Demand Side Platforms: Silver Bullet or Fog of War?

© 2012 Matt Hunter (Some rights reserved)

© 2012 Matt Hunter (Some rights reserved) DIGITAL ◊ PRODUCT DEVELOPMENT ◊ STRATEGY

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Introduction

• The digital ecosystem is evolving rapidly

• Over the past 10 years, an array of businesses has emerged with the objective of simplifying the role of the digital marketer

-Advertising networks

-Advertising exchanges

-Data exchanges

• For many advertisers, these innovations seem only to increase the overall complexity of the system

• Presently, Demand Side Platforms (DSPs) are touted as the best method for advertisers to cut through complexity and obtain results

Are DSPs the advertiser’s “silver bullet” or just another layer of

complexity?


The digital display advertising ecosystem is becoming highly complex

Source: Terence Kawaja


This presentation focuses on the role of Demand Side Platforms (DSPs)



…and the pieces of the puzzle that DSPs most directly impact



What is a “Demand Side Platform”?

• A tool to assist advertisers in buying display advertising

• DSPs pull together different options (where to advertise? At what possible price?) to create a single dashboard for advertisers to work from

• They cope with “live” prices – enabling “real time bidding” to acquire the most effective advertising real estate

• And the best DSPs can incorporate advances in statistics and artificial intelligence to help perfect marketing strategies automatically


This is a simplified view of the digital ecosystem – let’s walk through

Web sites

Ad Networks

Ad Exchanges

Demand Side Platforms

Data

Data

DSP

Ad Exchange1

Ad Exchange2

Ad Network 1

Ad Network 2

Ad Network 3

Ad Network 4

Data Data

Data

Internal data

External data


Websites have advertising inventory to sell

Web sites

The web is populated with a large number of websites. Websites attempt to sell space on their sites to advertisers.

Some of the bigger sites (shown with stars) have their own sales teams that sell space on the site for advertising. Often, they successfully sell “front page” space but have lots of less attractive advertising space still to sell. They call this “remnant inventory”. Smaller websites don’t have their own sales teams. Instead they need to sell all of their space using automated methods.

Together, this means there is a lot of “remnant inventory” from large sites and inventory from small sites that website owners want to sell through automated systems, not using human sales teams.


To sell their inventory, websites subscribe to advertising networks

Web sites

Ad Networks

Ad Network

There are many business models for advertising networks, but most simply, they buy advertising space from websites and then make it available for sale to advertisers. For advertisers, this is beneficial as they now need to deal with only a single advertising network to put their adverts on many different sites. For the websites selling advertising space, this provides a quick and easy solution for selling “remnant” inventory.


Websites may sell advertising space through several ad networks at once

Web sites

Ad Networks

Ad Network

Sometimes websites sign up to a single ad network and sell all of their content through it exclusively. Ad networks are not all alike. Some may offer advertisers “value-adding” services; like packaging additional data about website visitors with the advertising space. This may increase the value of the space to advertisers and increase the prices paid. This means a website might earn different prices for its inventory on different advertising networks. In an attempt to get a better price for their inventory websites may sign up to several ad networks simultaneously. This is more likely in the case of larger websites.

Data

Ad Network


Because there are lots of advertising networks, advertisers benefits from using exchanges

Ad Networks

Ad Exchanges

Ad Exchange

Ad Network 2

Ad Network 3

Ad Network 4

Data

No one advertising network has all websites available on it. And sometimes, the same website might be listed on two different networks with two different prices. Advertising exchanges pull together the pricing information for lots of different advertising networks into a single place. They are a little like a “stock exchange” for buying online ad space. Prices can update by the second.

Unlike advertising networks, the exchanges don’t buy ad space in advance and then sell it on – they just bring together buyers and sellers.

Web sites


However, no one advertising exchange covers all of the advertising networks…

Web sites

Ad Networks

Ad Exchanges

Ad Exchange1

Ad Exchange2

Ad Network 1

Ad Network 2

Ad Network 3

Ad Network 4

Data Data

…And so there are good reasons for there being many different advertising exchanges


This creates a desire for something at the top of the food chain…

Web sites

Ad Networks

Ad Exchanges

Demand Side Platforms DSP

Ad Exchange1

Ad Exchange2

Ad Network 1

Ad Network 2

Ad Network 3

Ad Network 4

Data Data


This creates a desire for something at the top of the food chain…

Ad Exchanges


Ad Exchange1

Ad Exchange2

DSPs can plug in data from multiple ad exchanges.


DSPs also allow advertisers to layer in extra data to inform their buying decisions


Data

Data

There is an abundance of additional external data which buyers can use. A lot of this information comes from cookies. Individuals receive cookies as they pass through different websites. Evidence of where customers have been marks them out as being interested in certain products. Armed with cookie information, advertisers can target adverts to specific customers on specific sites. Firms such as BlueKai sell cookie data.

