What is Supply Path Optimization?

Every few years, a new bit of jargon becomes inescapable in ad tech. Most of the time, the buzz-phrase quietly fades away. Sometimes, though, the term not only sticks around—it actually changes the fundamentals of the entire industry. 

Such is the case with supply path optimization.

What is supply path optimization? 

A simple definition would go like this: supply path optimization is a strategy used by marketers to streamline the inventory-buying process. It aims to ensure that buyers make the most efficient connections at the most reasonable prices.

To understand why this streamlining might be desirable, it's worth taking a step back to explain how exactly the average ad reaches a website or mobile user. On one side, you have publishers and mobile apps with available ad inventory—i.e., spots on their platforms where brands can showcase their wares. When a customer clicks a link, these spaces are blank. But in a matter of milliseconds, a highly complicated process automatically takes place. The impression is put up for auction through a supply-side platform (SSP); advertisers bid for this impression through a demand-side platform (DSP); ad exchanges enter the picture; and the winning bidder's ad is then displayed to the consumer.

Given the number of moving parts here—all the SSPs, DSPs, exchanges, etc.—redundancy and bloat were perhaps inevitable. But the problem became particularly acute in 2017, as header bidding became standard industry practice. Essentially, header bidding allowed publishers to collect bids from multiple exchange partners simultaneously. This might've been good for publishers in the short-term, but it poisoned the overall ecosystem and hopelessly complicated the entire process. Suddenly, marketers were competing against themselves for inventory, or getting dozens of bid requests for the exact same impression. The path from brand to consumer had never been more tangled or opaque.

You can start to see why, according to a study from IAB Research, 87% of brands, agencies, and DSPs are actively implementing supply path optimization, or SPO. Across virtually every metric—transparency, cost, efficiency—SPO improves the advertising experience for both buyer and seller (not to mention consumer). So let's dig a little bit deeper into what it is and how your company can potentially implement it.

The benefits of supply path optimization

1) Fewer redundancies, less wasted money

The more parties involved in your digital advertising supply chain, the more fees you're inevitably going to pay. When a supply chain is particularly tangled, you might have no idea what you're actually paying for—fees are deducted at various points along the path and accounting for the where and why can feel impossible. An efficient path, on the other hand, eliminates this problem: with fewer moving parts you can optimize your spending and ensure that hidden middlemen aren’t siphoning more than their fair share.

2) Increased transparency

Fraud is arguably one of the biggest problems plaguing the digital advertising industry: the total cost of ad fraud this year is projected to be $81 billion. By shining a light on precisely where your money is going, SPO drastically reduces the odds that marketers will be exploited by bad actors (for instance, SSPs that resell impressions and take the bid difference for themselves).

3) Increased revenue

With proper SPO, your ads have a significantly better chance of actually reaching their intended audience, instead of languishing away unseen on some content farm's back pages. Accordingly, digital advertisers drive more business and see a much better ROI. Meanwhile, because these advertisers are bidding on inventory that's actually relevant to them, it can improve the fill rate for premium publishers.

4) Less data leakage

The goal of any sensible cybersecurity plan is to reduce bad actors' chances of getting at data. Unoptimized supply paths do just the opposite—they sprawl, creating countless unnecessary access points for potential hackers. SPO, on the other hand, does just the opposite, granting advertisers greater control over sensitive information (and reducing the odds of a costly or embarrassing leak).

5) Fewer carbon emissions

It is an alarming and under-discussed fact that data centers—which hold the servers that keep the internet afloat—are now responsible for upwards of 2% of carbon emissions. And that number is projected to rise steeply in the coming years. SPO has a real role to play here: because it eliminates redundancies and makes the process maximally efficient, it calls for less computer power. When you think of how many ads are sold each year—$23.5 billion in Q2 of this year alone—you can begin to see how proper SPO can make a real difference in this arena.

How to implement supply path optimization

So we've established why SPO matters. The question now is: what's the best way to implement it?

Unfortunately, there is no switch to flip here—proper SPO is a continual process requiring constant trial and error. But if the process had to be summed up in three words, it would be these: evaluate your SSPs.

Think of the process like an audit. You want to pick apart your current supply paths and figure out exactly how they're working. First and foremost, that means getting a handle on how many SSPs and ad exchanges you're using. It means trying to figure out who exactly you're paying fees to and flagging any redundancies. It means testing your SSPs—examining them one by one, in an effort to identify any performance issues or other anomalies. And of course, it means paying attention to how long it takes auctions to close and vigilantly staying on top of any latency.

What you're looking for are the vendors who bring the most value. The ad tech industry as a whole has wasted enough resources on budget-siphoning content farms and outright fraud; the goal now is to increase targeting efficiency and get your content in front of high-value audiences. That means carefully determining which SSPs are helping with that goal—and which are wasting your limited ad dollars.

Of course, proper SPO requires the good-faith participation of multiple stakeholders, including publishers and the SSPs themselves. Luckily, in recent years, that process has become somewhat easier.

Enter ads.txt and sellers.json

Ads.txt and sellers.json are initiatives spearheaded by the IAB Tech Lab. With ads.txt, publishers publicly list the sellers who are authorized to sell their inventory; this information is hosted on their own domain, making it easy for buyers to authenticate it. Sellers.json, meanwhile, compels SSPs to publicly list the inventory they're authorized to sell, allowing publishers to determine if a given SSP is lying about having a relationship with them.

When publishers regularly audit their ads.txt files—and ask their demand partners to audit their sellers.json files—they add much-needed transparency to the supply path process. And marketers shouldn't hesitate to push for this transparency—to communicate with their partners on exactly what their money is going towards. 

Years from now, you can be sure, marketing professionals will laugh at just how much money was wasted after the advent of header bidding. No one's to blame here: digital advertising is among the fastest-moving businesses there is, and some time to adjust to new realities is an inevitable part of the process. But now that the deficiencies in the old supply path are clear—the wasted money, the lack of transparency, the vulnerability to hacking and fraud—there is no excuse to not optimize ASAP.

How does EX.CO support SPO?

At EX.CO, we are a huge proponent of supply path optimization. Our video technology is specifically developed with the publisher in mind and serves as a “one-stop shop” with all of the tools needed to manage and execute a comprehensive video strategy. This enables our partners–both publishers and advertisers–to eliminate middle men, cut ties with vendors that offer redundant solutions (and therefore, save money), and gain direct access to the company you’re doing business with.