‘The death of the undifferentiated SSP’: Scale SSPs say they’re not going anywhere anytime soon

Not all SSPs are mired in their own existential crisis despite how it may seem. Some are doing just fine. 

Recent financial updates from the two largest SSPs — PubMatic and Magnite — say as much. They showed that things could be a lot worse all things considered. Yes, they have problems, including an ad slowdown and a dearth of quality CTV impressions. But few of them are big enough to give these ad tech vendors heartburn. 

PubMatic, for example, saw its revenue for the final quarter of 2022 dip 1.7% on the same period the year prior to $74.3 million. It was a bitter end to an otherwise sweet year, during which time the business raked in $256.4 million, 13% on the previous year. 

Still, execs at PubMatic are trying to remain upbeat about it all. They saw enough in those final three months of the year to believe that their business remains insulated from the worst of the pressures weighing down on the ad tech industry. That is to say the business continues to see a steady flow of ad dollars into its platform. Over the fourth quarter, the business saw its automotive and food and drink advertising verticals grow at 25%. It helped soften the loss of dollars in shopping, tech and personal finance, all of which in aggregate declined 13% in the same period a year ago. 

Looking ahead, the business believes things will continue to be bumpy until the second half of the year. This is when it expects its finances to take a turn for the better on the back of more ad spending, better profitability thanks to cost cuts and optimization to its tech. 

Oh, and there are also the unintended benefits that will undoubtedly come as a result of rivals like Yahoo and EMX no longer being around. The closure of those SSPs, especially the Yahoo one, eliminates one route to publishers advertisers would’ve used and as a result those ad dollars will be redistributed to other SSPs that work with the same publishers. Chances are that both Magnite and PubMatic would expect to be in the frame for that money. Granted, those gains won’t be felt anytime soon. Yahoo has said it will shut down its SSP until the end of the year.

“Whether it’s via supply-path optimization or through some of these SSP closures, the industry is clearly consolidating around fewer, bigger platforms,” said PubMatic CEO Rajeev Goel on the company’s earnings call. “We see ourselves as a winner in the process as recognised by our historical share gains, and what we would expect to see in the future. This economic situation is only going to accelerate the consolidation that many of us have felt should’ve already have happened on the sell-side, not least because it has already done so on the buy-side of ad tech.”

Elsewhere, Magnite continued to chug along. Things aren’t great for the ad tech vendor. Like PubMatic it has its fair share of problems. Even so, its  far from going the way of the dinosaur. On the contrary, it raked in $156 million in the final quarter of 2022, up 10% on the same period the year prior but flat on the previous month. 

In simple terms, the performance was fine, just not stellar. Magnite attributed some of this to CTV. But it was quick to talk up the chances of things picking up sooner, not later. Not least because it continues to lock down more quality inventory in a CTV market where it is in limited supply. 

However, all that supply is nothing without demand so Magnite has been trying to lock that down too. CEO Michael Barrett told analysts that.a recent deal with Horizon Media and an expansion of its existing one with GroupM would help do just that. In fact, there’s arguably much more value in a business like Magnite doing this (aggregating advertiser demand), than trying to sustain a business on non-exclusive aggregated supply. 

Execs at PubMatic subscribe to the same rationale: more money is being spent on developing new tools that give marketers more control over how they source inventory in CTV. The hope being that by showing marketers how to be smarter and more efficient about how they buy CTV ads and from whom, it will encourage them to continue to consolidate their ad dollars into those ad tech vendors that do this the best. As Goel explained: “We see a whole slew of innovation opportunities to help the publisher and buyer get closer together and remove friction from the transaction process.”

Demand for this sort of thing is clearly there. Over 30% of the activity on PubMatic’s programmatic marketplace is via these so-called SPO arrangements where it has essentially agreed to give advertisers more insight into the provenance of the ads they’re buying in exchange for ad dollars. Two years ago, around 20% of activity on PubMatic was the result of these deals. Moreover, the average 2022 net spend retention rate for SPO partners who have worked with the SSP for three years or more was 124% per year.

“The SSPs that have embraced and prioritized curation — pairing data and inventory through the supply path — are healthy and growing big businesses today,” said Greg Williams, president at tech curation platform Audigent. “Those that have not yet focused on curation will continue to struggle and fall further behind the innovators given the robust demand from media buyers and the performance lift and privacy boost that curation provides.”

Outlooks like this run counter to the narrative defining SSPs these days. They’re framed as commoditized and redundant players in an ad tech market going through a correction of sorts. And for good reason. The closures of SSPs run by Yahoo and EMX within days of one another brought the value of those ad tech vendors into sharp focus. Correction, it brought the value of certain SSPs into sharp focus — i.e. those companies with little to none direct publisher relationships. Remember, the reason an SSP is valuable (at least to a demand-side platform like The Trade Desk) is that it works as a buffer to having to work with multiple publishers. In other words, it’s single point of integration, and subsequently a single bill to pay. That’s valuable.  

“Some industry pundits have concluded that this might be the beginning of the end for the SSP industry,” Barrett told analysts on the earnings call. “We couldn’t disagree more. What we’re seeing now isn’t the beginning of the end of the SSP, but the death of the undifferentiated SSP. For years, the market has borne the weight of a raft of SSPs with little innovative technology and little more to offer than recirculated DSP demand.”

That’s changing albeit as a result of consolidation spurred by agencies. They’re consolidating their programmatic ad dollars into fewer SSPs in exchange for lower fees, clearer transparency into what those fees are and better reporting. In turn, SSPs are being incentivized to find an approach to their business models that balances the interests of their prime customers (publishers) with their new(ish) ones (advertisers).

Exciting as those opportunities are, they’re also riddled with political potholes. The more valuable the advertiser-side of the SSP business gets the more uncomfortable publishers could get over whether their ad tech vendor of choice has their best interests at heart. It’s easy to see how that wariness could turn into cynicism that these deals could potentially pave the way for undisclosed deals with agencies where they received kickbacks as an additional incentive for choosing one SSP over another. All told, SSPs must tread carefully. 

https://digiday.com/?p=491260

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