Programmatic has changed advertising and become the dominant way for digital advertisers to purchase media. According to eMarketer, U.S. advertisers spent 41.2% more on programmatic display ads in 2021—the biggest annual increase since 2016.
But all the tech talk around algorithms and data science has left some people confused about how it all comes together. You might have questions like: What is a DSP? What’s the difference between a DSP vs. ad network vs. ad exchange? Which should I use for my advertising?
We’ll define what is a DSP, highlight the pros and cons of each digital media buying method, and help you decide which to use.
What is a DSP?
DSP stands for Demand-Side Platform. It’s software that automates the process of purchasing and deploying digital ads.
It’s no surprise that a majority of advertising happens online. So if you’re an advertiser today, chances are you’re using a DSP to buy your ad campaigns. With DSPs, advertisers can set up, manage, and measure the results of their ads in real time.
On the other side of this process are publishers. For example, traditionally, magazines publish ads. But today’s digital publishers are blog owners, podcasts, influencers, and the like. In the digital advertising world, “inventory” (or programmatic inventory) refers to the amount of ad space or volume that a publisher has available for sale.
Digital advertising can be purchased through a couple of different means.
Real-Time Bidding (RTB)
RTB is a digital ad buying process that follows an auction model. The ad marketplace is made up of advertisers (the buyers) and publishers (the sellers). These two sides connect via an ad exchange. Then, real-time auctions all over the net take place in fractions of a second. Based on a buyer’s preset parameters, their ad is matched with the right ad space.
Programmatic Direct
A programmatic direct deal is a pre-negotiated deal with a particular publisher.
Unlike an auction, programmatic direct uses fixed pricing and sometimes guaranteed ad inventories. Inventory guarantees may include ad positioning, quantity, or impressions.
In short, digital ad deals are struck via auction on a public exchange or done through more exclusive and private means. Deals can also be a mix of the two. For example, a programmatic direct deal could offer some priority over premium ad inventory before that ad space is offered publicly.
How does a DSP work?
When an advertiser uses a DSP, they’ll first set their advertising parameters. The DSP will prompt them to choose their target audience and upload the ad they intend to publish.
Based on the advertiser’s settings, the DSP will automatically bid on ad impressions based on their relevancy to the ad parameters and target audience.
With any winning bids, the DSP will also purchase the ad impression. Ultimately, the advertiser’s ad will be displayed on the publisher’s website, video, or platform.
On the other side of the ad marketplace is the publisher who makes their ad inventory available on the DSP. They may do this through an ad exchange or a software platform designed to facilitate the seller’s side of the ad buying process, called a supply-side platform (but more on that later).
A DSP makes it much easier to advertise on many platforms and channels at the same time. For example, it will allow you to manage your Google ads and Facebook ads all from a central place. Without a DSP, you would have to control and track these campaigns on two separate platforms.
A DSP will also track your ad metrics to show you which campaigns have the best results. You can learn from this data to improve your campaigns and optimize your advertising ROI.
Benefits of using DSPs
Demand-side platforms are the latest phase in digital media buying’s evolution.
An effective advertising strategy finds the best placements for your ads, for the best price.
Aside from that, there are many other levers to pull which can help maximize an ad’s performance. Some of these involve timing, A/B testing, demographic segmentation, and data collection. A DSP provides the advertiser with all of these capabilities, and much more.
A DSP also connects the advertiser to multiple sellers and ad exchanges. This makes DSPs a one-stop shop where an ad buyer can buy ad placements on many channels and platforms from a single dashboard.
Publishers benefit from the additional opportunities to sell their inventory.
Benefits
- Multiple inventory sources — DSPs connect to several ad exchanges and supply-side platforms (SSPs) and offer several channels
- Transparency — you choose which sites to buy
- Bidding environment — pay what you think each individual impression is worth
- Data segments — use third-party or first-party data to enhance buy
Limitations
- Steeper learning curve — multiple bidding options allow for greater precision, but it takes longer to master the nuances of buying.
Other Digital Media Buying and Selling Terms
To summarize what is a DSP—they’re an important tool to help you optimize your advertising spend and performance. When it comes to buying (or selling) digital media, it’s also helpful to be aware of these digital advertising terms.
Programmatic
Programmatic advertising is the use of automation to buy digital advertising. DSPs provide the technology that makes this possible.
Supply-Side Platform (SSP)
The suppliers of digital ad space—website owners or bloggers—use a different type of software to sell ad space. They use SSPs designed for the publisher (just like DSPs are designed for the buyer). An SSP connects the publisher to multiple buyers and ad exchanges. The SSP also helps the seller manage and optimize their ad sales.
What is a DSP vs. Ad Network vs. Ad Exchange?
