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June 07, 2010

Online Advertising Business 101, Part VII: Demand-side Platforms (DSPs)

This is not the DSP you're looking for It turns out, alarmingly, that it’s been over a year since my last Online Advertising Business 101 post. And a year is an awfully long time in the world of online advertising. Long enough, in fact, for an entirely new kind of company to emerge and become the next big thing. I’m talking, of course, about Demand-side Platforms. You’ve heard of them, I trust? No? Then read on.

 

DSPs, RTBs, oh my

As it should happen, my last post in this series was on the subject of Ad Exchanges – a new kind of participant in the advertising value chain that acts as an intermediary between ad networks, allowing them to exchange inventory to make up for shortfalls in supply and demand among their own publishers and advertisers, and also allowing other scale players (e.g. big advertisers like eBay, or a big agency) to buy inventory dynamically across a number of different networks. All those folks had to do was implement some technology to interact with the exchange, and place bids in real-time (on of the key characteristics of an ad exchange being that it can auction inventory in real-time).

It turns out that that last glib sentence conceals an awful lot of complexity. Real-time Bidding (RTB), as it’s known, is a pretty complex technical challenge to pull off. It involves building a system that can listen for inbound impression opportunities, and parse them more or less in real-time (milliseconds) to transmit back a bid for that impression. If you just wanted to send the same bid back for every impression, or vary the bid on the basis of some very simple variables (e.g. the size of the ad unit), then you could probably hack something together reasonably easily, but of course it’s not that simple.

Once you get into the business of real-time bidding, you want to take into consideration a wealth of data (the more the better, in fact) about the impression, including (but not limited to):

  • Ad unit size/format (e.g. Rich Media)
  • Site
  • Page content category
  • Geo
  • Time of day
  • Frequency
  • User profile

Of course, if you’re an agency or network doing this, you want to be able to manage different bids and budgets for your different advertisers, and also to incorporate things like advertiser/publisher block lists (e.g. Wall Street Journal doesn’t want to advertise on the NYT site). And you probably want to enable advertisers to manage (or at least track) their campaigns through the third-party ad servers (Atlas Media Console, DFA, OAS) that they’re used to.

 

What’s a DSP?

The complexity of building something like this has spawned the new technology category of the Demand-side Platform (or DSP, which always makes me think of something else, showing my age). The name comes from the fact that these systems “aggregate demand” – i.e. they provide a single interface to the supply-side of the value chain for a number of advertisers.

Since many of the established participants in the advertising value chain already represent (or serve) advertisers, almost everyone – agencies, networks, exchanges - is these days calling themselves a DSP, much to the annoyance of Mike Nolet at AppNexus. Mike argues that the glib name, together with its appropriation by every man and his dog, make it all but useless to claim (or describe) something as a “DSP”.

It is true that the “Platform” in “Demand-side Platform” is a bit of a stretch, but I’m a little bit more forgiving than Mike, and don’t think that it’s an entirely useless term. As to what defines a DSP, I would offer the following definition, based upon this list of capabilities in the table below. If a company offers a well-integrated set of, say, three-quarters of these capabilities, and offers a real-time bidding capability, then you’re probably looking at a “proper” DSP:

DSP typical capabilities
Advertiser bid/campaign management UI or API
Ability to execute real-time buy bids with exchanges and other “RTB-enabled” counterparties
Multidimensional bid optimization
Ability for advertisers to provide their own data (e.g. targeting cookie data) to refine bidding
Universal user management (e.g. frequency capping) across multiple inventory sources
Integration with third-party ad servers
Consolidated reporting/billing/payments across multiple third-parties

Most of these “DSP capabilities” are nothing new. The items above can be found in other systems, such as those provided by some ad networks and third-party ad servers – which is why companies in these businesses are busily launching DSPs. What is new is the consolidation of these features into discrete offerings – and the new boundaries that are being drawn as a result.

 

Where to find a DSP

As well as stand-alone DSP providers (see the list below), DSP functionality is appearing in two other main places: ad networks and media agencies.

Ad networks are incorporating DSPs into their advertiser-facing offerings so that they can broaden the range of media they can offer to their advertisers beyond that which they directly represent. The latest network to do this is your friend and mine, Google, which this week announced the acquisition of Invite Media, which brokers bidding on Google’s own DoubleClick Exchange, but also a range of other exchanges including our own AdECN.

