AdTech Industry, AdTech Platforms

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

The advertising ecosystem is a broad entity made up of many different processes and platforms, and just as many acronyms. One of its most influential additions over the past decade has been the introduction of Real-Time Bidding (RTB).

Real-time bidding is a complex technology that is revolutionizing the way display media is bought and sold. Within the RTB process, there are a number of key players that all have a critical role in delivering ads from the media buyer (advertiser) to the website (publisher) and displaying it to the user.

In this post, we are going to look at one of those key players – Demand-Side Platforms (DSPs).

What Is A Demand-Side Platform (DSP)?

A demand-side platform is a technology system that allows media buyers to connect with a number of different ad and data exchanges through one user interface.

An easy way to understand how DSPs operate is to think of them as stockbrokers. In the same way investors use brokers to purchase stock from companies via the stock exchange, media buyers use DSPs to purchase ad inventory from publishers through the ad exchange. The DSP is essentially the middle man, but is responsible for far more than just the purchasing of available inventory. Here are some of the main functions DSPs provide media buyers:

  • Create, run, and manage a number of campaigns simultaneously and control them from a single, centralized user interface.
  • Auto-optimize campaigns to increase ROI.
  • Use third-party data from data-management platforms (DMPs) to make targeting more effective.
  • Provide real-time reporting via advanced analytics.


How Do DSPs Work?

Each time a DSP receives a request from an ad exchange telling it that there is an impression available, the DSP analyzes data about the user and decides how much this particular user is worth, based on their relevance to the media buyer. For example:

A user, who is about 30 years old and a big sports fan living in New York, accesses a website. The website sends an ad request to the supply-side platform (SSP), which then sends the request to the ad exchange. The ad exchange then tells the DSPs that an impression is available on a website and starts the bidding process.

Let’s take a step back for a moment and imagine the DSPs have the following targeting parameters set up:

DSP 1: Target users between 20-30 years of age living in Washington, D.C., who are interested in fashion.

DSP 2: Target men living in the United States who are interested in sports.

DSP 3: Target users between 30-40 years of age living in New York who are interested in sports.

While all of the above DSPs could potentially gain something out of displaying their ad to the user, it is DSP 3 that would gain the most from this ad, as the user fits the target audience perfectly. As a result, the DSPs would evaluate the ad, match it against their data and target parameters, and would bid on the impression based on this information. In this case, the bidding would probably look something like this:

DSP 1: No bid

DSP 2: $0.25 CPM

DSP 3: $1.70 CPM


(CPM = cost per mille, the common unit in advertising, which means cost per thousand impressions. The actual cost of the bid is 1/1000 the cost of the CPM price, as the advertiser is bidding on a single impression, not purchasing a thousand impressions at once.)

The exchange chooses the highest bid using the second-price auction model. In other words, the winner pays the second-highest bid price for the impression, plus $0.01.

Once an impression is sold, it is sent back to the website and displayed to the user. This process occurs each time a user accesses a website or refreshes the page.

It’s important to note that this bidding process happens within the ad exchange in real time, hence the name Real-time Bidding, and takes roughly 100 milliseconds to complete.

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What Advantages Do DSPs Offer Media Buyers?

DSPs traditionally were used as a way to buy remnant (unsold) inventory from publishers, but they are now becoming a way of purchasing available and even premium inventory. The main reason for this shift in purchasing methods is due to the numerous advantages DSPs provide media buyers, including:

  • The opportunity to reach audiences on a lateral and bilateral basis (i.e. they can reach their target audience more effectively, plus reach a wider audience).
  • The ability to access a larger amount of available inventory and display their ad on a larger number of websites by connecting to a variety of ad exchanges.
  • The ability for media buyers to manage and optimize the efficiency of their campaigns by adjusting the settings. Examples include blacklisting certain websites and audiences, putting limits on the number of times the same ad is displayed to the same user within a determined time frame (frequency capping), retargeting across multiple ad exchanges, and behavioral profiling.
  • The ability to react in real time to certain outside conditions, such as weather, news, and stock market activity, allowing the media buyer to serve the most relevant ad to the user.
  • The option to integrate third-party data providers and data-management platforms into the DSP so that media buyers can further optimize their audience targeting capabilities.
  • More transparency on conversions and media spend.

The rapid uptake of RTB has seen the number of DSPs dramatically increase over recent years, and with the opportunity to build DSPs that incorporate new, advanced features and technology, their popularity is set to increase even further.

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