The Strategic Edge: Why Companies Build Custom RTB Bidders/DSPs

Why Companies Choose to Develop Their Own RTB Bidder or DSPWhat Does a Growth Marketer Do?

The increasing adoption of programmatic advertising by advertisers is a significant driver of market expansion. Programmatic ad spending in North America is projected to reach USD 315 billion by 2026, according to industry reports. The DSP market in the region was valued at USD 11.5 billion in 2022 and is anticipated to reach USD 52 billion by 2029. Notably, these figures do not account for potential growth from new entities entering the DSP advertising space.

Diverse sectors, including retail, media and entertainment, telecommunications, and gaming, are increasingly choosing to build their own demand-side platforms. This article examines the key motivations behind the development of this AdTech platform.

Understanding Demand-Side Platforms (DSPs)

A demand-side platform (DSP) is an AdTech platform that enables ad buyers (brands and ad agencies) to programmatically purchase ad inventory on an impression-by-impression basis. DSPs connect with ad exchanges and supply-side platforms (SSPs) and integrate data from platforms like data management platforms (DMPs) and customer data platforms (CDPs).

DSPs offer several benefits, such as automated ad buying, scalability, cost efficiency, and precise audience targeting.

Key Market Forces Driving DSP Adoption

Several factors are shaping the DSP landscape, including the phase-out of third-party cookies, the emergence of new digital channels, the evolution of ad formats, a greater emphasis on contextual and content-driven advertising, and the need for regulatory compliance.

Companies can enter the DSP market by acquiring an existing DSP, licensing one, or building a proprietary solution.

Core Reasons for Building an RTB Bidder or DSP

The rationale behind companies developing their own RTB bidder or DSP includes capitalizing on first-party data assets, lowering media expenses, gaining greater control, and addressing measurement limitations. Constructing a DSP also allows companies to optimize their demand path, avoid exchange bias, tap into niche markets, and attract new clients with robust ad fraud detection and security measures.

As the advertising sector experiences substantial growth, companies across various industries are actively considering the advantages of developing their own DSPs. Among new entrants, retail, telecommunications, publishing, media, and entertainment are at the forefront.

What Is a Demand-Side Platform, and What Is Its Function?

A demand-side platform (DSP) functions as an AdTech platform that empowers ad buyers, such as brands and ad agencies, to programmatically acquire ad inventory on an individual impression basis. Buyers can configure advertising campaigns and automatically bid to secure precisely targeted video ads, display ads, in-game ads, and more.

To facilitate and finalize the buying process, DSPs are integrated with:

• SSPs and ad exchanges to access ad inventory.
• DMPs to provide a more comprehensive understanding of customers and create more personalized marketing messages.
• CDPs to more effectively track and manage the customer journey.

For example, a DSP might integrate with a DMP to broaden its audience reach. A DMP gathers data about a publisher’s website visitors, creates audience segments, and synchronizes them with a DSP, enabling advertisers to target these audiences across different websites.

The most common method for DSPs to secure available ad space on websites and apps is through real-time bidding (RTB). The RTB process involves a live auction where DSPs bid on impressions offered by ad exchanges and SSPs.

Essential Capabilities of a DSP

DSPs enable brands and advertisers to streamline the process of buying ad impressions across various supply sources. By automating this process, they increase efficiency and accuracy in reaching the intended audience while effectively managing costs.

Some DSPs utilize artificial intelligence and machine learning to enhance their functionality. While not all DSPs incorporate these technologies, some employ AI and ML techniques to optimize ad placement and pricing. These tools analyze data patterns and user behavior to guide advertisers toward optimal ad placements, ensuring they reach individuals with a higher likelihood of engagement and conversion.

Essentially, DSPs simplify the complex task of purchasing ad impressions across diverse platforms, and when combined with AI and ML capabilities, they can significantly improve the precision and impact of advertising efforts.

Consequently, DSPs:

• Manage ad inventory: Advertisers can establish ad campaigns, purchase ad inventory from various publishers, and optimize campaign performance through a single interface.
• Track campaign performance and optimize in real time: DSPs offer advanced tracking and analytical tools, allowing advertisers to monitor ad performance, make data-driven decisions, and optimize campaigns in real time.
• Bid in real time: DSPs connect with supply-side platforms (SSPs) to facilitate real-time bidding across multiple ad exchanges, improving access to quality ad spaces.

