The DSP–SSP Merge: What’s Driving It and Who It Impacts Most?

The AdTech industry, which has been working on the amalgamated ecosystem of small and big AdTech players, is finally moving towards consolidation. The reasons are many, and so are the affected parties. An industry that was once a budding hub for start-ups has now become a battleground for power consolidation in the form of mergers and acquisitions. At times, it can also mean convergence.

One of the affected parties of this shift is the SSPs, or the supply-side platforms, the supposed programmatic lifeline of publishers.

The AdTech Convergence

Since 2020, the AdTech convergence has been unfolding with multiple mergers or acquisitions. Between 2020 and 2021, over 3,500 rounds of funding and almost 1,500 M&A (mergers and acquisitions) were completed, worth between $125-$130 billion dollars (TheViewPoint).

One of the noteworthy deals in that duration was Telaria and The Rubicon Project, forming Magnite, reaching a market capitalization of $3.5 billion. Down the line, Magnite went on to acquire the video SSP SpotX, a deal that made it the world’s largest independent source of CTV and video inventory.

Over the years, many M&A deals have taken place: ironSource acquiring companies like Tapjoy, only to be acquired by Unity. Or Digital Turbine acquiring Fyber and AdColony, AppLovin taking over Max, or The Trade Desk’s acquisition of Sincera.

DSP and SSP Convergence: The Blurred Lines

In this consolidation drive, DSP and SSP are increasingly expanding their functionalities to incorporate each other’s roles. The two platforms that were once on the opposite ends of the Lumascape are now defining this programmatic trend.

But what is driving this trend, you may ask? Supply Chain Optimization. This stems from the buyers’ need for more streamlined access to publishers’ inventory. Buyers don’t want middlemen dictating the terms anymore; what they seek now is direct, unified access.

Many big AdTech players have started tapping into this sentiment. The Trade Desk (TTD), a DSP, introduced its OpenPath tool in February 2022 – a product to create a more direct link between sellers and buyers. TTD states that the tool is not meant to cut the SSPs out of the picture, but OpenPath does eliminate the use of SSPs – especially for CTV and audio.

“OpenPath levels the playing field for advertisers, ensuring they get transparent and objective access to the very best digital advertising inventory,” comments Jeff Green, The Trade Desk’s CEO. 

The advent of OpenPath has altogether eliminated the bidding process by directly connecting buyers to enterprise publishers. While the idea reads well in the books, it is indeed tricky to execute: lack of scalability, managing a long tail of publishers, troubleshooting ad quality issues, and billing with publishers, among other things.

However, if you think it’s a one-way change, you should continue reading. Supply Path Optimization (SPO) involves cutting out the intermediaries to create a direct connection between the publishers and the advertisers. However, it mainly involves cutting out the SSPs.

While this sounds like a worrisome trend, we are seeing a few SSPs flipping the script.

Magnite and PubMatic: Becoming of a Direct-buy Platform

In 2023, SSPs like Magnite and PubMatic came up with direct inventory buys for advertisers. Starting with Magnite, it has introduced ClearLine for advertisers with GroupM, Camelot, and MiQ as the launch partners.

The platform repurposed its Spring Serve video ad server for buyers, requiring only minimal changes to the existing technology. These solutions can allow buyers to manage direct purchases, activate first-party data from publishers, and create inventory-sharing agreements with media owners. Moreover, buyers who use only an SSP to purchase video inventory may additionally decrease their tech tax.

The direct connection to publishers gives numerous advantages, including more transparency, reduced risk of ad fraud, priority access to publishers’ inventory, and lower technical expenses. ClearLine allows GroupM to pay a single negotiated fee rather than multiple fees from a DSP and an SSP.

Following the footsteps of its competitor, PubMatic launched Activate just a month after Magnite’s ClearLine. It lets brands buy CTV and video inventory through PubMatic via direct deals, which includes private marketplaces and programmatic guaranteed. However, it’s yet to support real-time bidding. 

Buyers can use Activate to evaluate available inventory, apply first-party data to those audiences, activate campaigns, and get analytics and reporting for optimization. The program allows customers to utilize whichever ad server they desire. In exchange, PubMatic receives a share of the advertiser’s expenditure.

Activate debuted with launch partners, including ad agencies like Havas, OMG Germany, and Dentsu, as well as brands like LG, Fubo, and Mars.

How Agencies are Driving the SSP Consolidation?

More than brands, agencies are driving the SSP consolidation, and the larger players are reaping the benefits. Let’s understand how.

Agencies and brands are no longer juggling with dozens of SSPs. Instead, they have started looking for more strategic and consolidated partnerships with a few sell-side platforms that offer transparency and efficient operations.

For this, agencies ask for reduced fees, auction transparency, and enhanced control over impression curation. This is what we used to call a “preferred partnership” a few years ago, but it has become a mandate amidst the survival race.

Naturally, the biggest SSPs are fitting perfectly into the puzzle. With their broad publisher base, sophisticated tools, and flexible pricing, the big sharks are giving what the brands/agencies need. However, smaller or mid-sized SSPs are struggling to survive.

