AdTech Industry, AdTech Platforms, MarTech Platforms

What is a Data Management Platform (DMP) and How Does it Work?

Around 1,683,862,863 people use the Internet every day. In the eyes of brands and online advertisers, that’s 1.6 billion potential new opportunities to get ads in front of their target audience.

The popularity of the Internet (up 566% since 2000), and the fact that it is being accessed by more and more people each day, has created an almost infinite amount of user data.

For online advertisers, this information is the cream of the crop when it comes to creating ad campaigns, as they are able to target specific users based on their behaviors, interests, location, etc.

But how are advertisers able to collect, analyze, and use this gigantic stack of user data within the online-advertising landscape?

Well, there’s a platform for that.

The Online Display-Advertising Ecosystem

Within the complex online display-advertising ecosystem, there are a number of key technology platforms that play a large role in taking creative from an advertiser and delivering it to the publisher to be viewed by the end user.

A creative (an ad) starts with the advertiser and then goes through a number of intermediaries and technology platforms before it reaches the publisher (website) and is displayed to the user.

While all these platforms and intermediaries are critical elements in the programmatic buying, selling, and delivery process, there is another platform that helps advertisers optimize the effectiveness of their campaigns.

This platform is known as a Data Management Platform (DMP).

What is a Data Management Platform?

Data Management Platforms are often compared to databases – but they do a lot more than just store information.

DMPs are responsible for collecting, storing, and organizing massive loads of data for advertisers. It is taken from a wide range of sources, which include:

First-Party Data

First-party data is information gathered straight from the user or customer and is considered to be the most valuable form of data, as the advertiser has a direct relationship with the user (e.g. the user has already engaged and interacted with the advertiser).

First-party data includes:

  • Data from an advertiser’s web and mobile analytics tools.
  • Customer Relationship Management (CRM) systems.
  • Transactional systems.
  • Data collected from subscriptions and newsletter signups.

Second-Party Data

Second-party data is much less common than first- or even third-party sources and is essentially first-party data from a different advertiser. The information is initially collected in the form of first-party data and then passed on to another advertiser through a partnership agreement.

For example, a website that sells sporting equipment (let’s call them All Sports) may partner with a website that promotes sporting events (we’ll call them Half-Time). When a user visits All Sports, a cookie is created, then given to Half-Time to target ads to the user. Now when that user visits a completely different site, they will be served an ad from Half-Time.

Third-Party Data

Over the years, third-party data has received a pretty bad rap, mainly due to the number of privacy concerns it raises. However, this type of data is still regularly used by marketers to help reach and target a desired audience – even though it isn’t considered as valuable as first- or second- party data.

Third-party data is collected from a range of different sources, often via integrations with other systems, and sold to advertisers to be used for audience targeting.

These three sources of information stored in a DMP are pushed through the DMP’s software and undergo a process called data classification.

Each piece of user data is analyzed and put into different categories (also called data taxonomies) in order to build distinct user profiles.

The next step involves analyzing the data with advanced algorithms. These algorithms process the data using various methods to match users across different devices, deduplicate the data, and activate the data for Ad Exchanges/DSPs. This process allows advertisers to target specific users with their campaigns.

Based on the users’ behaviour and attributes, advertisers can define various profile segments in order to craft and deliver a message appealing to the given audience segment, which consequently will help increase the ad’s performance and boost its engagement rate.

These segments also allow advertisers to effectively reach their target audience on a much wider scale – even across different channels (cross-channel/media marketing) and devices (cross-device targeting).

How much does it cost to build an DMP?

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How Do DMPs Work?

When used as a standalone platform, DMPs don’t really achieve much and just act like data warehouses.

It’s only when a DMP is linked to a Demand-Side Platform (DSP) and/or an Ad Exchange, or even to a Supply-Side Platform (SSP), that it starts unleashing its potential.

online display advertising landscape
Data-Management Platforms (DMPs) are linked to a Demand-Side Platforms (DSPs) and Ad Exchanges so advertisers may optimize the performance of their ads by increasing audience targeting capabilities.

As the DMP is linked to the DSP, each time a new ad space is available for purchase the DSP can make decisions based on data in the DMP to allow the advertiser to only purchase and bid on ad space that matches their set criteria.

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A lot of people often confuse DSPs with DMPs, as in most cases, an advertiser can create simple audiences for re-targeting within the DSP, but only a DMP lets an advertiser build complete user profiles by connecting information from various sources.

Why Are DMPs Important?

Everyone within the digital-advertising industry knows that data is the lifeblood of any marketing campaign; knowing whom to target, when to target them, and what to show them is the holy grail of any successful marketer.

And DMPs allow advertisers to achieve this.

The reasons why DMPs are so important to the media buying and selling process is because they are able to collect data from a range of different sources, analyze it, segment it, and then deliver it to the advertiser (usually via its DSP). The data taken from the DMP enables advertisers to get their message in front of the right audience, therefore increasing the ad’s effectiveness.

Without a DMP, advertisers are simply taking an expensive shot in the dark.

DMPs Are Not Only For Advertisers

Typically, Data-Management Platforms are used by advertisers (and/or agencies representing a brand) for audience targeting and campaign optimization. However, DMPs can also be utilized by publishers.

By using a DMP linked to their Supply-Side Platform, a publisher can get a better and more in-depth understanding of its users. This information can be used by the publisher when selling inventory (available ad space on its website) to an advertiser either by a direct sell (Premium Advertising), or via one of the technology platforms (e.g. ad network, ad exchange, etc.).

These user insights allow the publisher to increase the cost of their inventory and can provide a better user experience. For example, if a publisher that owns a travel website knows that most of its users are female, between the ages of 30 and 35, and live in the New York area, it can sell inventory to a brand that is advertising beauty products. In this case, not only will the ad be targeting the right audience, but there is a good chance that users will be interested in the product and will engage with the ads.

Due to their ability to target users more accurately and optimize advertising campaigns, DMPs are becoming an important tool in an advertiser’s toolbelt. Data-Management Platforms are usually offered separately, just like DSPs and SSPs; however, an increasing number of DSP providers are now offering DMP technology to their clients.

While this option may provide advertisers with a simpler and more effective way to buy media, as they are essentially using one platform instead of two, many argue that a DSP with DMP-like functionalities doesn’t provide advertisers with the same reach as a standalone DMP (i.e. the advertiser isn’t able to link its DMP to other DSPs).

The Future of DMPs

The increase in multi-device usage and online/offline data will provide advertisers with more user information – in particular, first-party data. Currently, many DMPs are utilizing cloud technology to store an advertiser’s data.

While cloud-hosting solutions provide a number of benefits to both the DMP provider and advertiser, it also raises many privacy concerns, and as a result, advertisers are unwilling to store first-party data in a cloud-hosted DMP for fear that it will be shared with other parties.

These issues are big concerns for advertisers, and the need for DMPs that protect user privacy is vital to the online display-advertising ecosystem.

But is this the way the industry is heading? Only time will tell.

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