Why Marketers Need More Than One DSP – Understanding Demand Side Platforms

The average advertiser uses 3 DSPs.  There are strong reasons for digital advertisers to make use of multiple DSPs in their programmatic bidding – if you have wondered why advertisers use multiple DSPs, then Part #1 of this explainer is for you.  

Of course, the use of multiple DSPs also creates its own challenges. So in Part #2, we will look at the challenges created around frequency and bidding against oneself by using multiple DSPs, and how the smart marketer overcomes these challenges.

Why do Marketers use Multiple DSPs?

The primary benefits to advertisers of using multiple DSPs are: (i) differentiated DSP features which are needed to execute each campaign, (ii) accessing DSP-specific audience data, and (iii) scaling out the reach of campaigns. Let’s deep dive into each reason.

Benefit #1: Competition among DSPs around Features and Take Rates

DSPs are differentiated in many ways.  One key area is their take rates – the percentage of media spend they charge advertisers.  Another is that DSPs vary in ease of use and level of support. For example, AppNexus has lower take rates than others, but also offers less hands-on support and a powerful but complicated API.  The Trade Desk and MediaMath, conversely, are well known for their customer education and easier-to-use interface. The targeting options they offer and the reporting and analytics available for media insights also vary between each platform.  

By employing multiple DSPs, trading desks also are able to pressure the DSPs to add features and lower take rates by moving spend across DSPs easily.  Most recently, some DSPs have agreed to increased transparency by revealing the fees charged by exchanges, and SSPs that provide the ad inventory. This is a great example of DSPs accommodating customer demands in a competitive environment.

Benefit #2: Audience Data

Many DSPs have unique sources of audience data.  DoubleClick Bid Manager, of course, brings data on users of Google Display Network sites to make targeting options available for AdX sites (most of AdX inventory is GDN) that are not available in other DSPs.  Amazon Audience Platform brings audience data unique to Amazon. MediaMath has a 2nd party data co-op called Helix that benefits many advertisers. Some DSPs, like AppNexus and The Trade Desk, offer IP-range targeting.  

Marketers may be running different strategies with various campaigns, and leveraging multiple targeting options across DSPs empowers them to do so.

Benefit #3: Scale

Ultimately, the primary driver for using multiple DSPs may be the challenge of achieving scale in large budget campaigns with only a single DSP.  A trading desk may simply be unable to spend the budget for a target audience in a large campaign without using additional DSPs.

Why is that?  It’s complicated.  But the explanation below breaks it down.

First, bidding on multiple DSPs increases the odds of winning auctions.  

How?  There’s a couple reasons:

Each DSP conducts its own internal auction before submitting a winning bid to an exchange, which then conducts its own auction to decide which DSP wins.  An advertiser can lose an internal auction in one DSP (for example, DoubleClick Bid Manager), and win an auction in another DSP (say, AppNexus) for the same ad impression.  That’s because DSPs select winning bids not based on bid price alone, but also on the profile of the user and performance factors specific to each advertiser (whether the viewer is likely to click on the ad).  As such, one strategy some trading desks pursue to maximize their chances of winning is to intentionally add a smaller DSP to the mix because they will face less competition winning that DSP internal auction for this reason.

But even once an advertiser wins the DSP auction and the exchange auction, there is increasingly another auction that comes next that they might still not win – the header bidding unified auction.  Before header bidding, publishers would run an auction through a single exchange, and if the winning bid is rejected for some reason, it would run a subsequent auction through another exchange, all in a waterfall process.  With header bidding, publishers run a unified auction across multiple exchanges. Because the exchanges conduct 2nd price auctions (the advertiser pays the price of the 2nd highest bidder), an advertiser could win an exchange’s auction, but lose the unified auction to an exchange that had a higher 2nd price but lower than the advertiser’s actual bid price.  So, the more DSPs with the advertiser’s bid, the more exchanges will have the advertiser’s winning bid, the better chance the advertiser will win header bidding unified auctions.

Here’s an example auction to put this in illustration:

DSP A: The bids are: Advertiser A – $2.00, Advertiser B – $1.00, and Advertiser C – $0.50 -the winning bid is Advertiser A – $1.00 (price paid by Advertiser B)

DSP B: The bids are: Advertiser C – $1.50, Advertiser D – $1.25, and Advertiser E – $0.75 -the winning bid is Advertiser C – $1.25 (price paid by Advertiser D)

The Exchange would look at DSP A and B, and decide the winner to be Advertiser D paying $1.25.

Second, DSPs can’t always bid on every impression on behalf of every advertiser. The infrastructure demands on DSPs to bid on every auction are considerable even before header bidding became ubiquitous.  With the mass adoption of header bidding, a process which duplicates the auction across multiple exchanges at the same time, DSPs’ infrastructure demands become further compounded.

As a result, DSPs can’t always factor every advertiser line item in every internal auction.  There’s a lot of confusion around whether all DSPs can see and bid on all inventory. But that’s really the wrong way of thinking about it.  

In reality, even though DSPs have access to over 90% of the same inventory, they don’t necessarily use their sophisticated and resource-intensive algorithms to score and bid on every single impression they have access to.  They have to filter (partly for cost, partly for other performance factors). This process, of course, leads us back to the first reason advertisers gain scale from using multiple DSPs – you can lose the internal auction of one DSP because you weren’t included in the auction, and win the auction of another DSP, for the exact same impression.

So, there’s several benefits to advertisers from using multiple DSPs – scale, audience data and competition for your business.  In fact, this trend has somewhat altered the trend of in-housing digital advertising operations within brands. Supporting multiple DSPs would be a lot of work for a brand, and is generally handled by trading desks, both agency trading desks and independent trading desks.  

However, the use of multiple DSPs is not without its challenges, as we’ll learn in Part #2 of this blog series.