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What Is a Demand Side Platform (DSP) and How Does It Work?

What Is a Demand Side Platform (DSP) and How Does It Work?

In the past, digital ads were bought and sold in a manual manner by real people; publishers and ad buyers. This method of buying digital ads was not only expensive and unreliable, but in some cases, advertisers were not able to buy enough ad inventories for specific ad campaigns.

DSPs were made to make the buying and selling of ads inventories cheaper and more reliable, by programmatic bidding.

What is A Demand-Side Platform (DSP)?

demand-side platform (DSP) is a system for advertisers to purchase and manage ad inventories from multiple ad sources through a single interface. This is normally done using intelligent software which bids on the inventories using an auction process. This makes the buying and selling of ads cheaper and more reliable.

This whole setup is termed as “programmatic advertising” and the bidding process by which ad placements are auctioned within micro-seconds is called “real-time bidding (RTB)”.

Today, the term ‘buying’ has now been replaced by the term ‘demand.’ On the other hand, publishers and media owners are now considered as a ‘supply-side.’

Thus, we have the DSP (Demand-side platform), which are used by advertisers to buy ad inventories and the SSP (Supply-side platform), used by publishers and media owners to sell their available ad inventories.

how does a DSP works

How a Demand Side Platform (DSP) works

How Does a DSP Work?

The way a DSP works is highly technical, however in simple words, a DSP connects to ad inventory supply sources, where tons of publishers have made their supplies available. This allows advertisers to buy ad inventory placements across a multitude of publisher’s websites and mobile apps based on impressions.

The new generation DSPs these days do not only connect to ad exchanges and ad networks as in the case of the old, but they offer cross-channel media buying too. Some of the new platforms that can be bought into using a DSP are:

  • direct publishers (web and in-app)
  • Facebook
  • Instagram
  • LinkedIn
  • Google keyword search
  • ad inventories from China (Baidu, Wechat, Alibaba, etc)

Using these new gen demand-side platforms, media buyers are able to run end-to-end ad campaigns from the top to the bottom of the sales funnel. This includes targeting audiences from the awareness, to interest, then to consideration and right down to the conversion phase of the funnel.

For example, a media buyer can identify someone doing a Google search for, “cheap hotels in New York”, then when she fires up Facebook, will be shown New York hotel ads on her FB timeline. Taking the campaign further, the person will also see similar ads whenever she consumes content on a website or even playing a game on an app.

Previously, media buyers had to manage multiple ad campaigns from various sources like Google, social media such as Facebook, Twitter and control them in different dashboards. However, now things are different.

New-gen DSPs are able to consolidate campaigns from different channels into a single user interface. Media buyers can now set-up, optimize, analyze and get insights of campaigns from different channels, in a single DSP platform.

Costs and Pricing

Ads in DSPs are sold on a few ways, depending on which DSP you work with. Generally, if the DSP is specifically built for performance campaigns such as app-installs, then the fee is based on CPI (Cost per Install). Most performance-based platforms use these:

  • CPI (Cost Per Install)

  • CPC (Cost Per Click) ~ mostly for driving traffic to landing pages

  • CPA/CPL (Cost Per Action / Cost Per Lead)  ~ This is mostly for lead generation campaigns

  • CPV (Cost per View) ~ This is mostly for video advertising campaigns

However, the majority of programmatic ads are sold using the CPM (Cost Per Mille or Cost Per 1,000 Views). The CPM model is good for awareness ad campaigns.

Some performance marketers will arbitrage CPM rates by buying in CPM-based DSPs and earning their fees in CPA or CPL payouts. For example, a performance marketer earning $5 per install marketing for an app publisher may pay only $2 for 1,000 impressions($2 per CPM). However, the 1,000 impressions that he pays $2 for can convert into 1 app install that has a payout of $5/install. This will nett him $3 for every $2 he spends on media buying. Obviously he can scale up his ad budget to earn even more money from the campaign.

Prices of ad impressions in DSPs are determined by a real-time bidding (RTB) process, that takes place within milliseconds, as a user loads a web page or interacts with an app.

Different from the traditional ways of buying media, with a DSP, there is no longer a need for a human to negotiate prices with the publishers, as all of this is done automatically or “programmatically”. The ad impressions will simply be won by the highest bidder.

What’s the Difference Between Ad Networks & DSPs?

Ad networks allow advertisers to buy ad inventory in bulk rather than one impression at a time. Put simply, ad networks gather ad inventories from various publishers, grouping them up and then selling them as slices to advertisers. However, not all ad networks support Real-Time Bidding (RTB).

DSPs are unique as they offer the same capabilities as what ad networks used to provide, with an addition to a suite of audience targeting options. The advantage of DSPs over ad networks is that they provide advertisers with the ability to do real-time bidding on ads, serve ads to a multitude of platforms, track and optimize – all under a single interface.

Some targeting options offered by a DSP include:

  • Geo-targeting
  • Demographic targeting
  • Keyword targeting
  • Contextual targeting
  • Device targeting
  • Re-targeting
  • and more.

DSPs are also used for retargeting campaigns. This is possible because they are able to manage large volumes of ad inventories and recognize ad requests with an ideal target audience, targeted by the advertiser.

Self-Serve VS Full-Serviced DSPs

There are two types of DSPs that you need to be aware of. Some DSPs offer a self-serve platform, which is an excellent way to manage your ad campaigns. Then there are managed or full-serviced DSPs, which can be a costly option.

The advantage to using a self-serve DSP is its lower cost entry. You don’t have to commit a large upfront advertising budget to get started. That said, you have to be responsible for the targeting, bidding, budgeting and optimizing of your ad campaign. Some advertisers prefer using a self-serve DSP because they prefer to manage their campaign in their own way.

Full-serviced DSPs on the other hand provides you with account managers that will dedicate their time to manage your campaign. With a full-serviced DSP, you will rely on the account manager towards the success of your campaign, from planning, budget distribution and choosing targeting options.

A full-serve DSP is usually more expensive as you’ll have to commit towards a minimum ad budget per campaign. Choosing to go for a full-serviced DSP means you lose some control of your campaigns. However, there are also advertisers who prefer this option because they do not want to dwell in any technical work.

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