A Demand-Side Platform (DSP) is a software used in the world of programmatic advertising that automates the buying of digital advertising space. DSPs are mainly used by advertisers and agencies to purchase digital advertising inventory in real-time auctions. This includes display, video, mobile, and native ads across a variety of websites and apps. 

Here’s a breakdown of how a DSP typically works:

Advertiser’s Campaign Setup:  Advertisers and agencies use a DSP to set up their advertising campaigns. This includes defining their budget, bidding strategies, ad creatives and their target demographics. 

Real-Time Bidding (RTB): When a user visits a website or an app, an auction occurs in real-time known as Real-Time Bidding. Advertisers are able to submit their bids to the DSP, establishing how much they are willing to pay to display their ads to that specific user. 

Audience Targeting: Advertisers are able to target specific user segments with their ads through the use of DSPs. With the use of data and algorithms, DSPs are able to effectively target specific audiences based on demographics, behaviors, interests, and other criteria. This allows advertisers to reach their desired audiences more effectively. 

Ad Selection: The DSP evaluates all available ad impressions in real-time and selects the one most relevant to the advertiser’s targeting parameters and bid amount. 

Ad Serving: The DSP sends the creative content to be displayed to the user in the ad space on the website or app once the ad is selected. 

Tracking and Optimization: Advertisers have access to tools through the DSP that allows them to track the performance of their campaigns in real-time. They have the ability to analyze metrics such as impressions, clicks, conversions, and return on investment (ROI). Advertisers can then adjust the settings of their campaigns based on this data in order to optimize their advertising efforts. 

DSPs are an essential component of the digital advertising ecosystem because they provide advertisers and agencies with a centralized platform to manage and optimize their digital advertising campaigns across numerous ad exchanges, publishers, and ad networks. They allow advertisers the ability to reach their target audience more efficiently and effectively resulting in better campaign results. 

In contrast to DSPs, there are Supply-Side Platforms (SSPs) that are used by publishers to manage and sell their ad inventory to advertisers and DSPs. SSPs and DSPs work together to facilitate the programmatic buying and selling of advertising space.