Like many people who work in the field of advertising technology, I have a really hard time talking to my parents about my job. They know I work with computers and they understand that my work involves advertising – but beyond that, they haven’t really a clue what I’ve spent the last decade doing.
Somewhere along the way I came up with this analogy. I think translates pretty well and it has certainly worked for my parents.
The analogy compares the ad tech value chain to the “grocery store” value chain and compares the role of the programmatic advertiser to the role of the grocery shopper. Here’s how it goes:
Advertiser = Grocery Shopper
Ad space = Groceries
Let’s say you want to buy some groceries for your home. As a grocery shopper, you have to first choose which grocery store to go to. The grocery store, on the ad tech side of this analogy, is the DSP or “Demand Side Platform”. It’s the place you go when you need to buy food (ad space).
Simple so far right?
Just like grocery stores, there are many different DSPs to choose from. They all offer fundamentally the same product (ad space), but each of them has somewhat different branding and a slightly different buying experience.
Now, let’s move to the next step of the value chain:
As a grocery store (DSP) you have to stock your shelves with groceries that shoppers want to buy. To do this, you need to order food and goods from distributors. To provide a wide range of groceries, each grocery store needs to offer food and goods from many different distributors. On the ad tech side, the role of the distributor is the SSP (Supply Side Platform).
And on to the next step of the value chain:
As a distributor (SSP) you have to work with farms and manufacturers so you can sell their goods to the grocery stores. Each distributor works with many farms and manufacturers. On the ad tech side – the farms and manufacturers are publishers (websites) that sell advertising.
Looking at it all together – this is what the value chain comparison looks like so far:
So far, so good, right?
Here’s the next piece.
Let’s say, as a grocery shopper, you are really busy doing other things (like running a business), so you might want to hire someone to go grocery shopping for you. You can find someone who specializes in grocery shopping and have them do the job for you. Their expertise will help you know which grocery store to go to, and help you get the best price for your food. That’s effectively the role of the ad agency. They work with the advertiser as the ad buying experts.
Now, here’s what the updated value chain looks like:
Ok – here’s where it gets a little bit tricky.
There are two (pretty big) fundamental differences between the grocery store value chain and the ad tech value chain and it has to do with the number of products that are for sale and how quickly the expire.
- At a grocery store there may be 5,000 or 10,000 max different products (groceries) to choose from. However, in the ad tech value chain, there are closer to 100 billion different products (ads) to choose from.
- At the grocery store, products typically take weeks or months to expire – which gives shoppers plenty of time to go to the store, shop around, and select what they want. In the ad tech value chain, products become available and expire all within about 100 milliseconds – much too fast for a human to do the buying manually.
Because of these differences, people can’t effectively buy programmatic advertising by hand, they need to use a tool – a piece of computer software. This is what makes the DSP special – it’s not just the place shoppers go to buy ads – it’s also capable of selecting from the 100B available products and responding within 100 milliseconds.
However, managing the DSP (working the software) can require special attention and special skills. That’s why there’s often a group of folks (often inside the agency) that specializes in “programmatic trading” – we call this the “trading desk”. Because of the differences between the value chains, this step doesn’t really exist in the grocery value chain – but if it did, it would be some sort of “shopping specialist” that works with the professional shopper.
There you have it. The world of ad tech explained so that my parents can understand it.
Now, in the context of this analogy, you might be asking:
“What about grocery shoppers who want to shop for themselves (without a professional shopper)?”
“What about professional shoppers who don’t need a shopping specialist to help them?
“Is it possible for farms and manufacturers to sell straight to the grocery store?”
“How about farms and manufacturers selling straight to the grocery shopper – like a farmer’s market?”
“How do the farms and manufacturers make sure they’re selling to the distributor who is going to get them the highest price?”
All great questions that make grocery shopping (and ad tech) so intriguing.