Arbitrage In Real Time DSP Display Advertising

Demand Side Platforms (DSPs) enable you to bid for individual ad impressions in real-time auctions across multiple ad exchanges. Instead of buying impressions in bulk from hand picked sites, you can use behavioral targeting data collected from cookies and data exchanges that determine the value of the impression and place a bid accordingly. This allows you to focus on the individuals that meet your advertising criteria rather than focusing on running ads across a site that meets your criteria.

There are opportunities for manipulation and arbitrage from the middle men in these transactions with display inventory. This is due to the large gaps in what advertisers are willing to bid and the fact that there is more inventory than there are advertisers looking for placements.

Take the following scenario for example:
An impression shows up for bid. It has the following attributes:

  1. Female
  2. 24 years old
  3. $60,000 income
  4. Orlando DMA
  5. Has kids
  6. Apparel Shopper
  7. Health club member
  8. Impression is 300×250 pixels
  9. Site category is entertainment

Four advertisers participate in the auction:
Advertiser 1: Pampers bids $1 because they want to sell her diapers as she fits in their new mom demographic.

Advertiser 2: Piperlime bids $10 because they know she has purchased from their site before and was recently at their site looking at clothes and she fits in their typical young female demographic.

Advertiser 3: 24 Hour Fitness bids $5 promoting their time sensitive campaign to promote their new gym in her local Orlando neighborhood.

The agency acting as the middleman handling these bids from the advertisers and deciding which one will get the placement have their own margin constraint and internal auction. There’s no reason that an agency using a DSP couldn’t withhold bids from its stable of advertisers so that only the top bid available for any advertiser for each impression would be placed. They want to take home the biggest markup on the media as possible. So if the publisher asks $4 for the impression then the agency will choose to place the Piperlime ad because they stand to make the most profit – the difference between $4 and $10, even if the 24 Hour Fitness ad is more relevant.

At the end of the day the advertiser may not care because the decisions of the agency are ultimately held to the goals of the advertiser, and if those goals are met who cares how much the agency takes? The problem is they are leaving volume and potentially higher quality placements/users on the table because the placement doesn’t meet the margin constraint that the agency has in place. Ask for this level of transparency from your real time bidding DSP agency and you likely won’t get it because they don’t want you to know how much they are serving their own interests before yours.

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