Many are being cut out of agencies/ brands’ campaigns due to lack of scalable resources.

Here, the agencies/brands are coming out of their middlemen cocoon and trimming the supply chain. Through it, they are accelerating the consolidation wave that favors the SSPs delivering both value and volume, at their behest.

In the end, deals like this are becoming more critical to sustain the SSPs’ bread and butter. Without it, they may meet the same fate as Yahoo and EMX’s SSPs.

But what’s driving the overall AdTech consolidation? Is it just SPO, or is something else is cooking here?

What is Driving the AdTech Consolidation?

An amalgamation of factors is driving AdTech M&A deals. While the foremost is Supply Path Optimization, it isn’t the only one.

Increased Access to Data

I don’t need to remind you how important data is, with many equating it to AdTech’s digital gold. Since privacy regulations like CCPA, GDPR, and Apple’s ATT (App Tracking Transparency) came into effect, it has become a Herculean task to collect and access user data.

It’s no coincidence that platforms like The Trade Desk, GroupM, and Yahoo’s Backstage DSP started offering direct publisher inventory access post-2021. With the privacy regulations hovering over them, ad tech vendors sought access to as much data as possible. And you guessed it right! It’s through M&A deals.

DSPs working directly with publishers will provide them with granular data like first-party contextual data, user-level insights (consent-based), real-time data like CTR, and conversion funnel data, among others.

For SSPs working directly with advertisers, they gain post-bid engagement data, audience targeting criteria, deal preferences, or buying patterns, as well as advertiser KPIs.

Disintermediation

For the AdTech players, this is the time to implement Supply Path Optimization, and there are reasons. VCs are no longer interested in funding AdTech endeavors. Combining this with 15-year high interest rates, cash flow couldn’t be more vulnerable than ever. If an ad tech platform comes up, they will have to show their worth in the supply chain or be taken over.

The Fallout of Google

With lawsuits piling up, the all-reigning Google may be forced to undergo unprecedented changes. Alleging Google of monopolizing digital advertising, the DOJ is asking Google to sell off its GAM Suite. Although these cases may take time to unravel, Google may strategically divest its AdTech arm to steer clear of future lawsuits.

The other AdTech players are playing their cards here. If Google were to sell off the GAM suite, other players like The Trade Desk would have to be prepared to tend to publishers seeking an alternative. Moreover, a platform with more transparency and an optimized path would certainly warrant the publisher’s attention.

However, unless YouTube advertising is a part of the divestiture, SSPs have little to gain here.

What does the Future Hold?

There is no winner in this race. The market is condensing into something far more nuanced: a hybrid ecosystem defined by consonance, vertical integration, and reduced gap between buyers and sellers. The industry is seeing a gradual collapse of the traditional buyer/seller divide. It’s moving towards partial convergence: a pragmatic blend where the SSPs and DSPs borrow each other’s functionalities but retain their core essence.

M&A deals will continue. Larger entities like Magnite had the resources and brought innovation to their technology, but the mid-sized companies may falter behind, only to be taken over. The environment will now be surrounded by niche innovators and legacy players, which will reduce fragmentation and bring operational efficiency.

Connected TV (CTV) is proving to be the litmus test in this shift. If you would have noticed, the majority of the players are partnering for CTV. ClearLine and Activate are built for this space, enabling direct, curated deals with premium inventory. If their models take off, it can become the new normal for other media types.

So, what does the future hold? Single-function tools may become extinct in the future. Walls are crumbling, and bridges are being built. In this new AdTech era, success will be measured by the number of bridges and not the height of the walls.

Key Takeways

• AdTech is shifting from a start-up-dotted landscape to a big bull-driven arena with aggressive mergers and acquisitions. It’s the AdTech version of Survival of the Fittest. Over 1,500 M&A deals worth up to $130 billion occurred between 2020 and 2021 alone, signaling a long-term trend toward consolidation and vertical integration.
• The boundaries between DSP and SSP within the Display Lumascape are blurring, with the two taking on each other’s roles. DSPs like The Trade Desk are launching tools like OpenPath to connect directly with publishers, while SSPs like Magnite and PubMatic are enabling direct-buy capabilities for advertisers.
• Supply Path Optimization is at the heart of this shift. Advertisers now seek a shorter, more transparent, and cost-effective path to publisher inventory. They aim to reduce reliance on intermediaries to reduce ad fraud, access high-quality, premium inventory, and reduce spend on platform fees.
• With regulations like GDPR, CCPA, and Apple’s ATT reducing access to third-party data, platforms are racing to establish direct relationships that grant access to first-party user and contextual data. Convergence is no longer about efficiency; it’s about survival in a privacy-first world.
• Funding challenges, high interest rates, and looming antitrust lawsuits against Google are catalyzing shifts in market power. Players like The Trade Desk are positioning themselves as transparent alternatives to Big Tech, while SSPs like Magnite are preparing to capture demand if Google divests its YouTube advertising.

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