What is a Demand-Side Platform (DSP)? How DSPs Work Explained

Read time: 13 minutes

In digital advertising and marketing, DSP stands for “Demand-Side Platform”.

A party’s interest in advertising their product or service creates the “demand” for ad space.

Parties that operate on the “side” of purchasing ad space (advertisers) are referred to as the “demand-side”, while those who provide ad space (publishers) are on the “supply-side”.

As one of the most popular tools for managing the purchase of digital advertising, DSPs are forecasted to reach a $30 billion market by 2025 through a 30% annual growth rate.

This guide covers what a DSP is, how they work, and their importance in online advertising.

Table of Contents

What is a demand-side platform (DSP)?

A demand-side platform (DSP) is a software system used by advertisers to manage the buying of digital ad space from across multiple ad exchanges through a single interface.

DSPs are typically offered by companies as SaaS (software as a service) products that advertisers access by paying a subscription fee.

There are two types of DSPs.

When offered as an unmanaged service, DSPs are referred to as “self-serve”, while platforms offering account management assistance are referred to as “full-service” DSPs.

A DSP service subscription typically includes most (or all) of these features:

  • Bidding strategy optimisation
  • Budget management
  • Audience targeting
  • Real-time analytics reporting
  • Machine learning campaign optimisation
  • Connections to supply-side (sometimes including premium/exclusive) partners

Despite the benefits and convenience of using a pre-built DSP, some advertisers choose to build and use their own DSP, granting them more control over their ad buying process.

For examples of some of the top DSPs, check out this list by ClockworkTalent and this list by BusinessOfApps.

While DSPs are powerful ad tech (advertising technology) tools that are used by most advertisers in online advertising, they’re only one component of programmatic advertising.

What is programmatic advertising?

Programmatic advertising is a term used to describe and categorize methods of buying and selling digital ad space that involve the use of software, automation, and algorithms.

In modern digital advertising, the majority of ad space is bought and sold programmatically.

Programmatic advertising offers several different types of programmatic deals, many (but not all) of which use a method known as RTB (real-time bidding) to conduct auctions.

These different types of deals allow publishers and advertisers to create ad buying arrangements based on budget availability as well as specific ad campaign objectives.

Programmatic advertising also involves a diverse set of ad tech platforms working together – forming an “ecosystem” through which ad impressions (also referred to as “ad inventory”) can be put up for auction, processed, and served to a visitor before a page is done loading.

Some of the ad tech components that make up programmatic advertising include:

To learn more about programmatic advertising and its different components, it may be easiest to start with an overview of programmatic advertising’s history to gain a clear understanding of what each piece of ad tech was originally designed to accomplish (there are many overlaps in modern programmatic advertising which often cause confusion).

Why are DSPs important to programmatic advertising?

Many aspects of DSPs make them a critical component to programmatic advertising.

DSPs serve as a gateway that allows advertisers to connect to the rest of the programmatic ecosystem. Without DSPs, advertisers wouldn’t be able to buy ads programmatically.

Additionally, DSPs include most of the planning and management features advertisers rely on to save time and money while reaching their target audiences with their ad campaigns.

Programmatic advertising wouldn’t be nearly as popular as it is today without the inclusion of DSPs to simplify and enhance advertisers’ interactivity with ad exchanges and SSPs.

Ad exchange vs DSP

Ad exchanges are at the “center” of programmatic advertising. They act as open digital marketplaces that users of DSPs connect to in order to programmatically buy and sell ad inventory without intermediary (human) involvement.

DSPs are interfaces used exclusively by advertisers to connect to the programmatic ecosystem – allowing them to programmatically buy ad inventory through connections to supply sources such as ad networks and SSPs.

The primary difference between ad exchanges and DSPs – is that DSPs are “hooked up” to all of an advertiser’s fundamental ad tech components (such as their ad server and any DMPs they may be using), while ad exchanges are separate technology platforms that communicate with the entire ad tech stack being used by the advertiser.

It’s common for advertisers to connect to multiple ad exchanges using their DSPs.

Traditionally, exchanges acted as open “hubs” that both DSPs and SSPs could connect to – offering a high level of accessibility for DSP users looking to purchase ad inventory.

However, in modern times, the terms “SSP” and “ad exchange” are increasingly used interchangeably, as all major SSP service providers include ad exchanges as one of their components.

In order to work together, DSPs and SSPs require an integration to be built between both platforms – which isn’t always readily available or easy to coordinate when a DSP or SSP is owned directly by an advertiser or a publisher.

Ad network vs DSP

Ad networks are human operated companies (as opposed to ad exchanges, which are automated technology platforms) originally created in 1996 to assist in building relationships between publishers and advertisers who wanted to buy their ad inventory.

