The Problem with DSPs

“The main reason DSPs are not good at valuing the quality of inventory is that they over-rely on the algorithm to make effective decisions,” said Woodman. “For example, we know that below the fold inventory is twice as likely as above the fold inventory to receive last view based attribution. This means a cookie is dropped with a high likelihood that the ad is never seen.”

If a DSP simply lets a buying algorithm run free without restricting the space through quality control tools, said Woodman, then the algorithm will actually pay a premium to serve ads in placements which are not seen.

Another problem with DSPs according to Woodman is their often stand-alone use of third-party data, data which is available to every other buyer in the market.

“DSPs are good at leveraging third-party data,” said Woodman, but they lack the ability to find segments tailored to a specific advertiser. DSPs tend to attract bargain-hunters, not brand-sensitive advertisers, according to Woodman, and this discourages premium publishers from releasing high-quality inventory with transparency as they believe it causes CPMs to plunge.

The rise in private ad exchanges, according to Woodman, is a result of publishers’ discomfort with the DSP status quo and advertisers’ unhappiness with the lack of transparency throughout the buy process. Ad exchanges that offer transparency and utilize first and third-party data effectively along with brand protection controls will continue to pull major brands and a larger share of ad spend than DSPs. Woodman doesn’t imply that it is impossible for DSPs to offer the right mix of transparency, high-quality inventory and cost-management, but at present there is “no way” for brands relying on a DSP in its present incarnation to optimize competitive advantage.