Demand Side Platforms: Silver Bullet or Fog of War?

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Acknowledgments:
Front cover: Based on original photo by AstroZombee23 (Flickr)

DIGITAL ◊ PRODUCT DEVELOPMENT ◊ STRATEGY

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 © 2012 Matt Hunter (Some rights reserved)

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
Data

Demand Side Internal External
Platforms data Data
DSP data
Data

Ad Ad Ad
Exchanges Exchange1 Exchange2

Ad Ad Ad Ad
Ad Network 1 Network 2 Network 3 Network 4
Networks
Data Data

Web
sites


Websites have advertising inventory to sell

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.

Web
sites


To sell their inventory, websites subscribe to
advertising networks
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.

Ad
Ad Network
Networks

Web
sites


Websites may sell advertising space through
several ad networks at once
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.
Ad Ad
Ad Network Network
Networks
Data

Web
sites


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

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

Ad Ad Ad
Ad Network 2 Network 3 Network 4
Networks
Data

Web
sites


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

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

Ad Ad Ad

Ad Ad Ad Ad
Networks
Data Data

Web
sites


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

Demand Side
Platforms
DSP

Ad Ad Ad

Ad Ad Ad Ad
Networks
Data Data

Web
sites


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

Demand Side
Platforms
DSP

Ad Ad Ad

DSPs can plug in data from multiple ad exchanges.


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

Platforms data Data
DSP data
Data

Advertisers are constantly generating There is an abundance of additional
their own data about how successful external data which buyers can use.
their advertising is. This includes
information such as sales, clicks on A lot of this information comes from
advertisements, or visits to the cookies. Individuals receive cookies as
advertisers’ own websites generated they pass through different websites.
some time after a prospect was shown Evidence of where customers have been
an advert. 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.

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


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

Platforms data Data
DSP data
Data

Ad Ad Ad

Ad Ad Ad Ad
Networks
Data Data

Web
sites


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

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

http://www.adexchanger.com/data-driven-thinking/not-every-demand-side-platform-dsp-is-created-
equal-what-is-a-true-dsp/ © 2012 Matt Hunter (Some rights reserved)

So what are the supposed advantages
offered by Demand Side Platforms?
Advantages: Greater
Profitability

Higher margin Longer customer
advertising life time

Lower Higher
cost value

Less media Improved Improved Quality Integrated
waste reporting tareting control CRM

Description:• Buy a specific • Capability to • Avoid buying • Better • Viewing the
space from individually poorly visibility on multi website
the lowest value ad targetted the types of customer
priced Ad impressions media space customers journey
exchange or • Real time • Control being informs off-
Network reporting frequency of exposed to a site CRM
• Use price • Integrate ad delivery at brand’s • Increased
patterns to reporting with a micro level advertising & data capture
purchase other media • Cut data by websites allows a
media at for a cross customer/ being used – better picture
lower price/ channel creative / enables of the
performance attribution media / … to greater customer
ratios system find hot spots quality base
control and
brand
protection

…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

Email: ProfessionalEnquiries@Gmail.com
LinkedIn: http://cn.linkedin.com/in/digitaldirector

DIGITAL ◊ PRODUCT DEVELOPMENT ◊ STRATEGY

Demand Side Platforms: Silver Bullet or Fog of War?

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