The role of ad networks focuses on categorizing and bundling ad inventory from numerous publishers. These ad space bundles are then sold to advertisers who are interested in reaching the audiences associated with each bundle.

DSPs were originally created in 2007 to allow advertisers to connect to ad exchanges in a more intuitive way. In a sense, because of the targeting options which were developed for DSPs, their functionality overlapped heavily with the service offerings of ad networks.

In modern digital advertising, the lines that define and separate ad networks from DSPs are becoming increasingly blurred.

To make matters even more confusing, many ad networks have begun offering programmatic inventory buying methods within their service offerings, making them operate more like DSPs than ever before.

In many definitions of DSPs, including digital advertising authority Digiday’s take on the subject, DSPs are described as being the “next evolution” of ad networks.

Despite their functional similarities, the biggest difference between ad networks and DSPs is that ad networks typically still involve human-to-human negotiations and sales processes, while DSPs are ad buying interfaces that are accessed and controlled independently by advertisers (or teams that are hired to operate the DSP on behalf of the advertiser).

Another way to easily remember what an ad network is – is to remember that publishers need to go through the process of “joining” an ad network (based on each ad network’s individual set of requirements), prior to selling ad inventory there.

As a final point of clarification, DSPs operate as ad tech interfaces that are owned and operated separately from ad networks.

Common examples of platforms that are mislabelled as DSPs include Google Ads (not to be confused with Google’s DoubleClick Bid Manager, which IS a DSP) and Facebook Ads.

While both of these companies own multiple ad networks, and both companies offer interfaces for accessing these ad networks (which operate in an almost identical fashion to a DSP), their interfaces aren’t classified as DSPs, because they only connect users to the “internal” or “walled garden” ad environments of each company.

“True” DSPs are capable of connecting to any supply-source freely, allowing a wide range of ad inventory sources to be accessed and bid on by the advertisers that use them.

How does a DSP work?

When taking a look “under the hood” of its simplified user interface, DSPs are among the most complicated pieces of ad tech in the programmatic ecosystem.

To gain a basic understanding of how a DSP works, both the components that make up the DSP, as well as the process it uses to place bids need to be explored.

The components of a DSP

There are many components which comprise a DSP, all of which work together simultaneously to communicate with other pieces of ad tech within the ecosystem.

The components that make up a DSP include:

  • The bidder(s). A bidder is a component of the DSP which evaluates ad inventory as it becomes available from supply sources, such as SSPs and ad exchanges. In order to reduce latency and make the bidding process as fast as possible, DSP service providers will often set up and host bidders from data centers that are physically located across diverse geographical locations. Bidders are responsible for learning and predicting the price of ad inventory based on historical performance data, and are responsible for managing and placing an advertiser’s bids by using the RTB (real-time bidding) process – or in many configurations, a header bidding process.
  • The ad server. Ad servers are responsible for storing ad creatives (media elements such as images, videos, and audio) and ad markup. When a bid is won, the ad server is responsible for determining which ad creative to serve to a user, based on the information that’s known about them. The ad server is also responsible for tracking conversions and negating fraudulent ad interactions. While many DSPs offer basic ad server functionality (and often bundle this functionality under the umbrella term of “DSP”), it’s important to understand that ad servers and DSPs are not the same piece of ad tech. Standalone ad server solutions exist, often offering more feature-rich environments for configuring this particular component of the DSP.
  • The data platform. Data platforms are responsible for tracking and storing the activity from the bidder and the ad server. This information allows algorithmic optimizations and machine learning to optimise bidding and ad serving decisions over time. Data platforms may also integrate with DMPs (data management platforms) to further enhance the performance of bidders and ad servers.
  • The user profile database. User profile databases track information about users – logging events such as the ads they’ve viewed, how they’ve interacted with certain ads, and which audience segment(s) they belong to. While traditionally used for techniques like frequency capping and remarketing campaigns, user profile databases will inevitably rely on first-party data strategies pending the end of third-party cookies.
  • The campaign tracker. Campaign trackers are responsible for measuring the performance of an ad campaign. They track metrics such as bid win rates, cost per impression, and CTR (click-through rate). The campaign tracker can use techniques such as pixel or postback tracking (though pixel tracking will become obsolete when third-party cookies are inevitably discontinued by Google).
  • The reporting database. A reporting database is able to gather and present all of the information collected by the campaign tracker. The reporting database relies on the UI to visually represent the data collected from the campaign tracker.
  • The UI (user interface). A user interface allows an advertiser to interact with most of the DSP’s components through a visual menu system, like most other types of software and applications. DSPs were originally created with the intent to provide these kinds of simplified UIs to advertisers, allowing them to streamline all of the complicated processes and management tools involved in launching a digital ad campaign through a consolidated platform.
  • The banker (or “cashier”). A banker component ensures that an advertisers expenditure on their ad campaign(s) doesn’t exceed their specified budget limits. Various DSP providers offer different options for managing campaign budgets.
  • Integrations. If they weren’t already feature-rich enough, most DSPs are capable of integrating with other service providers – such as DMPs and other ad performance optimization solutions. DSPs are also capable of integrating directly with ad supply-sources, such as ad exchanges and SSPs.

