future.
Exhibit 2: Global programmatic advertising market size, 2017-2022 
How does programmatic advertising create value?
Programmatic advertising creates value for marketers by allowing them to target advertisements for maximum impact. For example, a company advertising de-icing salt might focus their ads on users who live in areas experiencing cold weather. By focusing advertising on their target consumers marketers can increase their return on investment. They also save valuable time, as shown in exhibit 3.
Programmatic advertising also creates value for publishers by ensuring that their inventory (i.e., ad space) is maximally utilized. Through the real-time bidding mechanism programmatic advertising ensures that inventory is most efficiently allocated to the highest bidder.
Finally, programmatic advertising creates value for consumers by showing them relevant, timely ads that may fill a genuine consumer need.
Exhibit 3: Time savings with programmatic advertising 
The shift to programmatic advertising has benefitted a number of sectors involved in measuring, analyzing, and optimizing advertising spending. Exhibit 3 shows several of these sectors and their role in programmatic advertising.
Exhibit 3: The programmatic media landscape 
Winner #1: Ad exchanges
Examples: Google’s DoubleClick Ad Exchange, AppNexus
Advertising exchanges run the real-time bidding process at the heart of programmatic advertising and are one of the most direct winners in its growth. Ad exchanges capture value by charging setup fees and commissions to the publishers seeking to sell inventory on the exchange.
Winner #2: Supply side platforms
Examples: Google AdX, Pubmatic
Supply side platforms, also called Yield Optimization Platforms, enable publishers to effectively manage their inventory and revenue on ad exchanges. By automating the sale of publishers’ ad inventory, they create value for publishers. Several software companies focus exclusively on this market segment and have benefitted from the rise of programmatic advertising.
Winner #3: Demand-side platforms
Examples: Amazon Advertising, DoubleClick BidManager, Brightroll, DataXu
Demand-side platforms allow marketers (e.g., Kraft-Heinz) to manage multiple ad and data exchange accounts to accomplish an advertising goal. For example, BrightRoll might help Kraft-Heinz optimize its advertising across five separate exchanges to maximally effect brand perceptions among 25-39-year-old females.
Winner #4: Third party data providers
Examples: Lotame, BlueKai, Exelate
Third party data providers help marketers and their demand-side platforms better identify their “targets.” The data that third party providers give – such as detailed consumer targeting data – helps marketers design better campaigns. Data providers capture some of this value by charging marketers access fees. These companies also frequently accept payment “in-kind” – i.e., they allow marketers to trade data on their customers in exchange for third party data .
Programmatic advertising’s growth has negatively impacted a number of players in the traditional advertising model. In addition, the future promises more pain: programmatic advertising is expected to continue expanding, and will likely be introduced in advertising media currently considered off-limits (e.g., TV, radio, outdoor).
Loser #1: Media agencies
Examples: WPP, Omnicom, Publicis
Media agencies are the primary losers of the shift to programmatic advertising. Initially, media agencies saw programmatic advertising as a growth area; they quickly built staffs and expertise in programmatic campaign development. However, a series of scandals (involving programmatic ads showing up in less-than-desirable locations, coupled with inaccurate metrics) convinced many marketers to develop in-house programmatic advertising management capabilities. It is seen as unlikely that this business will return to the media agencies. Billings at WPP, the world’s largest media agency, declined 3.9% in 2017 .
Loser #2: Owners of other forms of “broadcast” media
Examples: TV station owners, radio station owners
The additional value created by programmatic advertising is likely to reduce the proportion of advertising spending allocated to traditional forms of broadcast media. While this effect will take a number of years to materialize, and can be offset by overall market growth, I believe that the market’s shift towards personalized, “narrowcast” media is likely to continue. Owners of broadcast media outlets will likely try to find alternate ways of targeting customers (e.g., through cable subscriptions). Once this is achieved, these media types are likely to join programmatic marketplaces.
Loser #3: Workers
Programmatic advertising requires less manual input and adjustment than traditional advertising, as shown in exhibit 3. This has led to a reduction in employee needs. These job losses may, in time, be offset by increased demand for data scientists, engineers, and other highly-trained computer professionals. However, the short term impact is a reduction in employment.
Exhibit 5: Job growth in the Media & Advertising sector 
Towards a more efficient marketplace
Programmatic advertising represents a new, more efficient process for buying, placing, and optimizing advertisements. In just a few years, programmatic ad-buying has become the majority of the online advertising market, and shows little sign of slowing. Over time I feel confident that the opportunities created by expanding programmatic advertising will unlock new ways for marketers and consumers to interact.