An ad exchange, ad network, and DSP are all methods whereby advertisers and publishers can find each other and transact. However, there are a few key differences. Understanding these differences will help you navigate the world of digital advertising and also inform how you go about shopping for ad impressions.
Ad Network
Ad networks are companies that work directly with publishers to sell available ad impressions.
Advertisers no longer need to contract dozens of individual sites to reach their audience at scale. Publishers can leverage ad networks to sell inventory more effectively and efficiently to many more buyers at once.
Ad network software aggregates ad inventories, allowing ads to be bought and sold in bulk. Inventories are organized by demographics, relevancy, or other criteria important to the advertiser. Ad networks charge a commission for doing a lot of this legwork for the advertiser.
How Ad Networks Work
Many types of ad networks exist. First, ad networks gather a list of publishers looking to sell ad inventory. Then, advertisers use ad network software to set up their campaigns. This includes setting up impression requirements such as budget, targeting, and timing.
Next, the demand and supply sides match on either a direct negotiation or auction basis and the ad is published. Advertisers then track their ads to measure their campaigns.
Benefits
- Centralized source for inventory — no need to buy from sites individually
Limitations
- Lack of transparency — site reporting is often masked
- Fixed CPM — all impressions cost the same regardless of value
- Needs hands-on management — must ensure that tracking and filters are optimal
Ad Exchange
Ad exchanges are like online auctions for ads, similar to how E-Trade is an online marketplace for stocks. Publishers and ad networks sell their impressions to advertisers programmatically.
Ad exchanges work with multiple seller sources simultaneously to auction off impressions through real-time bidding or programmatic direct. They often connect to DSPs and SSPs, but advertisers can buy from ad exchanges directly.
The auction-based environment facilitates buying and selling from multiple sites or ad networks simultaneously. It makes the ad buying process more efficient and offers advanced audience targeting.
Ad exchanges give advertisers more options for targeting. The most interested audiences see the most relevant ads. Ads exposed on ad exchanges can be converted to multiple formats. This allows an advertiser to run their campaign more easily on any platform.
There is some overlap between the capabilities of ad networks and ad exchanges. But there are key differences.
Think of ad exchanges as marketplaces where all of a publisher’s inventory may be sold. Ad networks are companies that curate that inventory for advertisers before it gets sold.
Another major difference has to do with the way inventory is priced. An ad exchange uses only real-time bidding. This means that pricing is entirely determined by the bidding trends of competing advertisers.
An ad network, by contrast, can allow advertisers to negotiate purchases directly from specific publishers.
How Ad Exchanges Work
First, the publisher determines their available ad placements and floor prices. Then, they connect to the ad exchange and auction off their ad placements to advertisers who place bids in real-time.
As the advertiser, you’ll input your campaign details into your DSP software. The DSP allows you to configure your bidding in such a way that it will automatically bid on the most favorable ad inventory on the ad exchange.
Next, your DSP connects to the ad exchange where it analyzes all the potential ad placements offered by the publisher. It then determines whether or not the placement is worth buying and places a bid.
Finally, the ad exchange matches the ad placement with the highest bid. And all of this occurs in fractions of a second. In an ad exchange, pricing is based on market competition (whereas in an ad network pricing is based on ad inventory).
Google AdX is one of the biggest ad exchanges out there. It offers real-time bidding on ad placements to DSPs, ad networks, and agencies. Like most other ad exchanges, publishers who sell on Google AdX have very high traffic and thus larger inventory.
This is great for the advertiser (who doesn’t visit Google?) but remember that higher competition for ad inventory can drive ad prices higher.
Benefits
- Transparency — you choose which sites to buy
- Bidding environment — you choose what CPM to pay
- Data segments — use third-party or first-party audience data to enhance buy
Limitations
- Limited inventory — you can only access sites within the exchange
- Specific channels — some exchanges specialize in video or mobile, requiring access to multiple exchanges to reach all channels
Which should your business use?
As a buyer, you want to maximize your ROI by advertising in places that have the most relevant and highest traffic at an affordable price.
In many cases, using your DSP to buy placements on ad exchanges may be best. This is because small and medium-sized publishers are unable to sell on ad exchanges which tend to only work with high-traffic publishers.
However, say your campaign targets a particular niche such that you aim to buy from a specific publisher. In this case, using an ad network to directly negotiate with a publisher may be more suitable than going to auction.
Whether or not your business buys from an ad network or an ad exchange, you will have to use a DSP that manages and automates the process.
Your DSP can connect with countless sellers via multiple ad exchanges and ad networks at the same time. In this way, DSP software enables advertisers to find the inventory that best matches their needs.
Speaking of DSPs, Goodway Group is the first certified service partner of The Trade Desk (TTD). Small or medium-sized businesses now have the opportunity to access the self-service TTD platform and use it to its fullest with our first-class training and customer service.
