What is Supply Path Optimization (SPO) in Programmatic
Supply path optimization (SPO) is the practice in adtech of streamlining and selecting the most efficient routes for advertisers to buy ad inventory programmatically from publishers.
In programmatic advertising, it is not much different from economics. It’s about finding the shortest and most efficient route by cutting off the middlemen.
SPO is two-fold. On the one hand, it lets advertisers find the most efficient connections and buy ad impressions at the most reasonable prices. On the other, it helps publishers increase their ad revenue in the long term.
Let’s dig in deeper to find out how!
What Is Supply Path Optimization (SPO)?
SPO is usually performed by demand-side platforms (DSPs) to help buyers find the shortest and most efficient supply path in a programmatic auction. In practice, it’s about eliminating the number of intermediaries (SSPs/ ad exchanges) that buyers work with.
In the words of Prebid President Mike Racic: “Supply-path optimization is “understanding who is touching your inventory and [removing] as many touches as you possibly can.”
SPO benefits both sellers and buyers because it helps build a more transparent supply chain, optimize the user experience, and increase trust between all parties in the programmatic auction.
History of SPO
Header bidding became an industry standard in 2014. This monetization technique allows publishers to collect bids from many demand partners, like Google AdX, Xandr, and Criteo, in real-time bidding (RTB). Ultimately, this maximizes yield for the ad inventory and allows to sell it at the highest price.
However, because publishers are now working with multiple exchange partners simultaneously, this creates an additional layer of complexity in the supply chain.
Why? Because each SSP/ ad exchange works with multiple DSPs. This means that instead of 10 bidders, there may well be over 100 bidders. And, because of this, one DSP may well receive dozens of bids for the exact same ad impression.
Source: Pubmatic
In addition, each SSP operates its own auction logic which adds even more complexity to the bidding process. For example, some can work on a second-price auction or partial first-price auction.
However, from the buyer’s perspective, it doesn’t guarantee that each SSP will bring an exclusive supply because SSPs may forward the same ad requests to the DSPs, resulting in auction duplication.
In this case, the advertisers may be unknowingly competing against themselves. Therefore, buyers need to determine which intermediaries are truly adding value. And this is how supply path optimization emerged in 2017.
How SPO Works?
SPO is an algorithm that works to reduce auction duplication and ad discrepancy and helps the buyer find the most efficient and direct route to a given ad impression.
There are multiple factors that the model takes into account to optimize the supply path, for example, the type of inventory (web, mobile, app), ad viewability, historical performance, and geography.
Although traditionally SPO was a term coined by media buyers to find the most efficient, most scalable and most transparent supply paths, publishers can use it, too. It’s often used interchangeably with Demand Path Optimization, better known as DPO.
SPO vs DPO
Both Supply Path Optimization (SPO) and Demand Path Optimization (DPO) refer to techniques used to enhance efficiency, transparency, and effectiveness in the programmatic advertising ecosystem. But the difference is in the following:
SPO primarily revolves around optimizing the supply side of the programmatic advertising ecosystem, that is, the publishers, ad exchanges, and other platforms that make ad inventory available for advertisers.
DPO, on the other hand, centers on optimizing the demand side of the programmatic advertising ecosystem, which includes the advertisers and their demand for ad inventory to reach their target audience.
Why Should Publishers Care About SPO?
According to an IAB research, 87% of brands, agencies, and DSPs are actively implementing SPO.
Another study carried out by ISBA included the following findings:
- just 51% of spent revenue typically ends up with a publisher,
- a 15% ‘unknown delta’ of spend disappearing out of the ecosystem and campaigns typically appearing on a whopping 40,000+ sites.
Some DSPs are already equipped with algorithms to analyze SSPs in real-time to choose the most relevant ad inventory and adjust bids accordingly. These algorithms can also remove duplicated bids.
Industry leaders predict that SPO features will become even more robust in the future. As the adtech players actively adopt SPO, advertisers will turn to more publishers that offer transparent, optimized paths. This can be beneficial for publishers in the long term to attract new demand.
Moreover, advertisers may eventually stop bidding on the inventory for which they receive multiple ad requests, which will result in a loss for publishers.
Why don’t more SSPs equal higher revenue?
Publishers often think that more SSPs equals better yield and, ultimately, revenue. However, in practice it’s more complex than that.
Working with an unnecessarily high number of SSPs can increase page latency and worsen the user experience. Moreover, a complicated supply path involves more hidden fees and charges that are impossible to attribute.
So, the trick is not working with as many SSPs as possible but finding a sweet spot where each partner is adding a unique demand to the publisher, helping you achieve the highest yield possible without harming the user experience.
Besides, many publishers today are moving towards working with fewer partners in exchange for deeper, more comprehensive relationships.
When publishers and media houses evaluate SSPs, fees are often the biggest factor. And this is where partnerships come in. Some SSPs can cut down their fees in exchange for a “preferred” relationship with a buyer. Or, buyers can also choose to work with SSPs based on their unique capabilities, for example, strength in certain types of media inventory (CTV, OTT, mobile app) or proprietary tech (first-party data-matching capabilities, proprietary audience ID graphs, etc.)
The process of getting your own SSP accounts was historically tricky for smaller publishers but today, many top SSPs welcome individual, good-quality publishers to get an account. This is also what we at Setupad encourage publishers to do as this ensures a more transparent and efficient way to transact inventory with as few intermediaries as possible. We also help our clients get an introduction with our partners.
How do Self-Serve Platforms Address The Demand for SPO?