Key Advantages of a DSP

DSPs automate ad buying, freeing up marketers’ time and resources previously spent on manual negotiations with publishers.

Beyond automation, DSPs offer several other general benefits:

• Scalability: DSPs provide greater access to diverse ad inventory through their connections to SSPs and ad exchanges.
• Cost Efficiency: Through real-time bidding and automated decision-making processes, DSPs can optimize costs by determining the most appropriate bid for an ad in real time.
• Precise Audience Targeting: Utilizing data, AI, and ML, DSPs enable the targeting of specific audience segments across a range of publisher sites, leading to more precise and effective advertising campaigns. Targeting options can include behavioral, lifestyle, demographic, device, lookalike audiences, in-market audiences, contextual, and retargeting.

Key Drivers in the DSP Market

The DSP market is influenced by several factors, from the increasing availability of first-party data to the deprecation of third-party cookies and stringent privacy regulations.

While these factors may present challenges to the traditional operations of DSPs, they also create significant opportunities for existing companies to update their DSPs and for new entrants to offer solutions to these evolving needs—for instance, by enabling advertisers to effectively utilize their first-party data for ad targeting.

Below are the primary current reasons behind the evolving market and the role DSPs can play:

The Phase-Out of Third-Party Cookies

The discontinuation of third-party cookies in web browsers is impacting the DSP market and the broader AdTech ecosystem. However, it also creates substantial opportunities for established companies to enhance their existing DSPs and for new players to offer solutions to this challenge.

Third-party cookies have been a vital tool for audience targeting and retargeting in digital advertising. With their phase-out due to privacy concerns and regulatory changes, advertisers are actively seeking alternative targeting strategies.

DSPs can capitalize on this demand by providing sophisticated targeting capabilities that utilize first-party data and alternative identifier solutions and technologies, such as UID 2.0, FLEDGE, and Topics API.

Development of New Ad Formats

Since the introduction of the first display ad in 1994, new ad formats have continuously emerged and dominated the digital landscape across computers, mobile devices, audio services, and television. Advertising naturally follows audiences—in games, on TV, on retail sites, and more.

DSPs aim to purchase ads precisely targeted at specific audiences, whether they are in-game ads, native ads, social ads, etc., and they execute this in near real-time. Advertisers can rely on the dynamism that DSPs provide for running modern ad campaigns.

Emphasis on Contextual and Content-Driven Advertising

With increasing restrictions on individual user tracking, contextual advertising is gaining prominence. Contextual targeting displays ads based on the content of the web page rather than user data. DSPs that can effectively utilize contextual targeting and dynamic content optimization are likely to see increased demand from advertisers seeking to reach relevant audiences in a privacy-friendly manner.

Regulatory Compliance and Ad Verification

As ad environments become more intricate, advertisers are increasingly concerned about brand safety and ad fraud. DSPs that offer robust ad verification tools and ensure brand-safe placements will be preferred by advertisers looking to maintain a positive brand image and maximize campaign effectiveness.

The Strategic Decision: Build, Rent, or Buy a DSP?

To enter the DSP market, a company can develop a custom DSP, license an existing one (e.g., a white-labeled DSP), or acquire a DSP vendor. While each approach has its advantages and disadvantages, building a proprietary DSP offers numerous compelling benefits.

Leading DSP Companies

As previously mentioned, the value of the DSP market is projected to reach USD 52 billion by 2029 in North America. A significant portion of this will likely come from the top DSP companies that dominate the regional market. Prominent players include well-known giants such as Amazon, Meta, and Google. However, the vertical also includes specialized and emerging companies.

Key Reasons Why Companies Choose to Build Their Own RTB Bidder or DSP

The decision to build an RTB bidder or DSP is a strategic one. Whether motivated by cost efficiency, technological independence, or market diversification, the advantages of building a bidder or DSP highlight its importance for companies aiming to succeed in the digital advertising ecosystem.