Networks will also increasingly use DSPs themselves to source their inventory, gradually replacing their “in-bulk” supply-side relationships with DSP-mediated deals where the network gets to pick and choose which impressions to add to its pool.

The other place that is getting all DSP’d up is the media agency. Several large agency holding companies are establishing ‘trading desks’ which are consolidating the buying (aka demand) from across the company’s advertiser base and leveraging that demand to drive better-value deals for the agency. These trading desks are becoming increasingly sophisticated and have recently started engaging in real-time bidding. Some of the better-established trading desks (with the providing agency in parentheses alongside them) are in the list below:

  • Vivaki Nerve Center (Publicis)
  • Omnicom Trading Desk
  • B3 (WPP)
  • AdNetic (Havas)
  • Cadreon (IPG)
  • ATOM (Razorfish)

 

Who are the DSPs, then?

Well, that depends who you ask, of course. But now you’re this far down this post, I feel emboldened to provide you with a list of the best-known independent DSPs. If I’ve missed someone, please let me know, and I’ll add them in.

Company Description
AdChemy Provider of audience-based display and search advertising platform (the “AdChemy Experience Platform”). Focuses on generating a “relevant” experience for consumers, bundling in dynamic creative generation with other DSP-style services such as segment targeting & optimization. Typically partners with Agencies – largest partnership is with Accenture Interactive.
x+1 Offers campaign/media optimization (“Media+1”) as part of a suite that includes landing page & site optimization (straying into MVT territory). Media+1 enables real-time bidding for exchange-based inventory - x+1 has created a “Virtual Audience Network” across multiple Ad Exchange & Network inventory sources, to compete with traditional ad network offerings.
Media Math “The new marketing OS”. Provides a DSP offering (“TerminalOne”) to agencies, through a combination of technology and services. One of the first companies to market with such an offering.
Turn Offers both agency trading desk and full-fledged network management software – both include the full range of DSP “table stakes” features such as exchange integration, RTB, targeting & optimization. Network offering adds cross-network inventory/campaign optimization. Because of both offerings, Turn works with both agencies and ad networks.
DataXu Fairly straightforward independent DSP – offers real-time bidding across a handful of exchanges, with optimization and tracking built in.
AppNexus Styles itself as a cloud-based platform on which RTB/DSP-style systems can be built, rather than a DSP in itself. Partners with agencies and ad networks to enable them to build out their own DSP or trading desk capabilities & offerings.
Triggit Another fairly vanilla DSP, with a fairly standard range of capabilities & partnerships. Fairly strong portfolio of data partners to aid with campaign targeting.
LucidMedia Offers self-serve DSP (LucidMediaDSP). Claims to be able to reach 95% of the US online audience via partnerships with the usual suspects (Google, Yahoo/RightMedia, Rubicon, PubMatic, etc).
Invite Media Now no longer independent after its acquisition by Google. “Bid Manager” tool provides cross-exchange buying; supports the major exchanges (Google, Yahoo! RM, AdECN) plus other supply aggregators such as PubMatic.

 

Where next for DSPs?

That’s an excellent question, and I’m glad you asked it. The short answer is, ah, not sure. But one thing I can aver: if you come back to this post in a year’s time, you’ll chuckle at the (by then) wildly out-of-date list above. Some of the companies in the list will no longer exist, either because they’ve gone out of business or been swallowed up by a larger fish, and there’ll be some new wunderkind on the block who I’ve completely missed out.

Which is all to say, there’s a lot of change going on in this area. The balance of power in the industry is shifting, and right now it seems like the DSPs are calling the shots, but don’t expect the big ad networks to sit around idle and let DSPs drain away the demand-side of their business. We may well find (as is happening in the web analytics industry) that very soon, there are no independent DSPs left, and every agency is a DSP also.

On the other hand, life is becoming much harder for small networks to survive in this new world; first their advertiser base will be wooed away by the DSPs (and by DSP-enabled network competitors); then their supply may fragment as DSP-based agency buying takes hold. If you thought the online ad industry was starting to settle down and make a little more sense, then, well, too bad. But at least it’s not boring.

Online Advertising Business 101 – Index of all posts

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