DO COMPETITIVE AGENCIES NEED TO RENT, BUY OR BUILD DSP?

DO COMPETITIVE AGENCIES NEED TO RENT, BUY OR BUILD DSP?

Discussion in 'Ad Networks (CPM/CPL, Display, SEM)' started by DorisRon, Oct 13, 2016.

  1. DorisRon

    DorisRon Member

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    The growth in popularity of algorithmic ad buying redrew the entire ecosystem of digital advertising and continues, like a squally earthquake, to shake the tectonic plates of the industry. And agencies today need to decide on what they should bet.

    Traditionally, agencies were the first in media buying. However, times have changed and today high-performance technology developed by ad tech companies, allows advertisers to do without the mediation agencies. Why not, if the brand gets not only lower prices, but also more precise targeting of the target audience?

    But we should not rush to statements that it is the end of the traditional digital agencies. Their experience, knowledge and creativity, which can not be provided by the technology companies, are still extremely important for the market. While many people prefer to talk about it only in the way of "yet".

    However, in order to remain competitive and to return the income lost as a result of a full-scale offensive of programmatic and continue to position yourself as a serious competitor, media agencies should once and for all combine their talents with technologies. If you want, call it "technological creativity". We call it the synergy of genuine creativity and high technology.

    Most advertising agencies have already taken the decision to include programmatic media buying into their client offerings. However, one question remains unresolved: whether the agencies should continue to use the existing strategy of rented DSP, or it is better to acquire their own in-house solutions?

    The decision to build, buy or rent a DSP is accompanied by a large number of determinants. But for the most part it comes down to a single issue - which option is the most viable in economic terms?

    Let's analyze the data to answer this, in fact, fairly simple question.

    ANALYZING THE COSTS OF MEDIA
    The decision to build or rent a DSP will largely depend on the amount of money that the agency spends on media advertising. The thing is that you can save on renting and the development of your own platform.

    Creating (or buying) a DSP, an advertising agency can save not only on the mark-up that would have gone into the pocket of a platform provider, but also calculate the exact cost of each individual media buying.

    In the existing display advertising ecosystem there is virtually no pricing transparency, and here is some hidden threat. Generally DSP suppliers margin is usually 10-30%, but advertising agencies with large media budgets can always count on a better deal.

    It should also be noted that the addition of a DSP technology to the agency's stack can increase the overall value of the company, and it will benefit even the smallest agency.

    OPERATING COSTS OF DSP
    DSP are fairly complex technology platforms, construction and start-up costs of which are, to put it mildly, not cheap. In addition to investments in the technology necessary for the construction of the platform, we can safely assume that the operating costs, including infrastructure, a team of engineers and management of workflows, can reach $ 1.5-2.5 million per year. However, even in this case it has its advantages: the amount of expenses will remain relatively fixed, regardless of how many media advertising you buy.

    For many agencies such transaction costs will make it impossible to build a DSP from a financial point of view. However, if the ad agency pays huge commissions for DSP, then the decision to acquire own solution looks quite attractive.

    One of the main advantages of DSP renting is the absence of fixed costs for its maintenance. And that means the lack of any kind of risk. The advertising agency simply pays DSP its mark-up, and the platform operator takes all the running costs.

    THE COST OF CONSTRUCTION AND MAINTENANCE OF THE TECHNOLOGY
    When creating own platform in parallel with the operating costs the media agency should take into account the time and financial investments associated with the presence of a specially trained technical team.

    While the use of the services of the company, specializing in DSP construction or buying of a ready-made platform are not problematic, ultimately the main and quite a complicated task will be constant support of high-tech solutions. Other problems, such as constant addition of new inventory sources, compliance with the latest standards and innovations, development of functional and more, will also be pretty serious challenges.

    DSP service requires significant expertise and great industry experience, because an inexperienced technical team can be a source of costly protracted training and program errors, which, in turn, will lead to budget overruns.

    On the other hand, the construction of own DSP provides greater flexibility when working with first-party data, allowing advertising agencies to implement the boldest trading strategies, optimize the algorithms, as well as use special features of platforms that are not available in the case of a public DSP.

    The decision to lease a DSP potentially eliminates many of the problems and major headaches associated with in-house solutions. Since the core business of the DSP supplier is technologies, it is guaranteed that he has a great team of professionals, which will deal with the addition of new features, as well as improving the existing and introducing new inventory sources.

    The technical staff of the DSP supplier will have more knowledge and experience in the issue of the construction, maintenance and scaling of the platform. In addition, using comprehensive understanding of RTB space they will provide you with consulting services to help improve your advertising agency and the campaign strategy.

    Due to changes in the ecosystem of online advertising and an increase in the number of providers of advertising technologies, many advertising agencies, of course, will switch to the use of in-house DSP, and even more of them will use the services of third-party platforms, but it remains unknown to what results it will lead.
     
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