In the realm of supply path optimization (SPO), publishers can reap the benefits of advanced self-serve platforms such as Setupad, to streamline and enhance their programmatic advertising strategies. This robust approach empowers publishers with a range of functionalities:
- Seamless Integration of SSP Accounts: With platforms like Setupad Prebid Self-Serve, publishers can effortlessly plug in their own direct SSP accounts, facilitating a unified and centralized management of the supply chain. Besides, with this platform, adding an SSP happens in 3 simple steps by copy-pasting ad unit IDs or bulk-editing.
- Efficient Removal of Inefficient SSP Accounts: Publishers gain the ability to identify and unplug inefficient SSP accounts, especially those prone to duplication or operating as reselllers.
- Direct Connection to DSPs: The integration extends beyond SSPs. Publishers can establish direct connections to DSPs such as TradeDesk OpenPath, forging a more direct and streamlined link to demand partners.
- Direct Payments: Through these platforms, publishers can receive direct payments, bypassing intermediaries and ensuring a more direct and timely revenue flow.
- Enhanced Control Over the Wrapper (Prebid): The use of self-serve platforms allows publishers to exert greater control over the wrapper, powered (in most cases) by Prebid tech. This heightened control translates to increased flexibility and gross revenue transparency.
- Flat CPM Fee Model: A notable advantage is the ability to cut out revenue shares and transition from traditional models to a flat CPM fee structure. This shift empowers publishers with more predictable revenue outcomes.
- Direct Development Guidance and Support: Publishers engaging with self-serve platforms not only gain control but also have the opportunity to directly influence the development of the system. This collaborative approach ensures that the platform aligns with the evolving needs of publishers. Additionally, publishers benefit from direct and responsive support from the tech vendor.
In other words, the integration of self-serve platforms in the SPO landscape empowers publishers to optimize their supply paths comprehensively. From removing inefficient SSPs to establishing direct connections with DSPs, the functionalities offered by these platforms are endless and place greater control and transparency in the hands of publishers.
Benefits of SPO
Supply path optimization has 5 main benefits for the publisher and the industry overall:
- Transparency: Since programmatic auction consists of so many moving parts, lack of transparency tends to be the top problem. As a result, according to the ISBA study, around one-third of supply chain costs can’t be traced back to the recipient. This money could’ve gone to hidden fees and taxes or even to ad fraud.
- Better Performance: As mentioned, evaluating each partner and cutting off the middlemen can be beneficial to improve the user experience, increase ad performance and yield in the long term. This is even more important for video inventory, given the importance of user experience and load times in this environment.
- Fill Rate: With SPO algorithms, advertisers bid on the ad inventory that’s relevant to them. This can improve the fill rate for the publisher.
- Ad Fraud: Short and more direct supply chains increase trust between the players and reduce the risk of ad fraud and ad revenue losses associated with it.
- Reporting: SPO offers publishers a valuable solution to streamline reporting complexities especially when AdOps teams are small. The more complex the supply chain is, the more time it takes to sift through dozens of daily reports.
Challenges of SPO
DPO can be a cumbersome process. The more SSPs are involved, the harder it becomes to identify addressable issues. The are 2 main challenges associated with SPO:
- Data Complexity: The nature of the programmatic industry has introduced an abundance of demand-side data. Between verification companies, SSPs and other ad tech vendors, in-house ad ops teams have a lot of information that’s hard to sift through.
- Data Transparency and Costs: Limited data transparency introduces a new level of complexity, requiring access to new data forms, often at the log level, and the difficulty in obtaining this data from closed ecosystems.
How is SPO Facilitated?
While SPO can be facilitated on the individual level, there are a number of industry-wide initiatives to supply path optimization. Here are 4 of them:
- Ads.txt: ads.txt is a key initiative that helps to facilitate a transparent supply chain. By verifying the ads.txt, the buyer can ensure that the ad inventory he purchased is legitimate. We at Setupad regularly update our ads.txt file, and all our publishers are obliged to add it to their websites.
- Sellers.json and SupplyChain Object: sellers.json is a file containing all authorized sellers and resellers of the publisher’s ad inventory, for example, SSPs or a monetization platform. It’s useful for advertisers because they can identify the final reseller in a bid request. It also provides an insight into the whole supply path. Supply Chain Object works in tandem with ads.txt and sellers.json and allows to track down the final buyer in the supply chain.
- Fewer SSPs: One of the most crucial steps in SPO is to remove SSPs that don’t provide real value in terms of inventory or technical functionality. This is achieved by studying which partners bring the greatest benefit. For example, as part of its SPO effort, Criteo has removed more than 10 SSPs without impacting campaign performance. As a result, the company now has 99.7% visibility into its supply chain.
- Industry-Wide Standards: As brand safety and relevance are top priorities among advertisers, buyers shift to trustworthy and quality SSPs to ensure their ads end up on premium domains. It’s therefore important that all partners in the supply chain comply with the industry standards. For example, block non-transparent traffic (ad requests that don’t disclose domain identity) and implement measures to prevent domain spoofing.
Source: Pubmatic
Conclusion
While SPO may look like a buy-side concern at first, it greatly benefits the publisher. As the number of intermediaries decreases, the advertiser will see better results from the publisher and shift his ad spend towards that publisher. Moreover, publishers will receive the ad revenue that could’ve gone to ad fraud or hidden partner fees (aka the adtech tax).
Understanding the flow of advertising dollars enhances transparency and aids in tracking the reasons behind ad placements, which is crucial in an era with so many fraudulent sites.
While one SPO approach involves cutting low-performing sites and SSPs with resold inventory and high fees, an alternative method is to start by identifying high-performing ones. This approach involves a seller-by-seller evaluation to pinpoint trusted entities within the vast internet landscape, simplifying the process of selecting reliable partners.
