What is Supply Path Optimization (SPO) in Programmatic

supply path optimization

Supply path optimization, or SPO, became an adtech industry’s buzzword in 2016. Supply path optimization in programmatic 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 impression 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! 

Table of Contents: 

What Is Supply Chain 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. 

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. 

ssp partners

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 has emerged.

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.  

Why Should Publishers Care About SPO?

According to an IAB research, 87% of brands, agencies, and DSPs are actively implementing SPO. 

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.

real time bidding auction

This process can be tricky for small-medium publishers as they often don’t have their own SSP connections. This is where a monetization platform like Setupad can help. 

Setupad’s header bidding wrapper connects the publisher with 21 industry-leading SSPs like GoogleAdx, Xandr, Magnite, Criteo, Index Exchange where each partner is bringing its unique value and technological know-how. 

Setupad’s header bidding SaaS solution is perfect for large publishers with existing SSP accounts. It allows all of the publisher’s existing demand partners–both direct and programmatic–to compete against one another in real-time. The benefit of this technology is that the publisher can customize his header bidding setup based on his own needs, evaluate each partner, and negotiate the fees. 

Benefits of SPO

Supply path optimization has 4 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.
  • 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. 

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: 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. 
ads.txt sellers.json example
  • 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. 
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). 

In addition, SPO enhances the transparency of the supply chain and helps build trust with advertisers that will offer efficient returns on your inventory.   

A trusted header bidding partner like Setupad will connect you to the optimal number of industry-leading SSPs, as well as Google AdX, bringing maximum benefit without harming the user experience.

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