One Year Later, How Are DSPs Adapting?
ADOTAS – Many moons ago, when the demand-side platform (DSP) was new and Invite Media was independent, I made some public predictions about display advertising. In the past year, LucidMedia has been executing diligently and dealing with the many twists and turns of our business. I thought it would be fun to revisit those predictions and rate them with 20/20 hindsight.
Before I get into the scoring, let me first review a few of the major industry developments since my predictions:
Consolidation. The Invite Media acquisition was sadly not followed by a string of other overpriced DSP deals. This disappointed a number of bankers and all the DSPs.
Self-Service DSP. This became a hot commodity briefly. There was plenty of chatter about “trading” similar to a stock exchange environment. Many media planners of old surely cast themselves as the new “mad men” of media.
We all know now that this is just silly. Soon, everyone realized that a slim markup on media is viable only if you have massive scale. The real value is provided by driving outcomes – i.e., layering valuable optimization services on top of the platform.
Data Management Platforms (DMPs). Data drives performance right? So the reasoning goes like this – if we could value data appropriately, then publishers can be compensated properly for the “true” value of their audience, instead of getting diluted in an ocean of inventory. And so DMPs became the next hot thing for while. BlueKai and Exelate raised even more money.
Are they still hot? Did the revenues follow? Anyone care to comment on this? The established data players like Axciom kicked a lot of tires and eventually picked partners or charted their own path.
RTB Changed Supply Dynamics. Massive scale is now available via RTB on exchanges and supply side optimizers (SSP). These are new sales channels for publishers. These channels were and continue to induce bouts of teeth-gnashing and sackcloth-wearing for publishers as they try to figure out how to leverage them without diluting their value.
On the other hand, the traditional ad network has to deal with a new challenge to maintain their captive publisher base. As their publisher based flirted with SSPs and exchanges, networks saw no other option but to take a seat on the exchanges. They built or partnered to acquire this ability to buy on exchanges. (Congratulations AppNexus – you read this trend well!)
Against that backdrop I thought it would be fun to revisit some of my predictions and throw some bouquets and brickbats at myself. I’ll score them on a scale of 1 to 5 where 1 = “Crack Pipe” and 5 = “Savant.” Just for fun, you may want to revisit your own predictions from last year and score them as well. I will have a glass of wine for all the savants. The crack addicts can join me for a pub crawl.
Prediction #1: Agencies won’t be able to absorb true self-service.
The Thesis: Running display campaigns requires a lot of expertise. No self-serve DSP provides all of this expertise in a usable fashion for the typical media buyer. It will require human expertise to deliver the outcomes. Agencies do not have this talent and won’t be able to attract this talent.
How it played out: Almost all of the smaller agencies run campaigns with DSPs in “managed service” mode. The DSP typically gets a CPM rate. Some of the larger holding companies have made significant investments in people to build up internal expertise.
They still use a third-party platform. They still profess independence from any one vendor. And they continue to use up business development cycles in “evaluations” of other DSPs. The media planning groups within these holding companies use the services of the “trading desks” services grudgingly, and continue to RFP externally.
The Score: 3.5. It is too early to call the trading desk experiment a success or a failure. I would say my prediction is mixed for big agencies, and right on for small agencies!
Prediction #2: The DSP is the next ad network
The Thesis: Building on the predictions that (a) SaaS for agencies will not work out and (b) the change in supply-side dynamics due to exchanges will profoundly impact networks; true value will continue to be delivered by driving desired outcomes for customers. In other words, you make more money by running campaigns well.
This is what an ad network does. (I use the words “ad network” as a placeholder for a marketing services company that runs mainly display campaigns.) If DSPs have to run campaigns to survive, and networks need the technology of DSP to continue to be relevant, then surely they are one and the same?
How it played out: Lets compare business models.
- Offers a “managed service” to run campaigns
- May offer a self service backed by managed service
- Pricing is typically CPM, CPC, or CPA
- Client base – agencies and direct advertisers
- Lots of noise about their awesome technology!
“Traditional” ad networks
- The run campaigns – i.e. – offer a “managed service”
- They are trying to differentiate themselves by offering exclusive inventory
- They build or license technology to buy exchange inventory.
- Pricing is typically CPM, CPC or CPA
- Client base – agencies and direct advertisers
It walks like a duck and quacks like a duck. So, it must be a duck right? Sort of, except that the duck with a DSP tattoo on its chest is a rocketship!
The common theme here is that both are in the business of delivering outcomes to their customers. It is just that the inventory situation (supply side) has changed dramatically with exchanges and supply side optimizers. The demand side has not changed all that much!
The Score – 4.5 Pretty much spot on.
So what’s next for the evolving DSPs? Emerging media is a likely wave to ride. Mobile, video, and social media perpetually sit somewhere on the slope of enlightenment. Social is probably the most exciting beach-head that DSPs are now wading into.
With DSP technology in-hand advertisers can quickly build a guaranteed fan base for new products, effectively engage and activate that audience, monetize it and then re-engage in a regular cycle. The DSP platforms with their massive reach and instant scale makes social media activation a solid bet.
Agree? Disagree? Have a visceral reaction? Let the fireworks begin.
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