How the DSP bidding process works

By interacting with other pieces of ad tech within the programmatic ecosystem, DSPs are able to follow a systematic process for placing bids as ad inventory becomes available.

The process used by DSPs to interact with other ad tech platforms typically looks like this:

  1. The advertiser configures their DSP – creating ad campaigns, specifying their target audiences, and uploading the ad creatives they want to publish to their ad server.
  2. The DSP is connected to various supply-side platforms, including ad exchanges and SSPs. As ad inventory becomes available from the publishers that are using these platforms, the DSP scans the available impressions to identify which users align with the audiences targeted by the advertiser.
  3. Once a user impression is identified as having alignment with an advertiser’s campaign, a bid for the impression is placed by the bidder component of the DSP, using factors such as the advertiser’s chosen bidding strategy and historical performance data to calculate the price of the bid.
  4. The placed bid competes with the bids of other advertisers. The winning advertiser’s bid is selected, and their ad creative is sent to the publisher’s website to be displayed to the visiting user.
  5. Data is collected about the user and how they interacted with the ad displayed to them. Based on this data, various components of the programmatic ecosystem, including the DSP, record the results and optimise the bidding process. The performance data is also shared with the winning advertiser within their DSP’s reporting database.

As elaborate as the programmatic bidding process is, and despite the high number of components involved, the entire process of placing a bid for an ad impression and serving the ad itself takes only milliseconds – typically concluding before a page is done loading.

Benefits and challenges of using DSPs as an advertiser

DSPs are popular for good reason. A wide range of advantages are offered to advertisers who automate their media buying via these programmatic advertising platforms, including:

  • Time management and overall efficiency. When managing dozens, hundreds, or even thousands of advertising campaigns at once, automation is the path of least resistance to attaining results. DSPs offer all of the tools advertisers need to manage their campaigns through a single interface.
  • Data insights and reporting. Whether operating as a first-party or for third-party clients, advertisers rely on data to make informed decisions when planning their ad campaigns. Similarly, reports are essential to confirming proof-of-value and justifying the ad spending budgets allocated by company stakeholders.
  • Accuracy. As effective as humans are at managing certain processes, machines simply excel in many situations. When it comes to serving ads to the right target audience, there’s simply no one more capable than an algorithm to ensure that Susy, age 37, married with 3 kids and a household income of $115,000, is served an ad by an eager automotive manufacturer for this year’s latest SUV model as she scrolls through a blog about the “Top 10 Ways To Plan The Perfect Outdoor Family Outing”.
  • Ad quality. Because DSP service providers typically have well established relationships with high-quality publishers, advertisers are able to immediately tap into effective ad placements locations, without needing to source partners to work with.

Of course, as with most (if not all) things related to ad tech, nothing is straightforward – and DSPs aren’t without their own set of difficulties for advertisers to consider before buying in:

  • Cost. There’s not much more to be said about it – DSPs are expensive. On top of high monthly fees to access them in the first place, DSPs often involve minimum budget commitments, and charge margin based on the number of ads purchased through the platform. Advertisers that don’t have considerable advertising budgets may find other options more effective than scaling the price-wall of DSPs.
  • Complexity. While support is typically exceptionally responsive for DSPs (thanks in part to their high price tags), configuring and navigating such feature-rich environments can prove overwhelming for many advertisers. Often times, dedicated teams need to be hired to manage the operation of the DSP itself.
  • Multi-DSP optimization. Advertisers that commit to using DSPs often end up using multiple DSPs at once. Without delving too deep into this aspect of the ad tech jungle, this decision allows advertisers to remain as competitive as possible with their audience reach, due to the nature of the modern programmatic bidding landscape. However, understandably, managing multiple DSPs and configuring them all to operate in a synchronized manner is no simple task to accomplish.

Making DSPs work in your business

DSPs are a powerful tool that allow advertisers to connect to the programmatic ecosystem.

Like any purchasing decision, there are many different points of consideration that should be high on the list of priorities for advertisers looking to take their advertising to the next level.

As described earlier in the guide, part of configuring an effective DSP involves the use of an ad server to deliver ad creatives to end users.

The AdButler team has over two decades of experience in helping advertisers to configure and connect their ad servers to the programmatic ecosystem.

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