What’s a DSP and why should you care?
Why don’t we start by better understanding advertising.
The goal of advertising is to create more customers which in turn creates more revenue or profit. Some advertising dollars are earmarked for branding, where money is spent trying to evoke emotional responses so the brand is more deeply lodged in a potential customer’s mind. Great examples would be Coca Cola or Nike: when was the last time you saw one of these brands run a TV ad for a specific product SKU?
Other advertising dollars are more tactical in nature. These budgets are specifically provisioned to create a more immediate customer response: buy one get one free, happy hours, holiday sales, etc.
It should be no surprise that advertising comes in many forms across many channels: radio, print, TV, and more recently, digital. TV has commanded the bulk of marketing dollars in recent years with the explosion of households owning TV sets. TV sets became commercially available in the 1920s, with 0.5% of US households owning one in 1945 and 90% finding a TV in their living room by 1962.
Digital is a fairly new invention but it’s rapidly become a favorite for advertisers and brands. The reason?
It can be much better measured.
Digital did in 15 years what TV took 50 years to accomplish because it could be more tightly targeted and iterated much more precisely than TV ever could.
Yet even the digital model has evolved much since its inception.
The best way we can explain this is by laying out a diagram for how digital marketing works. Below what you’ll find is a very simplistic view for how digital ads work.
An advertiser, let’s say Coca Cola, wants to get ads into the hands of potential customers, or an audience. Originally Coca Cola would hire an ad agency to work with publishers, like Time Magazine, who had captive audiences for sale.
This old agency model required a lot of human touch and was therefore relatively expensive.
Well, technology advanced and automation started driving down prices. In place of expensive human intermediaries machines could buy and sell targeted ads much faster and much cheaper. Prices, like those on a public equities market, were bid on in real time (something called real time bidding, RTB).
Software and automation are materially winnowing the distribution channels in digital advertising. Sound anything like the POS dealer model we’ve talked so much about?
This new age of digital advertising is termed programmatic. Quoting from Digiday’s site,
“Programmatic” ad buying typically refers to the use of software to purchase digital advertising, as opposed to the traditional process that involves RFPs, human negotiations, and manual insertion orders. It’s using machines to buy ads, basically.
Below is a more complicated view of digital advertising as it sits today under the programmatic model. In blue are entities associated with the advertiser, in red are entities associated with the publisher, and in purple are distribution channels that facilitate movement between the two. Keep in mind that there is no one way to skin this cat: there are multiple possibilities to move ad dollars from an advertiser to a publisher.
We also want to show you some real-world examples of companies that serve in these roles. The below graphic hopefully communicates that so you can see where household names like Google fall.
Now that we’ve provided a decent background on digital advertising, let’s get to this DSP business.
DSP is an acronym for Demand Side Platform. A DSP is software used to purchase advertising in an automated fashion. DSPs can be structured in such a way that they know who their customers (the advertisers) are, what sorts of audience they should be targeting, and automating the fulfillment of ads that best serve that purpose. Additionally, DSPs can automate this process to fine tune and A/B test what’s working if they have access to an advertiser’s sales data.
And can you guess what data the POS has?
Traditionally, publishers would share ad performance data with an advertiser or agency. These are things like impressions, clicks, dwell times, and it can even be conversion metrics for ecommerce sites. But the advertiser would still need to marry the publisher’s data with their own sales to make sense of it all.
POS companies are in an amazingly unique and defensible position where they can become a DSP of the highest order. Not only can the POS manage digital advertising on behalf of their merchants via publisher integrations, but through real-time analysis of merchant transaction data the POS can report back campaign success or iterate as needed without bothering the merchant. Remember, most merchants don’t have any clue what the ROI is, and the POS can elucidate this for merchants.
If done correctly the POS can also prescriptively determine what types of ads are likely to be most successful based upon tens of billions of impressions and previous advertising campaigns. So merchants that choose the right POS can expect something that looks like the text below built right into their POS interface:
Over the next 14 days we recommend running this campaign. We will automatically adjust messaging and pricing for your customers and report on the success of the campaign. We estimate spending $2,000 will yield $7,481 in new revenue over the next 30 days. Click here to run it.
Clicking accept allows the POS to go to work as a DSP and help merchants drive measurable success.
Smaller merchants will be the first to capture this value since they’re not large enough to be held down by agency relationships, nor have they been large enough to employ the middle management necessary to manage the complexity of digital advertising as it previously existed. Now that the POS will democratize access to these benefits there’s little reason to have the agency or the middle management. This makes the decision to use higher ROI solutions much less political.
Larger merchants, on the other hand, will be expectedly late to this party. While they have been living the good life with abysmally subpar performance for years – taking kickbacks from their existing supplier buddies along the way – they’ve accumulated political debt that stands in the way of executing anything new. No matter how good any ROI might be, it’s going to take a knock-down, drag-out fight to make changes. Just think about the poor C-suite executive working 15 hours a week and collecting upper six figures while running the company into the ground. You’re asking them to change that lifestyle all in the name accountability and results?!
That’s a massive change that will start in the board room.
How much do POS companies and their payments owners stand to benefit from a move to a DSP? That juicy discussion must wait until a future article. Until then you can dream about the possibilities.
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