Programmatic buyers were once caught in the midst of chaotic clutter caused by redundant bids and duplicated auctions, which littered the advertising landscape. The ad supply chain resembled a tangled labyrinth of unfamiliar vendors and inferior inventory, causing confusion and complexity. In the midst of this chaos, there was a daunting pressure to demonstrate ROI while grappling in the dark for insights.
However, the introduction of supply path optimization (SPO) brought a solution to this problem. Ad buyers could now create a direct path to purchase the inventory they desired without losing value in the process.
Together with demand-path optimization (DPO) — the sell side’s simultaneous push toward programmatic efficiency and transparency — supply-side optimization is bringing the publisher and the advertiser, the endpoints of the digital supply chain closer together. It’s creating direct connections, consolidating spend, and helping each side understand the unique value of their partners.
What is supply path optimization?
SPO is a means of identifying the most efficient supply paths from the buyer — the DSP or agency trading desk — to their most valuable, exclusive inventory, depending on the specific advertisers’ or campaign’s objectives.
SPO aims to locate where and how bids win programmatic auctions and identify vendors that bring the highest yield to help demonstrate programmatic ROI. From the sell side, DPO looks at how impressions are sold in ad exchanges. Through these two processes, advertisers and publishers gain insights into each other’s goals, and how to better utilize their partners’ strengths.
By limiting bid requests to a smaller number of sellers (supply-side platforms and exchanges), buyers can gather real insights. SPO also sidelines unauthorized resellers, who may be engaging in ad fraud. That helps ensure quality control and brand safety for advertisers, reducing the chances of their ad spend winning impressions on inappropriate sites, or paying high fees for impressions that don’t deliver.
How we got to SPO
The need for SPO is related to the birth of header bidding. Header bidding helps publishers gain new insights into the real value of their inventory, tightens relationships between publishers and their demand partners, and delivers higher yields for a publisher’s ad unit. Indeed, header bidding auctions kicked off a new phase of advanced programmatic advertising both for advertisers and publishers.
At the same time, header bidding introduced exponential complexity, and became a considerable ad tech burden for demand-side platforms. That’s because before header bidding, one impression would enter the programmatic market and garner any number of bids, whether in a first-price or second-price auction.
After header bidding, the same ad impression would appear simultaneously from multiple sellers. Over the course of just a few years, the volume of ad impressions processed by a DSP expanded by over 500%, in some cases. With so many redundant impressions, a DSP could easily end up bidding against itself (auction duplication) for the same ad inventory.
Meanwhile, publishers continued adding demand partners to their ad stacks to increase revenue and fill, diversify demand, or meet other business goals. However, that strategy sometimes roped in poorly-performing partners and resellers.
Somewhere in this mess were the impressions that mattered to each buyer, the focus of the buyer’s ad spend, in the buyer’s preferred source and auction setup. So DSPs and agencies began plotting out the direct paths of the bidding process to the point of winning an auction based on historical performance and they began adjusting their relationships with other vendors accordingly.
Benefits of programmatic supply path optimization
SPO aims to make decision-making more efficient in every programmatic SSP auction and focus advertising budget on the most exclusive supply.
DSPs adopt different strategies and combinations for SPO. Manual analysis and algorithmic decision-making both play a part, per the DSP’s resources and needs. Automated methods differ based on the metrics the DSP is optimizing for. Also, while efficiency may be one of SPO’s top goals, there is no simple rule for how to accomplish it. “Efficiency” and campaign performance look slightly different to each buyer.
Win rate, spend per queries-per-second (QPS), intermediary costs, and latency are just the beginning of the meaningful metrics that media buyers are keeping track of in their supply path optimization work. Others include sorting impressions based on their chance of winning the bid, focusing on SSPs and exchanges that offer second-price auctions, filtering out undesirable auction tactics, cutting out all resellers, hidden fees, or circumventing resellers with little or no unique inventory.
How can supply chain optimization reduce costs?
Supply chain optimization can create better connections between stakeholders and eliminates some of the guesswork in the ad tech system.
Without input from publishers and/or other vendors, buyers’ SPO efforts may not create the most efficient connections or yield optimal results. Communication along the supply chain helps. As tangled as header and waterfall paths are, DSPs, programmatic marketers, and agencies can make better sense of them and create efficient connections by asking publishers who their preferred demand partners are, rather than trusting sellers will always make the right decisions by proxy.
Supply path (SSP) optimization
SSP gets rid of blind spots and inessential tech, reducing clutter in the ad tech supply chain.
Without SSP/exchange and publisher input, buyers are left to rely partly on what they can infer about their blind spots — the publisher’s waterfall structure, the nuances of a seller’s auction setup, and more. Also, input on what benefits publishers can help buyers avoid supply path optimization strategies that introduce additional, inessential layers of tech. Sell-side input helps minimize educated guesswork and helps buyers avoid inadvertently drawing out counterproductive paths to their own goals.
To proactively reduce clutter in their supply chains, publishers should audit their ads.txt files and push their preferred demand partners to audit their sellers.json files. This will improve transparency and verify that authorized partners are delivering value while helping buyers who would associate close partner integration with an efficient path to impressions.
Demand path (DSP) optimization
DPO helps publishers ensure that their impressions are going to their preferred partners.
The next stage of this conversation among stakeholders on both sides is DPO. Publishers quickly realized they needed to be in this conversation as well, because not only were buyers doing SPO without them — so were supply partners and exchanges. Publishers need to make sure their quality inventory impressions are going to their preferred partners, and control the volume of impressions going to their lower-priority partners — whatever makes good business sense.
Publishers and advertisers should guide each other first-hand toward truly optimal results. That involves each side auditing its programmatic partners, underlining those who bring the most value, and learning about which of those partners delivers unique supply or demand.
Where ad quality fits into supply path optimization
When it comes to ad quality, the uncomfortable truth is that as publishers continue to incorporate more demand partners, poorly-performing partners, and even fraudulent demand continues to slip through the programmatic net, problems that were much less significant when they had fewer programmatic partners. Together, the lack of transparency and collaboration between industry players has enabled malicious actors to successfully exploit the ad server ecosystem and the technology provider’s auction dynamics–turning malvertising into a thriving enterprise.
Malicious actors successfully entering auctions and serving deceptive ads or viruses, is a leading reason premium publishers are losing their readership. Lost readership and accompanying dips in ad revenue are prime examples of what can go wrong when inventory is bought and sold with limited transparency and without the proper ad quality controls in place. This is not a simple problem to solve, it’s technical and nuanced, but it must be done, so how should publishers move forward?
Ad Quality, A Step Towards Transparency
Publishers can lead the charge towards transparency and set adtech industry standards by elevating their detection and partnering with an ad quality vendor skilled at pinpoint detection – capable of tracking and blocking malicious or fraudulent actors across multiple SSPs and throughout the ecosystem.
Additionally, publishers can take a more proactive stance toward knowledge sharing by notifying SSPs about low-quality, offensive, or fraudulent ads in their ad inventory. Providing SSPs with data about priority incidents is the first step towards effective cooperation and increased transparency.
Publishers don’t have to do the heavy lifting themselves. When choosing an ad quality partner, vendors should provide these features to publishers so publishers can rest easy without tracking all of the bid requests that come through the various ad exchanges.
While SPO strategy and SPO technology were initially supposed to benefit buyers by preventing things like bid duplication for the same impression, it can also be beneficial to publishers — if publishers are able to advocate for themselves. And they can. SPO and DPO are both important in providing transparency, strengthening business relationships, and helping both sides meet their goals. Indeed, SPO and DPO together illuminate the full supply chain and boost advertiser ROI and publisher revenue along the way.