When Did Programmatic Advertising Start: A History Lesson

Olin Hyde
September 2, 2019

Remember those banner ads that you used to see when scrolling through MySpace or talking to your best friend via the antiquated AOL Instant Messenger?

Your mom would tell you not to click on them because it would give the computer a virus, or wait, maybe that was just my mom.

Those ads that we would see on our computers after school, or deep in a chat with your best friend, were actually the beginning of what we call Programmatic Advertising today. Little did we know that those tiny banners were just scratching the surface of the US digital ad-spend, and that the industry would soon be one of the top display-ad expenditures. 

programmatic advertising history

 

Programmatic Advertising: The Early Days

I’d like to say Programmatic display ads started when two college kids sat in a basement and thought about how they could make the world a better place, but it was actually started by HotWired, now known as Wired.com, who discovered that the internet was changing lives. HotWired knew something that others didn’t – the internet could be the playground for those companies that wanted to get their name out there and ultimately make money.

According to Wired, the very first banner ad was run by AT&T, “prophetically asking, ‘Have you ever clicked your mouse right here? You will.’” The days of dial-up were in full swing and ads still garnered millions of dollars of revenue a year. Even with all the risks people couldn’t even begin to fathom yet, people clicked, and money followed.

Following this further, banner ads click-through rates used to average between 40-50%. Let’s break that down a little further, that means half of all people who saw the banner ad actually clicked on it. These days, marketers dream of numbers like that: the holy-grail of a bygone era.

With this big 90s boom, servers needed to be created just for ads – DoubleClick, who is still around today, was the first in the field as a supplier. Others emerged between 1998 and 1999, Dean Schmid from the Daily Disruptor asserts, “brands could now advertise on multiple sites across entire platforms. A lot of ad servers have been released since but, 24/7 Open AdStream, Advertising.com, Value Click, and Zedo, are just some of the noteworthy ad networks that came out before 2000.

 

Y2K Fears & How They Changed Online Ad Buying

As the year 2000 quickly approached, rumors of Y2K and crashing the internet became mainstream. This is when Google marketing cleaned up the mess, and launched AdWords, which offered CPC pricing and let advertisers pay to run campaigns solely on the Google network. It made Google users feel safer amongst the pre-dotcom mania, and it also helped businesses to expand, and make a substantially larger amount of money. This was not the birth of Programmatic Advertising because people could only use it within the Google network, but is was a huge catalyst for what was to eventually come. 

 

Display Ads & DoubleClick

Google knew what they were doing as the years progressed, and eventually bought DoubleClick in 2007 for $3.1 billion. They wanted to get into a space that they hadn’t progressed to, and Programmatic Advertising was in its Wild Wild West days – whoever was the fastest to draw in the Ad-Display shoot-out won. In 2013, Google released their display ad network called AdSense. When this happened, it seemed that Google had monopolized the system – they had the knowledge, name, and power to do so because of their popularity.

However, there would be a few setbacks for Google as other networks began to emerge at the same time coupled with the fact that AdSense began getting a bad rep because it cultivated trashy spam content that seemed extremely illegitimate. As a reaction, Google knew they needed a way to make a comeback so in 2011 it rolled out the Panda Update, a change to their search algorithm that prevented sites with poor content and quality from manipulating their way to the top of Google’s search results. This is an important update for marketers because it provided added impetus to focus on providing high-quality, engaging content for site visitors – not simply relying on keyword stuffing, spammy content and other grey-hat tactics. Quality – in Google’s eyes – matters. 

 

Programmatic Advertising Today

Fast forward to today, you’re sitting here in the year 2019, with a history lesson under your belt and wondering where we are now and what the future will bring. Currently, HubSpot defines display advertising as a “way for businesses to monetize their website traffic, as advertisers pay to have their promotion displayed alongside the content on the page.”

Additionally, there are some pretty scary stats on how display ads are doing today. The average clickthrough rate across all formats and placements is 0.06%. Yikes. (I know, I screamed too.) This means that within the 25ish years since the birth of banner ads, the ad business has become a desolate wasteland where good content is hidden and money is lost. Also, I hate to admit this, but it seems that my mom may have been correct about the viruses because there are “198 million active ad block users around the world” according to PageFair. The success rate is pretty bleak for marketers trying to do their best in a display ad world that seems to have limited resources and fewer options.

digital display ads

Up until now, the history of Programmatic Advertising has been a pretty straight line, one invention was a catalyst or reaction to the next. But here is where this gets a little messy and mixed-up. Schmid writes, “Between 2007 – 2010, ad exchanges like Yahoo’s Right Media, Google AdEX, Microsoft AdECN, AdMeld, PubMatic, The Rubicon Project, and Open X all started build RTB software that worked as a DSP, an SSP, an ad exchange, or some combination of the three.

Coinciding with these ad exchanges is the rise of mobile devices. You can take one out right now, start using any app, and I guarantee ads will pop up or slyly populate your Instagram feed. Targeting has become so direct – I personally have gone against my mom’s warnings and clicked on the ad for a beautiful pair of shoes made just for me, spending $100 on them, then realizing that at the end of the day, I just paid, the marketer, advertiser, and shoe company. It’s a slippery slope, my friends. But it works. 

 

Programmatic & Real-Time Bidding

However, there’s always a caveat to a new-found success, right? Well, here it is: bidding wars. Advertisers originally had to follow the tricky “Waterfall Bidding,” a broken system that “showed impressions to DSPs, or demand-side platforms, in order of the perceived value of each channel… it used historical data to show DSPs impressions, and you got to see it first if you have bid more in the past.”

Consequently, the publisher sites discovered that they could be making more money on an advertiser that would potentially bid more, but had been totally skipped because they had no history of buying. Consequently, “Header Bidding” was born and is flourishing. Companies are able to target better, bid in a world where they’ll have a chance, and find the people who will buy.

 

So what’s next for programmatic advertising?

Unfortunately, I’m not a fortune teller, but I can tell you that the future holds so much more for Programmatic Advertising. Hands-free and automated everything is taking the mainstream by storm. Because the world wants quick, reliable, and simple solutions to problems, improved audience targeting for programmatic advertising will be the next big leap for those wanting to get ahead in the marketing game.

I think fondly of my AOL messenger days, and look forward to those that involve even more AI Targeting, possibly Virtual Reality, and definitely an exciting challenge for an ever-evolving Marketing and Advertising world. 

 

Further Reading

Nick Arnaiz
November 4, 2019
Nick Arnaiz
October 2, 2019
Lainey Mebust
September 16, 2019