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There will be 4,000 DSPs

People used to say that there were 400 ad networks out there in their hey-day.  I think there will be an order of magnitude more DSPs.  Here is why:

Building a DSP is easy.

Ad networks were vertically integrated examples of our marketplace.  To build an ad network, you had to build an exchange, sign up publishers, and build a DSP.  The market has evolved to a point now where getting dramatic reach and scale at a level unimaginable 5 years ago just takes 10 lines of PHP (so that is like one line of Python?) with Right Media’s PHP library:

// get params from command line
       $ADV_ID, $LI_ID) = $_SERVER['argv'];

// get handles on Contact and Publisher services
$contact_client = new SoapClient($SOAP_BASE . 'contact.php?wsdl');
$campaign_client = new SoapClient($SOAP_BASE . 'campaign.php?wsdl');
$target_client = new SoapClient($SOAP_BASE . 'target_profile.php?wsdl');

// login and get auth token to be used later for other API calls
$token = $contact_client->login($ADV_USERNAME, $ADV_PASSWORD);

// create campaign data holder
$campaign = new stdClass();

// set advertiser entitity id and description fields
$campaign->advertiser_entity_id = $ADV_ID;
$campaign->description = 'example campaign';

// create a new campaign based on campaign object defined above
$campaign_id = $campaign_client->add($token, $campaign);

// link the campaing to the line item
$campaign_client->addLineItem($token, $campaign_id, $LI_ID);


I used to tell people all the time that starting an ad network is the easiest thing someone can do: Get some inventory, call 20 agencies and tell them you have a new algorithm to drive performance, and they each give you a $20k test budget!  Voila, you did $400k in your first quarter.  Agencies felt pressure to find test budgets for everybody because, if a client were to ask them “What do you think of X”, you can’t say, “Well, we never tried X”.  Agencies felt an almost fiduciary responsibility to try new stuff.

Now, if you didn’t perform, the next chunk of dollars was tougher, but you had runway instantly.

We are seeing the exact same dynamic in DSPs today.  If you mix the data and inventory a little differently (and it would be hard not to), voila, you are worthy of a test.  Agencies are playing the field today, the great rollup of DSPs that everyone is so looking forward to has not yet happened, and agencies expect to and are prepared to try lots of different things.  All you have to do is perform after that and you have a business.  If you eat your margins early on, offer layered in retargeting, etc., the odds that you can artificially inflate performance in a way that makes your business look interesting is high and this gives you more runway to work.  Convert 25% of your test budgets to $200k renewals and you have a Q2 business doing $1m in revenue.

Building a DSP is cake.  Locking in data or inventory or building an algorithm that creates great performance for advertisers over time by arbitraging data and inventory is what will separate the winners from the losers, but it will be non-obvious in the first 6 months of working together who those guys are for agencies.  Remember when Glam spent millions of dollars of VC money buying inventory at a loss to lock in exclusive access to inventory, then when they had the advertiser base, they crushed payouts to pubs? There are a lot of the same kinds of problems that get slathered over early on in this market. Building a DSP that can look at 10 billion impressions a day vs. 1 billion cost-efficiently is interesting, but no one will need that scale for a year, so no one will know who can do it better/faster/cheaper.

I worked at and I am not gonna lie, I took away from that place a sense that algorithms are hard, you need tons of data to figure out how to improve them, and there are few shortcuts other than “been there, done that”. Unlikely that any small company has a better algorithm today. You need that kind of algorithmic skillz. (And of course, Google > > other networks) And even would say that their algorithm has tons of room for improvement. Ask me, I know ten. But even algorithmic improvement has trade-offs: You can factor in more data to improve results, but that requires more data points to test which requires larger test budgets. Bummer. To limit testing, you need to limit the factors you evaluate. The result is plain vanilla.

The market for DSPs is white-hot, expect 4,000 of them, but most of them will be frauds.  Real differentiation and competitive advantage in a space where virtually everyone has access to the same inputs is hard.  Remember the Netflix competition.  Given a data set (100 million data points), improving predictive results is incredibly hard.  With a million dollars on the line, it took 3 years and dozens of people to generate a 10% improvement.

You heard it here first.  Breaking news as it happens.

9 Responses to “There will be 4,000 DSPs”

  1. Jerry Says:

    I agree… and this is the pattern in most industries. Sure there will be 4000 DSPs. Just like there are still 400+ ad nets and 50,100 advertising agencies (including PR agencies) or several thousand investment banks. But the vast majority of these will be five employees or fewer (like 76% of firms in the securities industry.)

    But the big marketer doesn’t send the RFP to 50,100 agencies. They have, maybe, 20 on the list of ‘possibles’ and another five boutiques they might have do some of the creative. The existence of the long tail does not mean that the top players are small.

    Take ad nets. The largest player has twice the reach of number 20. And we both know that this is misleading: the revenue decay is exponential and the number one player probably has ten times the revenue of number 20. I don’t think the top ten think very hard about number 400.

    There may be 4000 DSPs, but there will be–maybe–five large indies and then a bunch of captive ones. As you note, making sense of the data takes extreme specialization, but it also takes having a really large pool of data to learn from. Converting a single impression to a sale is a very rare event. Given the number of variables to buy on, this makes the success matrix extremely sparse. Sparser by orders of magnitude than the Netflix one. A DSP is going to need to be buying tens of millions of dollars of media to know anything at all about what works and what doesn’t.

  2. Time’s McDonald Looking To Unlock Audience Data From Publisher Side; Yahoo!’s Bartz On 3-Year Mission; News Corp. Going Up; MDC Partners Shows Strength Says:

    […] …and consequently, in comparison to the 400 ad networks he says exist, there will be an order of magnitude more demand-side platforms (4000 DSPs) soon according to Brent Halliburton on the Cogmap blog. Kindly, Halliburton offers 10 lines of PHP code from Right Media’s PHP library so that everyone can start their own DSP, presumably. Read more. […]

  3. Ciaran Says:

    Great pieece. I think I’ll copy and paste the PHP code above, and build out my own DSP.

  4. Demand Side Platform (DSP) And Why You Should Care | Marc Porcelli Says:

    […] will also become fairly congested. There is a great post that appears in today’s Cogmap Blog, Looking to start a DSP? Look no further than ten lines of code. The post describes how easy it is to start a DSP based on the technology that exists (some 10 […]

  5. gaz Says:

    what, for all that is holy, is a DSP?

  6. Joel Fisher Says:

    Great piece and I agree.

    From my perspective, DSPs lack their own technology.
    Without technology, what do you really have that makes them so valuable?

  7. Rob Leathern Says:

    Building an overlay to a single ad exchange like right media, in php, ain’t that hard.

    Building a system to plug into multiple APIs, a couple of adservers, grab reporting, optimize, have a user interface for buyers and plug into multiple data partners – that’s a bit harder :-)

    ESP if you build it yourself!

  8. The Emergence of Audience Selling Says:

    […] challenges managing across the entire web. As industry observer and investor Jerry Neumann recently commented "A DSP is going to need to be buying tens of millions of dollars of media to know anything at all […]

  9. Behavioral Advertising / Publicité Comportementale » There will be 4,000 DSPs Says:

    […] If you mix the data and inventory a little differently (and it would be hard not to), voila, you are… […]