External data

Advertisers are constantly generating their own data about how successful their advertising is. This includes information such as sales, clicks on advertisements, or visits to the advertisers’ own websites generated some time after a prospect was shown an advert.

DSPs offer functionality to import this data and use it to guide the buying process.

Data

Internal data


DSPs sit at an important point atop this structure of sites, networks, exchanges and data

Web sites

Ad Networks

Ad Exchanges

Demand Side Platforms

Data

Data

DSP

Ad Exchange1

Ad Exchange2

Ad Network 1

Ad Network 2

Ad Network 3

Ad Network 4

Data Data

Data

Internal data

External data


To be clear, DSPs are not…

• Companies which “Bulk buy” media only to sell it on to users of the platform

• Companies tied to specific advertising networks able to exploit a certain aspect of data asymmetry

• Services that perform a function on behalf of clients in a black box manner

- Clients should always have total visibility on what their money is spent on and fees charged at each stage of the process (as far as is possible)

• Companies which limit the data, media space or contractual arrangements which clients can operate under

• Companies which arbitrage media risk

http://www.adexchanger.com/data-driven-thinking/not-every-demand-side-platform-dsp-is-created-equal-what-is-a-true-dsp/

Although a providing business may embrace aspects of the above, these are not the core

functions of a DSP


Description:

So what are the supposed advantages offered by Demand Side Platforms?

• Buy a specific space from the lowest priced Ad exchange or Network

• Use price patterns to purchase media at lower price/ performance ratios

• Avoid buying poorly targetted media space

• Control frequency of ad delivery at a micro level

• Cut data by customer/ creative / media / … to find hot spots

• Capability to individually value ad impressions

• Real time reporting

• Integrate reporting with other media for a cross channel attribution system

• Better visibility on the types of customers being exposed to a brand’s advertising & websites being used – enables greater quality control and brand protection

Less media waste

Integrated CRM

Improved tareting

Improved reporting

Quality control

• Viewing the multi website customer journey informs off-site CRM

• Increased data capture allows a better picture of the customer base

Longer customer life time

Higher value

Lower cost

Higher margin advertising

Greater Profitability

Advantages:


…And what about the disadvantages?

• Greater complexity

-Advertisers buy-in to the idea of using demand side platforms as an alternative to using “expensive” digital marketing agencies. But many of the features of a DSP require specific expertise. Marketing departments are rarely equipped with people able to understand the nuances of different algorithms, demand elasticities and so on ….

-The upshot is organisations often end-up hiring ever greater numbers of staff to head up their new in-house DSP function, with the end result that they spend significantly more on attaining the same results than if they had “outsourced” media control to specialist agencies

• Management distraction

-Developing a competence in digital media management comes at the expense of other endeavours. Typically, businesses spend less effort on areas such as product development or on-site optimisation. In attempting to master real-time digital marketing, advertisers may lose the edge in their core product areas

• Another layer of cost


Demand side platforms are likely to weaken the influence of agencies

• Advertising networks and advertising exchanges and data providers together created a very confusing landscape for advertisers

• Agencies have added value for clients by helping them navigate this strange landscape, in some cases building bespoke systems that perform the role of a demand side platform

• As demand side platforms become available “off the shelf” many observers predict agencies will become less important and advertisers will prefer to feed themselves

• However, not all advertisers have the scale to manage the complexity that DSPs involve


Whilst website owners fear DSPs will weaken their ability to sell advertising space

The combination of better customer data, revenue tracking and media buying in theory allows advertisers to select only the most profitable tranches of display advertising space. The result is a “de-averaging” of the average cost curve advertisers must pay. Website owners fear the result will be that advertisers will: 1) Cherry-pick the most profitable “premium” display

advertising chunks, and

2) Recognise that much of the display inventory they currently buy is completely useless and cease purchasing it for anything but rock-bottom prices

Website owners fear this greater precision will result in lower overall revenue


Conclusion

• DSPs promise to help advertisers solve the complexity created by the web of advertising networks, advertising exchanges and data exchanges

• Although DSPs have great potential, they pose their own challenges to advertisers

-To truly master the capabilities of DSPs, advertisers will have to invest in marketers with computational, statistical and digital skills – whose costs may outweigh their benefits

• DSPs are also upsetting the advertising landscape for agencies and website owners

-Agencies are less able to rely on information asymmetry and unique proprietary technology to justify their position

-Website owners face the prospect of being able to charge less for their media space as advertisers better understand its true value

• DSPs are not a silver bullet, rather the next step in the arms race

-Advertisers must develop greater technical competence in digital

-Agencies must embrace a more transparent, advisory role

-Advertisers must work harder to add-value with their online real estate


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Demand Side Platforms: Silver Bullet or Fog of War?