Introduction
Programmatic advertising is distinguished by the automation of buying and selling digital advertising inventory. However, this automation is not limited to a single transaction model. Within the programmatic ecosystem, various business models and auction types coexist, determining how buyers and sellers interact, the price at which inventory is traded, and the level of exclusivity and delivery guarantee. Understanding these different models is essential for both advertisers and publishers to select the most appropriate strategy for their objectives and maximize the value of their transactions in the programmatic market.
Programmatic Buying and Selling Models
Programmatic buying and selling models vary primarily based on the number of buyers who can access certain inventory, whether inventory delivery is guaranteed, and the type of prior negotiation between buyer and seller. The most common models, generally ordered from least to most exclusivity and control from the publisher, are:
- Open Exchange (Open Market): This is the most basic auction model with the largest volume of inventory. The publisher makes their inventory available to a large number of buyers through one or more Ad Exchanges. The auction takes place in real-time, impression by impression. Buyers can use whitelists to bid only on inventory on specific sites, and publishers can use blacklists and price rules to protect their inventory. It is ideal for advertisers seeking reach at scale and for publishers looking to monetize the maximum of their unsold inventory through direct deals. There is no direct relationship or inventory guarantee.
- Private Auction (PMP – Private Marketplace): In this model, the publisher limits access to their inventory to a selected and limited group of buyers through a private auction. A minimum price (floor price) is often set higher than in the Open Exchange. This model offers a more controlled and qualitative environment for the publisher and allows buyers to access premium inventory or specific audiences they would not have access to in the open market. There is no guarantee of inventory delivery, but there is exclusive access to the auction.
- Preferred Deal: A direct agreement between a publisher and a buyer where a fixed price or a floor price is agreed upon for certain inventory. Unlike Private Auction, here the negotiation is bilateral. The buyer has preferred access to that inventory before it goes to the open auction, but there is no guarantee that they will acquire a specific volume of impressions. It is a model that offers more control and transparency than the Open Exchange for both parties.
- Programmatic Guaranteed: This is the model most similar to traditional direct buying and offers the highest level of control and guarantee. A publisher and a buyer agree in advance on a specific volume of impressions (or audience, in the case of “audience guaranteed”) at a fixed price, and the publisher guarantees the delivery of that inventory. The transaction is executed programmatically, but the negotiation is direct, and the inventory is reserved. It is ideal for branding campaigns or campaigns with guaranteed reach objectives.
The choice between these models depends on the advertiser’s objectives (reach vs. precision, performance vs. branding), the publisher’s monetization strategy (maximizing revenue vs. maintaining control over premium inventory), and the type of inventory or audience desired. The table provided in the document summarizes the key characteristics of each model.
Auction Types
Regardless of the business model (Open Exchange, Private Auction, etc.), buying and selling in programmatic is done through an auction model where multiple buyers compete for an individual impression. Impressions are traded under the CPM (Cost Per Thousand Impressions) model. Historically, there have been two main types of auctions that determine how the price for the winner is set:
- Second Price: Under this model, the buyer who submits the highest bid wins the auction but pays the price of the second-highest bid plus one cent. This model was designed to incentivize buyers to bid their true value for an impression, knowing they would only pay slightly more than the second-best bidder.
- First Price: In this model, the buyer who submits the highest bid wins the auction and pays exactly the price they bid. This model has gained traction in recent years, as it is perceived as more transparent for publishers by allowing them to receive the full value of the winning bid. However, it requires buyers to adjust their bidding strategies to avoid overpaying.
All advertising spaces that go to programmatic auction have a minimum purchase price (Floor Price) set by the publisher. Bids below this floor price are generally discarded. Some SSPs allow publishers to set a “target eCPM” floor price, which, although it may accept individual bids below that value, aims for the overall average price of received bids to exceed the target. The example table in the document illustrates how a target floor price works.
Other Key Concepts in Transaction Dynamics
In addition to business models and auction types, there are other concepts that influence the dynamics of programmatic transactions:
- Programmatic Setup in the Ad Server and Priority Pyramid: Publishers configure the priority of different demand sources (direct sales, programmatic guaranteed, preferred deals, private auction, open exchange, house ads) in their ad server. This priority pyramid determines the order in which selling opportunities for an impression are evaluated. Higher priority sources (e.g., sponsorship, programmatic guaranteed) are evaluated first and have preferred access to inventory, while the open auction and house ads usually have lower priority. The correct setup in the ad server is crucial for the publisher’s Yield Management.
- Deal ID: As mentioned in the Troubleshooting article, the Deal ID is a numerical identifier that links a direct programmatic agreement (like a Preferred Deal or Private Auction) between a buyer and a seller. It is essential for the DSP and SSP to communicate and correctly execute the agreed-upon transaction.
- Data Usage: The use of data is intrinsic to all programmatic business models but becomes especially relevant in models like private auctions or preferred deals, where transactions based on specific audience segments can be negotiated. Data allows for personalizing the advertising impact and improving ROI for the buyer, and for the seller, qualifying their inventory and justifying higher prices.
Conclusion
The programmatic advertising market is not a monolith but a diverse ecosystem with multiple business models and auction types designed to meet different needs and objectives. From the broad accessibility of the Open Exchange to the exclusivity and guarantee of Programmatic Guaranteed, including the bilateral agreements of Preferred Deals and the private auctions of PMPs, each model offers distinct advantages and dynamics. Understanding the auction types (Second Price vs. First Price) and their impact on pricing is equally fundamental. Furthermore, concepts like the priority pyramid in the ad server, the role of the Deal ID, and the omnipresence of data usage are key to successfully navigating this environment. For advertisers and publishers, mastering the knowledge of these business models and transaction types will enable them to make more informed strategic decisions, optimize their operations, and maximize the value of their investments or inventory in the fascinating and complex world of programmatic advertising.