Remember the days of wandering through a carnival funhouse, mirrors distorting your path, and dead ends popping up everywhere? That’s kind of what programmatic advertising felt like before supply path optimization.
You threw your ad budget in (hoping it landed where it mattered), but with tons of intermediaries and confusing auctions, who knew where it went? SPO arose as a solution to this complex issue in digital advertising.
This guide delves into SPO in depth, uncovering the essential information you need to know. Let’s discover together!
Table of contents
What Is Supply Path Optimization (SPO)?
Supply path optimization, also known as SPO, is a process that aims to find the shortest and most cost-effective way for demand-side platforms (DSPs) to access ad inventory. In practice, it involves reducing the number of intermediaries (SSPs and ad exchanges) that buyers interact with.
You can compare SPO to a postal service. How a postal service identifies the most efficient and cost-effective route to deliver a package, saving time and money for itself and the recipient, SPO helps advertisers find the optimal path to secure their desired ad inventory.
It is an algorithm used by demand-side platforms (DSPs) to improve their interaction with supply-side platforms (SSPs). Each DSP employs its own SPO strategy: some focus on selecting the most relevant and competitive bids, while others exclude SSPs that do not use second-price auctions.
How Does SPO Work?
As we already said, supply path optimization (SPO) streamlines how advertisers reach publishers in programmatic advertising. It uses algorithms to find the most efficient route for ad delivery.
To understand better how it works, imagine a complex web of connections between advertisers and publishers. SPO algorithms navigate this web to identify the most direct route for an ad. This means minimizing the number of intermediaries involved in the auction process.
For instance, traditionally, an ad might travel through an ad network and then a supply-side platform (SSP) connected to multiple ad exchanges before reaching a publisher’s website. SPO can potentially eliminate the ad network as a middleman if the SSP directly connects to the publisher.
SPO also considers factors like the fees each partner charges, auction speed, and transparency. By eliminating unnecessary middlemen, SPO helps reduce advertisers’ costs. Moreover, it considers historical ad performance and viewability to ensure advertisers reach the most relevant audiences.
Why and How SPO Emerged?
Header bidding became an industry standard in 2014, changing how publishers monetize their ad inventory. This technique lets publishers gather bids from multiple demand partners through real-time bidding (RTB). By doing so, publishers can maximize their yield and ensure their ad inventory is sold at the highest possible price.
However, the introduction of header bidding also increased complexity in the supply chain. With publishers working with multiple exchange partners simultaneously, each SSP (Supply-Side Platform) or Ad Exchange collaborates with numerous DSPs (Demand-Side Platforms).
This means that instead of having just 10 bidders, there could be over 100 bidders for the same ad impression. Accordingly, a single DSP might receive several bids for the same ad impression, leading to inefficiencies.
Moreover, each SSP operates its auction logic, further complicating the bidding process. Some SSPs use a second-price auction model, while others use a partial first-price auction. This inconsistency does not guarantee that each SSP will provide an exclusive supply, as SSPs might send the exact ad requests to multiple DSPs, causing auction duplication.
As a result, advertisers could unknowingly compete against themselves. In response to these inefficiencies, supply path optimization (SPO) emerged in 2017. SPO helps buyers identify which intermediaries add value, simplifying the supply chain and reducing redundant bidding.
3 Benefits of SPO for Publishers
- Fill Rate – Advertisers bid on relevant ad inventory with SPO algorithms, improving publishers’ fill rate. As a result, available ad space is more likely to be filled with suitable ads.
- Reduced Ad Fraud – Shorter and more direct supply chains increase trust among participants and reduce the risk of ad fraud.
- Simplified Reporting – SPO simplifies the reporting process for publishers, which is particularly valuable for smaller AdOps teams. A more straightforward supply chain reduces the time needed to filter through multiple daily reports, making the overall process more manageable.
3 Benefits of SPO for Advertisers
- Increased Efficiency – By reducing the number of intermediaries, SPO simplifies the ad buying process, making it more direct and efficient.
- Cost Savings – Eliminating unnecessary mediators cuts transaction costs, allowing advertisers to get more value from their ad spend.