For Ad Agencies

Reducing Media Costs

This is often the primary driver for building a bidder or DSP, particularly for ad agencies. Due to various trends and shifts within the online advertising ecosystem over the past decade, the role and position of ad agencies have evolved. Before the internet, ad agencies were a crucial component of a brand’s advertising efforts, managing everything from ad creation to delivery through a publisher’s sales team.

However, in the late 2000s, the emergence of new AdTech companies led to a significant shift: brands began bypassing agencies and working directly with AdTech platforms due to their ease of use.

Consequently, agencies have been focused on reasserting their value proposition to clients. This includes a need to manage and reduce costs.

One significant way agencies can cut costs is by eliminating the fees they pay to AdTech companies—demand-side platforms in particular.

Depending on the vendor, some agencies pay between 10% and 30% in commissions. On average, SSPs and DSPs collect 35% of programmatic spend. For an agency with tens of millions of dollars in annual media spend, the amount paid to DSPs can be substantial.

Control Over Technology Stack

By building their own RTB bidder or DSP, ad agencies gain control over their technology stack and achieve greater autonomy. This includes the freedom to design and implement customized features, integrations, and a strategic product roadmap. This enhanced control ensures agility and adaptability, enabling the agency to respond effectively to evolving market demands and emerging trends.

By managing their tech stack, agencies can also avoid the limitations and uncertainties associated with third-party solutions and ensure that the platform is precisely tailored to their unique needs and preferences.

For Technology Companies

For AdTech companies, the decision to build their own DSP is often more than a strategic choice—it can be the most viable path forward.

Relying on an existing DSP can create potential competitive issues and limit the necessary control over tech stack customization, integrations, and feature development. This essential control allows AdTech companies to refine their offerings and align them with their unique value propositions.

Expansion of Product Offerings

Known for their innovation and technological capabilities, tech companies can significantly expand their product offerings by entering the DSP domain. A prime example is a server company developing its own DSP. This strategic expansion not only diversifies the company’s revenue streams but also leverages their existing technical expertise to enter a new market segment. By building their own DSP, tech companies can seamlessly integrate technology and advertising, providing a comprehensive solution that meets diverse customer needs.

Benefits of Building Your Own Bidder or DSP for Advertising Operations

Optimizing Demand Path

Building a DSP allows companies to ensure transparency throughout the entire ad delivery chain, eliminating uncertainty about ad placement and viewership. This increased transparency builds trust with customers and partners, fostering stronger long-term relationships. Demand path optimization (DPO) is a critical aspect of this.

Avoiding Exchange Bias

Companies also aim to avoid any bias toward specific publishers or exchanges, seeking complete neutrality in their advertising operations. By building their own DSP, they eliminate concerns about undue favoritism and maintain a level playing field for all involved parties.

Occupying Niche Verticals

The AdTech landscape is expanding into new specialized areas, including in-game advertising, mobile ads, and streaming TV ads. As AdTech’s reach grows, companies can capitalize on these niche domains by building highly customized DSPs tailored to the specific requirements of each vertical. This can lead to a higher return on ad spend (ROAS) for their clients.

One example of a company entering the DSP market is MarTech company Zoomd Technologies. In 2021, they built a Mobile DSP to deliver mobile RTB-based campaigns across multiple ad exchanges for their clients. Their decision was significantly influenced by mobile-specific factors.

Another example is SITO Mobile, a US-based AdTech company that enables advertisers and ad agencies to run location-targeted mobile ad campaigns through its proprietary demand-side platform (DSP).

Enhanced Security and Protection

Advertisers seek platforms that enhance their brand’s security, mitigating the risk of displaying ads in inappropriate contexts. Simultaneously, they want to protect their ad budgets from the increasing issue of ad fraud.

By incorporating protection services, anti-fraud algorithms, dedicated marketplace quality teams, exclusion and inclusion lists, sensitive site blocking, and more, companies that build their own DSP are well-positioned to capture a share of the market.

Entering The Expanding AdTech Landscape

As the advertising industry experiences significant growth in global digital ad spending, with projections indicating a substantial year-over-year increase, companies across various sectors are recognizing the considerable potential of building their own DSPs. The leading industries among new entrants are primarily retail, telecommunications, publishing, media, and entertainment.

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