Supply Path Optimization Explained

With the introduction of supply path optimization in digital advertising, advertisers and publishers are getting more bang for their buck through improved transaction processes. However, you may be wondering why this additional optimization has become a necessity.

Despite having a revolutionary impact on the digital ad space, programmatic made the entire transaction process too complex to understand and efficiently run. The scaling of ad inventory has led to a decrease in the transparency of transactions and fees. This made it difficult to be certain that each dollar of ad spend was purposeful.

And so, like a rescue ranger, supply path optimization (SPO) came into play. SPO was first introduced into the industry in 2016 and has since evolved alongside the programmatic industry. Now, SPO decisions are being made in both mature and developing markets across the globe. It provides a much better overview of the programmatic ad landscape, allowing for every trade to be more transparent, profitable and efficient.

In this article, we’ll explain supply path optimization in detail, so you can understand how it benefits advertisers and publishers, how to implement it and how MGID can help you get started.

What is Supply Path Optimization?

Supply path optimization is a process of identifying the most efficient and profitable paths for ad inventory to reach the demand-side platforms. The goal of SPO is to streamline the flow of ad impressions from publisher to advertiser, ensuring that the advertiser gets the best return on their investment and the publisher gets a fair reward for their inventory.

In a recent study by IAS, it was determined that 95% of ad buyers are currently in the process of implementing supply path optimization since 52% of their ad budget is transacted programmatically. Why are they so eager for supply path optimization? In programmatic, the number of paths you can take to achieve your goal is incomprehensible by human standards, so an algorithm is needed to weed out expensive and non-transparent options.

Faced with the challenge of multiple paths to the same ad inventory, SPO aims to optimize the quantity and quality of those paths. As a result, ad buyers are able to identify the right channel to bid on and win inventory cost-effectively and transparently.

If you want to learn more about this, IAB has recently developed a Guide to Supply Path Optimization for stakeholders looking to adopt SPO in their business and marketing functions.

Why is Supply Path Optimization Important?

First of all, we need to digress a little and brush up on the key approaches to selling ad inventory in programmatic. Meet — or recall — waterfall and header bidding.

Initially, when programmatic first became the preferred way to purchase digital inventory, advertisers’ choice of supply path was limited. The traditional waterfall model dictated which providers a buyer had to use to reach their target audiences. Advertisers were often restricted from accessing a publisher's inventory, as SSPs were determined by preferential ranking within the publisher's ad server.

Alternatively, header bidding expands the buying path, since publishers could collect bids from multiple SSPs simultaneously. With header bidding, the average SSP and DSP receive more traffic while filling smaller percentages of inventory. Here is a comparison of the two.

Waterfall

This auction-based model offers ad inventory in a specific order. Publishers prioritize based on historical performance and revenue share agreements. The ad inventory is offered to the first bidder, and if not purchased, it moves to the next bidder until the inventory is sold.

Header bidding

This auction-based model offers ad inventory simultaneously to multiple partners through an auction in the header of a website. Publishers invite all demand partners to bid on inventory. The highest bidder wins, and their ad gets displayed.

So what do we see? The waterfall model was indeed popular in the early days of programmatic advertising but has since been replaced by more advanced and efficient models, such as header bidding. However, even with the benefits of header bidding, not everything is so rosy.

With equal access to supply, header bidding introduced more complexity into the arena. DSPs received dozens of requests for the same ad impression. This means SSPs could sometimes forward the same ad requests to the DSPs. You've probably heard of this as an auction duplication.

Auction duplication can lead to inefficient use of ad spend, as multiple buyers may end up paying for the same impression. It can also result in discrepancies between reporting from different exchanges and platforms. While duplication of auctions remains a challenge for the industry and is expected to remain here for quite some time to come, SPO is able to mitigate its impact.

How can SPO help, you may ask? Well, first of all, it can prioritize the most efficient and transparent supply paths and monitor their campaigns closely to detect and address any discrepancies. To put it simply, supply path optimization brings to light all that was unclear and secret:

• it identifies the number of intermediaries involved between the DSP and the publisher;
• it indicates the fees charged by these intermediaries;
• it defines maximum auction timeout and relationship with the publisher.

With a storehouse of valuable information, it becomes easier for the buyer to choose the best path. At the same time, there are different SPO strategies advertisers can use within their business model. While one SPO approach might cut the worst websites and SSPs with resold inventory and high fees, another SPO approach might be used to identify the best. Buyers can start with a small pool of approved inventory and SSPs to see how campaigns perform and then scale without access to messy resold or long-tail supply.

Takeaway: Optimizing the supply path greatly benefits advertisers and publishers by reducing the number of intermediaries involved in the ad buying process. Advertisers can gain greater visibility into the performance of their ad campaigns and achieve better control over their ad spend, while publishers have more control and transparency over their inventory, resulting in higher revenue and better relationships with their advertising partners.

How Does Supply Path Optimization Work?

To paint a clear picture of how SPO works, imagine a busy market where thousands of merchants are selling the same type of product. A buyer can become overwhelmed with options and find themselves having to make a difficult decision. More likely than not, they end up paying much more than actually necessary for something that is not genuine. However, a buyer who is familiar with the market will know exactly which seller to purchase from and how, and therefore, pay a fair price and receive adequate value.

Using SPO, ad buyers are reaching a publisher’s inventory through the most effective route. The process involves analyzing the various supply paths available to the advertiser and selecting the ones that offer the best combination of price, quality and transparency.

