SOAPBOX: Get on board with DSPs, but beware the risks

18 October 2011

If you are not talking about advertising exchanges and demand side platforms (DSPs) these days you are out of touch. Agencies and publishers are rushing to achieve the best possible commercial outcomes in a world where online advertising inventory is traded at the click of a button. The promise for client is more effective marketing outcomes where vast seas of available advertising inventory can be scanned and planned to maximise returns. It's hi-tech and sexy. The problem is, not everyone is playing an honest game and not every problem can be saved through these trading technologies. Clients need to update their agency agreements to take into account these new tools.

The market consists of third-party platforms, such as that operated by Google and major networks in the US, and private agency platforms, where advertising agencies attract inventory and manage their own exchanges and DSPs. Third-party exchanges are transparent and provide clients with a clear line of audit and an assurance that clients are getting what they pay for. The exchange's objective is to capture the most amount of inventory at the best possible prices. The client wins from best prices and the agency wins from lower administration costs. Surprisingly the inventory suppliers also win because they are assured of moving large amounts of generic inventory, albeit at a reduced price.

Private agency exchanges can offer the same benefits in a well-run agency. However, they also present clients with several commercial risks. The most significant risk is transparency. Clients need to be sure that the rates they are being changed for inventory in an agency exchange is the same rate inventory suppliers are being paid. Tools such as these can “hard code” media mark-ups into advertising schedules. Agencies can also exclude publishers who do not agree to preferential rebates or fees. While there are legitimate technology costs in managing and delivering trading tools, clients need to be aware that they are open to manipulation because the media supplier (the exchange) and the buyer (the agency) are the same.

The second risk is one of scale. The benefit of exchanges and the DSPs that access them is the ability to view vast advertising inventories and pick the most effective media buys. They need scale to effectively achieve this. An exchange with limited inventory or buyers doesn't deliver any benefit to clients. Only a couple of agency groups have the scale to build a reasonable exchange in Australia. For the rest, third-party DSPs are not only more effective, they are cheaper to manage.

The final risk commodity. Exchanges only work with large amounts of homogeneous inventory. The role of the DSP is to locate the best inventory in the pot for a given client at a given time. But, even the best inventory is still a commodity item with limitations on creative and impact. These tools won't make bad media buying or digital strategy good. The role of an agency is to go to bat for their clients and achieve the highest impact and best return for their clients in both innovative and reliable formats. The best results are achieved in a three-way partnership between client, agency and the media suppliers. If you want something out of the box, you don't go looking in the commodity box to find it.

Lee Stephens
Chief Executive Officer
Switch Digital

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