Guide to Supply Path Optimization

Reading time: 6 minutes

It can easily be said that supply path optimization (SPO) is what has led programmatic buyers out of the darkness. Before SPO, programmatic advertising[1] was full of redundant bids on redundant inventory[8], not to mention, a spotty ad supply chain riddled with unfamiliar vendors.

In other words, there was a complete lack of transparency[4] in regards to individual supply paths or pipelines, which was the primary cause of the issues between ad buyers and sellers.

Now, supply path optimization is arguably the most important ad tech[9] topic discussed within the programmatic ad world. 

This is because implementing SPO into programmatic ad buying has essentially helped bridge the gaps in the programmatic supply chain in the mobile app space. Supply path optimization is especially essential to demand partners as it allows them to automatically assess the value of each individual programmatic path. 

Simply put, SPO leverages transparency within the ad tech and programmatic worlds while minimizing unnecessary expenses and even ad fraud[10], which has brought both ends of the supply chain closer together.

In this article, we’re going to dive into supply path optimization to give you a better understanding of what it is, how it works, and why it matters.

Keep reading to learn more. 

Why Auction Duplication Needs to Be Understood

It’s safe to say that header bidding has changed the programmatic advertising game on a large scale. It has allowed buyers and sellers to work with multiple partners at one time to fulfill their demands and supplies. 

Now, the majority of publishers out there are working with upwards of ten exchange partners, bringing in a much higher ROI than before. 

Unfortunately, header bidding[5] and the opportunity to work with multiple partners at one time have brought on the onslaught of auction duplication. 

Auction duplication is exactly what it sounds like: Exchange partners trying to sell the exact same inventory to multiple buyers. 

For example, let’s say an advertiser[6] is planning to bid on inventory through three ad exchanges or pathways. The issue is that each exchange is connected to a single publisher[11] and not three separate publishers.

This means the buyer is bidding on the same impressions through three different supply paths but is competing with themself.

Of course, the advertiser can choose to bid on one exchange and they probably would if they could see exactly what they were bidding on. The issue is that they can’t see that all three exchanges are putting up the same impressions. Therefore, they don’t want to risk missing out on the fulfillment of unique impressions for themselves.

Hence the need for supply path optimization.

What Exactly Is Supply Path Optimization?

So, we know that supply path optimization offers transparency to help programmatic buyers avoid auction duplications.

But what exactly is it, how does it work, and why is it so important?

Supply path optimization is a demand-side platform[2] (DSP) process that assesses multiple variables to direct buyers towards the most optimal buying path. It’s essentially an algorithm that allows the DSP to read through each pathway to determine which bids have the shortest and most effective paths to a viable impression[7].

The algorithm itself singles out the most beneficial bids for the buyers while the supply-side partners (SSPs) still get to sell their impressions for optimal prices. This means no more inefficient and redundant supply paths causing losses to advertisers.

Why Supply Path Optimization Should Matter to Publishers

Technically speaking, an inefficient supply path is really an issue for advertisers. For publishers, an inefficient supply path is beneficial as it gets the same buyer to bid against themself, ultimately resulting in an even higher bid. 

However, publishers still have a good reason to care about supply path optimization, and here’s why:

Auction duplication is only beneficial to publishers in the short term. Once an advertiser realizes that they’re bidding against themselves, they’ll stop buying from that particular publisher. Some even go as far as to block certain pathways from publishers that send out duplicate requests.

Many DSPs are also already using their own algorithms to analyze publisher requests before placing any bids, which helps them avoid redundant bidding. This only means that both the awareness of auction duplication and action against it is becoming a regular best practice in programmatic ad buying. 

Additionally, advertisers will also continue to seek out inventory from publishers that automatically provide them with an optimized path to ensure there’s no redundancy. In other words, the jig is up and pretty soon all publishers will have no choice but to get on board with supply path optimization as an additional offering to attract more demand.

The Benefits of SPO

Supply path optimization comes with several benefits in the programmatic ad buying industry. 

Arguably, the greatest benefit of SPO is transparency. Let’s just say there’s a complicated route between the advertiser’s ad server and the publisher’s ad unit[12]. Supply path optimization works to uncomplicate that route, allowing for the process to become visible and transparent between both parties to not only avoid auction duplication but also so that more ad spend can reach the publisher. 

Another important benefit of SPO is the elimination of unnecessary expenses. Namely, commissions and fees that are directly linked to those involved in the delivery of an ad from the advertiser to the publisher. Publishers typically only get half of the ad spend simply because there are too many supply path parties involved, such as DSPs, SSPs, ad exchanges, resellers, and ad networks. 

Each party involved takes their own cut of the ad spend for their part in completing the entire process. The more players involved, the higher the overall expenses. SPO clears the path to show only the highest probability bids, which eliminates the need for extra participants and, therefore, saves on those fees and commissions.

A reduction of ad fraud is another critical benefit of SPO. When SPO is involved, it shortens and limits the supply paths only to trusted parties. This significantly reduces the chance of ad fraud as it’s much more difficult for fraudulent players to manipulate a short supply path with limited participants.  

Lastly, SPO offers a higher return on investment because it allows the advertisers to only bid on relevant inventory. In turn, this improves fill rates, which ultimately brings down the cost for advertisers. That means they can reinvest that extra money on publishers over time.

How Is Supply Path Optimization Implemented?

One thing to remember about SPO is that it’s essentially defined as any means to minimize supply path inefficiencies. Namely, the lack of transparency and complicated supply path routing. Therefore, anyone can implement supply path optimization regardless of your part in the ad tech ecosystem.

Here are a few examples of how SPO is being implemented across the board:

  • Using Ads.txt in the publisher’s domain, which provides for a verifiable library of inventory so that buyers can make sure they’re buying from a legitimate source.
  • Sellers.json, which is the SSP[3]’s version of an Ads.txt[13] verifiable file. It lists the authorized resellers while also preventing unauthorized sales.
  • The removal of aggressive SSPs. This is essentially a method of filtering out the more expensive and intermediary SSPs, reducing advertisers’ costs.
  • Single path usage, which allows buyers to avoid the “multiple routes” that cause auction duplication and instead select the supply path to premium inventory.

What’s Next?

Supply path optimization is not only here to stay, but it’s expected to continue gaining traction as challenges within the ad tech industry continue to increase. Publishers with premium inventory will always have the upper hand. However, buyers will continuously demand more efficient and safer ad routes, preferring to place their bids on an optimized supply path.

Similar trends to simplify the process and minimize costs as solutions to the complexities of header bidding will always be around the corner. 

Terms
1. programmatic advertising. Programmatic advertising entails using machine learning and technology suites to buy and sell ad inventory with a data-driven process.
2. demand-side platform. A Demand Side Platform or DSP is a platform where advertisers can buy digital inventory to easily and more directly connect with sellers in a programmatic and real-time ecosystem.
3. Supply-Side Platform [SSP] ( SSP ) A technology platform that provides outsourced media selling and ad network management services for publishers. The business model resembles that of an ad network in that it aggregates ad inventory, however they serve publishers exclusively and do not provide services for advertisers (e.g., FreeWheel, SpotX).
4. transparency. To be considered transparent, a solution provider must fully disclose all components of the buy including pricing, any related mark ups, delivery, placement level media location, inventory type, inventory mix, and how advanced audience data is being applied and reported. Arbitrage and black box inventory solutions are not transparent.
5. header bidding. Header bidding is an ad technology that allows publishers to earn to most ad revenue possible for their ad inventory by ensuring the highest bidding ad is served.

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