DSPs should get in on curation

SPO and Curation are weapons in the battle between DSPs and SSPs. I’ve got things to say.

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Podcast: John Battelle

DSPs should do curation

Here’s how I see the programmatic world.

Since the advent of header bidding, SSPs have been fighting against a trend that turns them into undifferentiated middlemen. Their natural take rate, according to microeconomics, should plummet to the weighted average cost of capital. Reduced margins should cause consolidations, and SSPs are in fact one sector in ad tech that has actually had significant consolidation, with notable exits from EMX and Yahoo.

There are a lot of strategies and techniques SSPs have deployed to differentiate and preserve margin, and the most successful one right now is curation. Curation offers buyers a reason to choose a specific SSP, captures margin previously earned by DSPs and ad networks, and undercuts the SPO efforts of the DSPs.

DSPs, meanwhile have been engaging in two distinct activities that are both crudely labeled Supply Path Optimization (“SPO”) but are actually very different.

First, led by The Trade Desk’s Open Path, DSPs are putting their tags in the prebid header and skipping SSPs for the most commonly purchased inventory. This gives the DSP a big margin advantage and is also an existential threat to SSPs.

Second, DSPs have been aggressively “pruning” the paths to buy inventory, using a variety of technology and business approaches to minimize QPS while keeping their customers happy

How about the end customers? Buyers don’t really care about QPS efficiency (because of the % of media pricing model). They want a combination of performance and control. They may not be able to really analyze how their DSP’s SPO efforts effect performance, and some end up doing things to work around their DSPs, like preferred “SPO Deals” with exchanges and, of course, buying curated deals.

What a mess. Let’s put it in a table!

What do buyers want?

Let’s do a thought experiment, and forget about all the existing competitors and dynamics in the market, and instead build a buyer’s stack from scratch in today’s environment.

Access to supply

Buyers want as much quality supply as possible and with as few middlemen as possible. Luckily, this is possible today, due to header bidding (we’ll ignore in-app for a minute). An ideal buying platform would have direct tag-level access to thousands of top publishers.

Clean up the supply

The platform should then do the basics to clean up the supply: ads.txt, bot detection, cookie sync, alternative IDs, etc. Nothing too crazy or invasive. Just clean up the traffic and make it as uniform as possible.

Curate!

Currently DSPs do a lot of “augmentation”, where they decorate bids with data like viewability prediction, third-party data, etc. Well why stop there? The beauty of curation is that it allows various owners of valuable data to participate in the transaction without duplication or resale. It is at this point in the process, when mildly-filtered publisher-direct traffic has been standardized, where all kinds of data providers should have open APIs for curating. The curators create margin, the publisher CPMs rise, the DSP can take a cut, and the buyers get a purer signal to what they want.

See how much better this is?

Back to reality

OK, let’s come back from our thought experiment and realize there are some real problems with this whole thing.

“Thousands of publishers” — sounds easy. Managing a large number of publishers is expensive and difficult. And buyers aren’t satisfied with just the top thousand, as we’ve seen from the continued reach of AdX, with its millions of long-tail pubs. So if you aren’t AdX you probably still need supply from other sources.

Data leakage becomes a lot easier if curated deals and non-deals all come in on the same bid requests. This problem already exists in many DSPs and we’re on the honor system — honest, your honor, I didn’t mean to join those fields!

Private deals, In-App, CTV, etc. There’s a whole lot more to being an SSP than shoving a tag into prebid and blindly passing through auctions. If your DSP starts investing in some of these technologies, suddenly it may realize it’s an SSP too! And who sets the price floors, while we’re on this subject?

Baby Steps

I’ve made a bit of a hash of this whole argument. But if there’s one thing that’s relevant here it is that DSPs should think a lot more aggressively about their data and curation ecosystems. Simple bid augmentation should be moving towards marketplaces of data providers with transparent pricing. Right now, I think Xandr, with it’s hybrid SSP-DSP history, is the only platform positioned to do this. But it is coming.

Reading list

• Arete proposes Google spins out ad tech, make it a B-Corp (link)

• Amazon books $1.8b+ in upfront video ad commitments (link), one of 5 streamers larger than a billion 

• IAB Tech Lab takes on PAIR (link) and ID provenance standard (link)

• Videoamp for sale (link)

• MNTN threatening IPO (link), won’t join the deadpool

• Oracle ads sunsetted this week - IAS hired 20 people (link)

• “Why The Banner Ad Is Heroic, and Adtech Is Our Greatest Artifact” by Battelle (link)