By Ross Benes

A thinning of the demand-side platform herd may be upon us.

Ad buyers are cutting down the number of DSPs they use so they can decrease the risk of bidding against themselves and reduce their fees and administration costs. Since many DSPs have added similar features, there is little differentiation between platforms, which could spell trouble for niche players without scale.

“I think there was a love affair with all these DSPs for a while,” said Warren Zenna, U.S. managing director of Havas-owned mobile agency Mobext, which generally uses five to seven DSPs across its portfolio of clients, down from about about a dozen a year ago. “But agencies got smart and are picking the ones that work best for them.”

About a year ago, digital agency Bam Strategy used to use three or four DSPs, but it has cut that number down to one or two, said Adam Muscott, Bam Strategy director of marketing. A big reason for the cutback was that most DSPs have similar inventory, which places buyers at risk of duplicative bidding and targeting. Most exchanges use second-price auctioning, where the second-highest bid determines the clearing price, which makes duplicative bidding problematic because buyers bidding against themselves can inadvertently drive up the price they pay for impressions.

For example, imagine that a buyer is bidding $10 across multiple DSPs to target females ages 20-25. Since the inventory is the same in these platforms, the buyer might inadvertently bid three times on the same impression. If the buyer wins the auction at $10, then the buyer will pay $10.01 because the second-highest bid is just another $10 bid from the same buyer. However, if there wasn’t this duplication, the buyer could win the impression at a lowest cost.

Brand clients are dropping DSPs that don’t provide access to unique inventory, said David Lee, programmatic lead at ad agency The Richards Group. A year ago, his clients used five to seven DSPs, but now they are only using three or four.

Buyers are also dropping DSPs to be more efficient. Each additional DSP is another platform that buyers have to be trained on, and it is another dashboard to have to monitor during campaigns. Also, the contracts are complex, so reducing DSPs equates to lower administration costs, Zenna said.

“It is a natural outcome where there is a business with a lot of money flowing through; you will see a lot of players enter it, but eventually it evens out,” Zenna said. “A lot of companies, understandably, entered the market to take their shot. But I think [a culling of DSPs] is inevitable. Some of them have really good technology, and people will want to own that. But not everyone will get an exit.”

For several years, ad buyers treated DSPs like commodities. Buyers approached DSPs like they were ad networks and they’d add 10 platforms to their campaigns, hoping that one would eventually give them price advantages, said Ed Montes, CRO at DSP firm DataXu. But those days are coming to an end, as buyers wise up to how programmatic buying works.

“We have hit an inflection point where buyers now understand the platforms, so that may be why you see less [DSPs] on multiple plans,” he said.

Rich Sobel, svp of programs and services at Publicis Media, said the reduction of DSPs came organically. Because the major DSPs have added features that allow them to buy across channels, buyers no longer need separate DSPs for desktop display, video, mobile and native. So instead, they adopt just a few large DSPs, he said.

“There is a segment of [specialty DSPs] who will suffer,” said Ross McNab, managing director of North America at DSP firm MediaMath. “The clients are voting with their spend on that basis.”

By Ross Benes

Sourced from DIGIDAY UK

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