- Improved Transparency – SPO provides better visibility into the supply chain. With many moving parts in programmatic auctions, transparency is often a problem. According to the ISBA study, around one-third of supply chain costs can’t be traced back to the recipient, leading to hidden fees and potential fraud.
The 3 Most Common SPO Challenges
- Complex Implementation – Implementing SPO can be challenging and time-consuming. It often requires significant changes to existing systems and workflows, which can be disruptive and costly for advertisers and publishers.
- Data Integration – Integrating data from various sources to achieve an effective SPO can be difficult. The programmatic industry generates vast demand-side data from verification companies, SSPs, and other ad tech vendors. In-house ad ops teams often need help sifting through and managing this abundance of information.
- Data Transparency and Costs – Limited data transparency is a significant challenge. To achieve effective SPO, access to detailed data, often at the log level, is required. Obtaining this data from closed ecosystems can take time and effort.
Common Supply Path Optimization Misconceptions
1. SPO Goes to Missing Out on New Formats
False: While it may seem like SPO could lead to missing out on new ad formats, the reality is quite the opposite. A well-executed SPO strategy considers the value different sellers bring and aligns with the campaign’s goals, ensuring access to various formats.
It’s important to constantly adjust and optimize the strategy to adapt to evolving campaign needs and emerging formats.
2. SPO Reduces Access to Supply
False: Contrary to common belief, a smart SPO strategy doesn’t limit access to ad inventory. Cutting off certain SSPs based solely on fee negotiations or volume discounts may seem risky.
Still, it’s essential to prioritize factors like brand safety and efficient media access when negotiating with sellers. By making more sophisticated considerations, buyers can ensure access to quality inventory while optimizing costs.
3. SPO Is a Manual Process in a World of Automation
False: While SPO may initially appear manual, advancements in the industry are changing this perception. Initiatives like sellers.json and SupplyChain Object provide more informed approaches to SPO and offer insights into the digital supply chain.
Moreover, DSPs and buyers are leveraging proprietary artificial intelligence technology to develop tools and algorithms for better buying control over media access, enhancing automation.
4 Ways to Implement SPO
SPO can be implemented individually, but several industry-wide initiatives have been established to enhance its effectiveness. Here are four key methods:
1. Ads.txt
This initiative promotes a transparent supply chain by allowing buyers to verify the legitimacy of the ad inventory they purchase. On Sevio Ad Manager, the ads.txt file regularly updates, and all our publishers must add it to their websites to ensure authenticity and transparency.
2. Sellers.json and SupplyChain Object
Sellers.json is a file listing all authorized sellers and resellers of a publisher’s ad inventory, such as SSPs or monetization platforms. It helps advertisers identify the final reseller in a bid request and provides insight into the supply path. The SupplyChain Object complements ads.txt and sellers.json by allowing tracking of the final buyer in the supply chain, ensuring complete transparency.
3. Reducing SSPs
A critical step in SPO is eliminating SSPs that do not add significant value in inventory or technical functionality. Companies can streamline their supply chains by analyzing which partners benefit most.
4. Industry-Wide Standards
Advertisers prioritize brand safety and relevance, preferring trustworthy and high-quality SSPs that ensure ads appear on premium domains. All supply chain partners must adhere to industry standards, such as blocking non-transparent traffic (ad requests that do not disclose domain identity) and implementing measures to prevent domain spoofing.
Domain spoofing is a tactic that misleads programmatic advertising platforms into believing an ad will be displayed on a reputable website (e.g., cnn.com) when it is shown on an illegitimate or fake webpage (e.g., scamwebsite.com).
Final Thoughts
As header bidding revolutionized ad inventory monetization in 2014, it also introduced complexities in the supply chain. As a result, the bidding process became convoluted with multiple exchange partners, SSPs, and DSPs, leading to inefficiencies and duplication.
Thus, supply path optimization emerged as a solution in 2017, aiming to simplify the supply chain, reduce redundant bidding, and offer publishers advantages such as improved fill rates, reduced ad fraud, and streamlined reporting processes, enhancing their overall efficiency and revenue potential.
But remember, SPO is not about limiting access to ad inventory but about optimizing the path to ensure quality, efficiency, and cost-effectiveness for advertisers and publishers alike.
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