Even better, supply path optimization can help identify spoof domains by analyzing the supply chain to ensure inventory is being sold from legitimate and trusted sources. SPO achieves this in a number of ways:

1. Reducing the number of intermediaries. By eliminating the number of intermediaries involved in the ad buying process, SPO can help limit the ability of bad actors to inject spoof domains into the supply chain.
2. Evaluating supply sources. SPO can analyze the performance of various supply sources and identify any red flags, such as suspicious traffic patterns or low-quality inventory.
3. Implementing verification tools. Once again, SPO can protect you against malefactors. It can implement third-party verification tools, which can identify spoof domains by comparing the domain name of an impression to a list of authorized domains.
4. Enhancing transparency. All parties involved in the supply chain are required to disclose their fees and ensure that advertisers have complete information about the inventory they are buying.

Benefits of SPO for Advertisers

Let's recap: optimizing the supply path allows advertisers to purchase ad inventory directly from reputable publishers, buying only what is most beneficial. This leads to better results and a higher return on investment.

By stating the benefits point by point, we got the following result:

1. Boosted performance. SPO ensures that ads are displayed in high-quality environments relevant to the target audience. This way, advertisers can increase the likelihood that their ads will be seen by the right people, improving click-through rates, engagement and conversions.
2. Increased transparency. A common benefit for both advertisers and publishers, improved transparency provides advertisers with full visibility into the inventory they are buying. We will talk about the advantage of transparency for publishers below.
3. Reduced costs. By minimizing the number of intermediaries involved in the ad buying process, SPO can help advertisers to better track their ad spend, improve their return on investment and achieve more cost-effective advertising.

Benefits of SPO for Publishers

Harnessing the power of SPO, our publishers take a more active role in managing their inventory, resulting in a more efficient and profitable advertising business.

Here are the benefits that they will be able to appreciate point by point:

1. Increased revenue. SPO can help publishers optimize ad inventory flow to partners willing to pay higher prices for their ad space. This allows them to identify the most profitable demand sources, reduce the number of intermediaries and maximize revenue.
2. Improved transparency. And here is transparency again, as promised. Publishers also benefit from transparency as they receive full information about the advertisers they are working with and can avoid low-quality demand, ad fraud and hidden fees.
3. Enhanced control. By providing publishers with greater visibility into the ad buying process, SPO enables them to exercise greater control over the placement of ads and the advertisers they work with.

How to Get Started With SPO

Optimizing a supply path is not something one can simply “set and forget.” It takes consistent effort. SPO requires evaluation and analysis of results, but the result will be worth the effort — take our word for it.

Advertiser Perspective

There are a few key steps that you can take to get started.

1. Internal assessment. Begin with an internal assessment to explore which SSPs offer the most efficient path to desired inventory. You should understand the total spend across SSPs and publishers to understand where your media budget is currently being spent.
2. SSP evaluation. Once you know the current state of your supply landscape and the unique factors that maximize ROI, start evaluating your SSP partners. Before outreach, you should clearly know your long-term goals and what you want from your partners.
3. SSP consolidation. At this point, you now have the knowledge and insight to develop an effective SPO strategy. Most DSPs offer buyers the ability to turn SSPs on and off. Still, it’s important to avoid making drastic changes and devise comprehensive testing to ensure no unintended impact on performance.
4. Ongoing optimization. Evaluation and refinement are necessary to determine whether the ideal path initially chosen is still relevant and optimal. It’s crucial to track the progress being made while campaign performance metrics are achieved.

Publisher Perspective

While most of the advice and guidance mainly relevant to the buyer, it is important for the publisher to understand how to take advantage of the SPO implementation as well.

1. Evaluate existing relationships. You should begin by evaluating your existing relationships with DSPs and SSPs to understand their performance in terms of revenue, fill rate and transparency. Focus on working with SSPs that provide the highest value.
2. Analyze bid requests. It is necessary to determine which DSPs are sending the most traffic and which are bidding the most competitively. You should also look for patterns in bid requests, such as duplicative auctions or invalid traffic.
3. Negotiate fees. At this point, it’s time to negotiate fees with your SSPs to ensure that you are getting the best possible rates. Of course, you also have every right to demand maximum transparency regarding fees charged by intermediaries.
4. Monitor results. Continually monitor the results of your SPO efforts to ensure that they are delivering the desired outcomes. Keep track of the latest innovations in the ever-changing programmatic ad landscape to ensure that your SPO efforts remain effective and relevant.

It’s Easy to Implement and Track SPO With MGID

If you strive to improve your SPO, MGID can help! We have many advertisers looking to connect with publishers on our platform directly.

Of all the traffic sold via MGID SSP, 95% is direct. For advertisers, that means you’ll avoid resold inventory and reduce unnecessary intermediary fees. We provide buyers with transparent data regarding our publishers and assist you in paving the way for successful long-term partnerships.

MGID adheres to contemporary advertising standards, protecting SPO mechanisms with the newest versions of ads.txt and sellers.json. Publishers list us in the ads.txt file, authorizing us to sell their inventory and we add them to the sellers.json file to authorize all sales on behalf of our direct publishers.

Finally, we connect with DSPs directly, ensuring that the buy side follows the same rules. The result is total buyer satisfaction and a lack of duplication. We help you establish the basis for continual evaluation and analysis of your SPO strategies.

Conclusion

Supply path optimization is a standard that all parties involved should implement. Buyers use SPO to focus their bids on the most efficient, profitable and transparent supply paths, while publishers enjoy long-term financial stability and sustainability. With MGID on your side, both buyers and sellers can take comfort in knowing that everyone plays by the same rules and enjoy long-lasting partnerships.