DSP is to Display as SEM is to Search

I hate acronyms.  They are classically illustrative of insiders-talking-to-insiders. But in this case, I think that what the insiders are talking about (DSPs), should be of great interest to marketers (and other media-savvy folk). There is also a lot of confusion about exactly what a Demand Side Platform (DSP) is, why marketers should care and why DSPs will help online display advertising become a big dog of media.

So first, let me explain the analogy in the headline: Demand Side Platforms do for online display advertising exactly what Search Engine Marketers (SEM) do for search advertising:

• They innovate on top of publishers' inventory to get better ROI for advertisers.
• They facilitate (in the case of SEMs) / will facilitate (in the case of DSPs) the growth and success of the medium because they enable both small and large advertisers to take advantage of sophisticated marketing technology and better ROI.
• They also are (for search) / will be (for display) hugely important to the success of the leading publishers. Google makes much more money because they chose to enable SEMs. In display, Google and Yahoo! are (as they should be) racing to do the same thing with DSPs because they know that when advertisers get better results, advertisers spend more money.

DSPs will likely help change the game in a couple big ways for display advertising, too. For top-of-the-funnel campaigns, DSPs will tap into publishers / exchanges real-time-bidding interfaces to optimize on reach and frequency across publishers. Today, this is exceedingly hard to do...but just like SEMs made bid optimization much more scalable and much more common in search, DSPs will drive better reach / frequency optimization.

Secondly, DSPs will eake out better performance for bottom-of-the-funnel advertisers. At first, I'd guess a lot of this performance improvement will come in the form of finding bargains through information disparity (where the DSP knows more than other bidders on the exchange)...but just as in the SEM world, competition will soon force DSPs to provide real value in their performance optimization.

My prediction: as DSPs take hold, we'll see lots of winners: advertisers will get better performance (at both top and bottom of the funnel), publishers will get better CPMs as perfomance improvement brings more advertising dollars into the marketplace...and DSPs will have carved out a healthy business.

Comments

[Alex White]

This is a great perspective and interesting to read.

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[Irish]

Agreed. But I wonder how wevnaig these small, dynamic companies into a bureaucracy like Google will effect them. Acquisition by Google means you'll likely have large amounts of capital backing (don't have to worry about getting that next round of funding), but it also means your previously independent and (presumably) successful CEO is now beholden to Larry Page. I think it's pretty rare that creativity increases after the acquisition, and in this case creativity is what's driving development. I'd be really wary of any plan to rapidly expand a business across the entire ecosystem. It also seems to me that patience is what an investor needs in the current atmosphere. My knowledge of the industry is pretty superficial, but I don't see what's to stop Google from picking up a DSP and then creating huge incentives for media buyers to exclusively use said company for Google advertisements. It's move that might raise some eyebrows over the anti-competitive nature of a deal like that, but one that our current congress would neither understand nor care enough about (no real negative impact to constituency) to actually hold Google accountable. It's also a move that could be a kill shot for more than a few of the smaller DSPs, and your investment is gone.Or maybe not.

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