Since the inception of programmatic itself, programmatic media buyers have grappled with issues of transparency and the “black box” nature of the ad tech supply chain. These topics have only gained increased urgency in recent years as the programmatic marketplace has accelerated in growth, capturing attention and media budgets from more and more of the world’s brand marketers. Brands increasingly want to know that they’re getting a good value for their investment, and media buyers must find clever ways of providing that value. Today, we’ll take a look at one of the most popular of these methods: Supply Path Optimization (SPO).
Supply Path Optimization is a tactic that programmatic media buyers use to identify which SSP offers the best price for a particular piece of inventory. Media buyers have always used some form of SPO, but the topic has taken on greater importance in recent years thanks to the emergence of header bidding, which allows publishers to offer inventory to multiple ad exchanges before making a call to their ad server (primarily Google Ad Manager). To combat this, buyers have begun to replace conventional manual SPO methodology with automated solutions, although we would argue that the most effective buyers use a combination of both. The great irony of Supply Path Optimization is that, although it is designed to streamline programmatic media buying, it is yet another piece of jargon in an overly-complex, three-letter-acronym filled programmatic marketplace.
Publisher supply chains are messy. That was true at the inception of the first digital ad network, and it is definitely true today. However, in recent years, the publisher supply chain has grown even more convoluted thanks to the emergence of header bidding. Originally designed as a countermeasure against Google’s increasing industry dominance, header bidding allows publishers to manage their programmatic yield more effectively. The problem is that header bidding leads to bid duplication, which occurs when an exchange issues multiple bid requests for the same impression.
It’s a lot like planning a road trip. Your destination is the impression, but thanks to bid duplication, there are many routes (i.e. different SSPs) that you can take to get there. Unfortunately, just as some routes are longer, more indirect, and potentially more costly than others, so too do the various SSPs differ in price—often in ways that are difficult to predict.
Enter Supply Path Optimization
If the impression is the destination, then Supply Path Optimization is the process of determining the best route, or more accurately, the “optimal path.” In general, Programmatic SPO comes in two flavors—manual and automated.
Media buyers have been conducting manual SPO since long before header bidding came onto the scene. Manual SPO leverages data science and direct communication with the supply-side to improve campaign performance by assessing inventory quality, analyzing price discrepancies, and identifying re-sellers and other less efficient or untrustworthy SSPs.
Automated SPO is an algorithmic-driven innovation. In a direct response to rising operating costs, DSPs began creating algorithms to help with supply chain intelligence. These algorithms filter bid requests based on inferences from event data, helping buyers increase performance while controlling infrastructure costs. Algorithmic SPO streamlines how DSPs engage and transact with SSPs by automatically routing spend to the most cost-effective paths.
If manual SPO is like using a paper map and compass to chart the best course, automated SPO is more like whipping out your phone and taking directions from Waze or Google Maps, which optimize routes in real-time based on data signals. When it comes to the programmatic market place, however, smart buyers will use a combination of both methods. Manual SPO allows buyers to set parameters based on knowledge pulled from relationships and personal experience. Those parameters then prevent the automated algorithm from wasting time on paths that have been proven to be undesirable.
Looking to The Future
While SPO is necessary to deal with the chaos and disorder of the publisher supply chain, the fact that we need it at all is a sign that programmatic has a ways to go before it reaches maturity. In the future, we as an industry will have to clean up our act and stop gaming the system. Thankfully there has been a pivot towards the supply strictly running first-price auctions with no buy-side fees and reduced or capped publisher fees.
These moves coupled with SPO have made it easier for buyers to pinpoint the best paths to procuring the right inventory. Buyers can spend less time trying to understand opaque auction dynamics and convoluted supply chains. Instead, we’ll be able to spend our time focusing on what we do best—accurately measuring, planning, and optimizing for our clients. As for the supply side, publishers should seriously consider the negative implications of bid duplication as they explore their yield management options and take a page from the demand side and look to consolidate the SSPs they work with.