Is building custom DSPs a new trend in AdTech? A closer look at the DSP market

The recession has left a mark on most sectors, reducing consumption and feeding shoppers’ urge to hold on to their savings. A dip in demand directly impacted AdTech, and most companies saw a revenue decline over the last year. Just recently, everyone was discussing MediaMath filing for bankruptcy, a turn of events that proves the fragile state of the DSP market.?

That said, there’s room for cautious optimism in the ecosystem. In Q2 2023, Roku reported $847 million in revenue, a 10% YoY increase (at the time of writing, earning reports from Criteo or The Trade Desk are yet to be released). On a global scale, there are signs of the economy bouncing back from the initial shock. A while back, Fed dropped the recession forecast, claiming that a “soft-landing” is possible (they did acknowledge that there’s “a lot left to go to” before that happens).?

Just last week, we saw tech companies report their Q2 earnings, where big tech players (and chipmakers) did better than expected, ending July with gains across major stocks.?

It’s still too soon to tell where the economic pendulum swings and whether a change of direction will be enough to boost the growth of AdTech and the DSP market. At the same time, keeping tabs on the market’s always a good idea, which is why we decided to recap its key news and trends in today’s MadTech digest.

If you are looking into building a DSP platform, you might be wondering if the time is right and what the market is like. To clear these doubts, we would like to take you on a journey to the DSP market in the 11th edition of the MadTech digest.?

Sidenote: I write biweekly about the industry’s pressing issues and try to cut through the hype noise with a level-headed reality check of what’s next for AdTech. If you want to stay up to date with the industry’s hot-button issues, subscribe to the newsletter and bookmark the link for quick access. You can also go back and explore previous newsletter editions: like the one on ad fraud or the one examining the potential of data clean room technology.

What is happening to the market??

The market outlook for DSPs is somewhat uncertain, but in terms of growth and VC funding, the DSP segment is still quite attractive - in fact, it’s projected to hit $92.12 billion by 2029.?

And, if you are wondering why companies pour funding into DSPs despite the rocky patch the advertising industry is now walking, here are a few compelling reasons:?

• The growing amount of first-party data creates a need for better audience segmentation and targeting. A need for control and granularity in audience management leads to the emergence of new technology. Platforms like TI360 by TMB (Trusted Media Brands) carve out their niche by enabling brands to create custom audiences, port data from data clean rooms, and run cohort analyses.
• The DSPs we have don’t do the job: advertisers aren’t happy with AdTech vendors keeping them in the dark. They have every reason for doing so: remember that time Uber sued their AdTech vendor and won?
• Mediation tax is getting out of control, and publishers are having none of it. On average, the AdTech tax consumes about 35% of publisher revenue.

Top-of-the-mind concerns for DSP platforms

With the recession encouraging advertisers to pay more attention to ad spending and screen vendors more thoroughly, every link in the supply chain is under pressure to deliver. I’ve written a while back about the way SPO affects mobile SSPs - really, the situation isn’t all that different on the DSP side.?

Here’s a quick recap of ways in which DSPs try to differentiate to match the pace of advertiser demands:?

• Embracing first-party data infrastructure. Data scarcity is becoming a tangible prospect as we get closer to the deprecation of cookies. And it’s not that advertisers don’t have enough data, much rather that it’s scattered all over the place and needs organizing and consolidation. If DSPs can rise to the challenge and support advertisers with the infrastructure for managing third- and first-party data, AdTech can walk out of the transition more or less unscathed. So, first-party data should definitely be a priority for new market entrants.?
• Retailers launch owned ad networks. Retail media networks(RMNs) are gaining massive momentum, and retail powerhouses don’t want to miss out. To leverage the opportunities of RMNs, retailers are getting into DSPs: 沃尔玛 joined forces with The Trade Desk to release Walmart DSP, 塔吉特百货 partnered with Criteo and CitrusAds for its demand-side tech. 亚马逊 has a DSP as well - the trend is clear at this point. It’s also likely that, down the line, retailers will drop AdTech vendors altogether and move their tech in-house to have full control of retail media revenue.?
• In-game advertising is growing by leaps and bounds. Publishers are driving the change here: Azerion and Activision Blizzard have owned ad networks, and 微软 was reportedly building AdTech for Xbox. Blizzard also has its own custom DSP platform, co-engineered with Xenoss team. In-game advertising is growing so powerful that more vendors are planning to build demand-side tech to exclusively cater to that channel.
• Mobile advertising DSP market is on the rise. In many ways, the rise of mobile advertising is the direct consequence of the in-game boom (games still represent a fair share of mobile inventory). Mobile publishers are using different strategies to ramp up monetization: some rely on AdTech vendors, others acquire DSPs, and others still build their own technology. One of the most ambitious moves has been the Unity- ironSource partnership. One of the benefits of building custom DSPs is the ability to introduce machine learning algorithms and other innovative technologies to the platform. For example, Xenoss engineers collaborated with Dataseat, a mobile DSP now part of Verve , to integrate the platform’s AI libraries into the platform. Our team made sure that new features did not increase latency or slow down performance.??
• CTV is still going strong. Around 2020, there’s been an explosion of CTV-focused AdTech - even now, the trend continues. In the CTV segment, every cool kid on the block has a DSP: Netflix is planning to either use Microsoft solutions or build their own ad server and AdTech capabilities, Roku runs OneView, and 三星电子 also has its own tech. It’s by no means smooth sailing: it’s hard to settle on cross-platform identifiers, user identification has never been more complex, and CTV ad fraud is rising. At the same time, the revenue at stake is well worth fighting the challenges that come with exploring the CTV market.

Ways to enter the DSP market

Owning your AdTech is a smart way to avoid bleeding cash from AdTech tax. Besides, when companies get to call the shots on their tech, they can be more confident in the legitimacy of their data and know that no one, to quote that Uber employee, “is spinning up some BS so that the lights stay on.”?

Assuming a company decided that building a DSP is the right course of action, what are the ways to enter the market??

There are three ways companies usually go about this:?

• Third-party white-label tech
• Acquiring a DSP?
• Building a custom DSP.?

Does each of these have pros and cons? Absolutely!

Given that custom DSP development is getting both faster and cheaper, it’s reasonable to believe more companies will resort to it in the future. If you want to join the future-minded crowd, Xenoss can help by either building an MVP or providing consulting services as you bring your product to the market. Just drop us a link at [email protected] or via the form to learn more.

Bottom line

As most of the ecosystem, the DSP market is undergoing a transformation fueled by the aftermath of the pandemic, economic headwinds, and a growing variety of channels.?

The question I’d like to leave you with is what will be the X factor separating The Trade Desks from MediaMaths many years down the line? I’m looking forward to reading your thoughts in the comments.