Beeswax Guide to Supply Path Optimization (SPO)

Supply Path Optimization, otherwise known as SPO is an important topic for digital media strategists to understand. 

DSPs (Demand Side Platforms) like Beeswax are connected to advertising supply via SSPs (Supply Side Platforms) which work with publishers to help them to monetize their potential advertising inventory. 

Publishers make some or all of their advertising inventory available to the SSPs that they partner with. The Publisher to SSP deal may include factors such as a floor price below which an SSP will auction off some of the inventory or what inventory is available to that SSP. SSPs in turn mark up their available inventory in order to make money for their role in the process. 

In the not too distant past, technology limited how Publishers and SSPs could interact. Publishers would allocate inventory to SSPs in what was called a ‘Waterfall’ model. They’d choose an SSP that would have first dibs on an auction of a given type. Failing to secure a winning bid, the auction would move down through other SSPs in turn as shown here. 

The issue for Publishers is that there may be a higher bid further down the waterfall, which, over the course of a large number of auctions, could mean a significant loss of potential revenue for the Publisher. 

For digital media strategists, this model created a lack of transparency in the supply chain, in that one didn’t know what the markups that are happening across the SSPs might be, and for a given auction, they may be sacrificing more in commissions than it might have taken to satisfy their demand. 

Enter Header Bidding

With the introduction of Header Bidding, Publishers can now release an auction to multiple SSPs simultaneously. 

This innovation enables Publishers more control over the sale of their advertising inventory. While each SSP may have a different deal with the Publisher, it becomes more likely that a winning bid will be the highest possible. It also applies a bit of pricing pressure on the SSPs, as the higher their markup for their service, the lower the net bid presented to the Publisher, and the less likely they’ll be to win a given auction and earn their markup. 

While this arrangement is highly beneficial to the Publishers, it puts a bit of a strain on the DSPs. While in the past, for a given auction a DSP might need to respond to only one bid request from one SSP, in this new world, the DSPs must respond to every bid request from every DSP. 

This has caused DSPs to have to build significant processing capacity in order to handle this massive amount of new incoming information.

Fortunately, it’s in both the end customer’s and DSPs interest to rationalize this supply chain down to create a situation where there are fewer steps to satisfying an advertiser’s need for advertising inventory.

By using log-level data (which is easily accessible using the BeesWax Antenna product!), it’s possible for Media Strategists to discern the best supply chain route to get the advertising inventory that they need at the lowest cost. 

Savvy Digital Media Strategists are now reducing the number of SSPs that they buy inventory through in order to gain control and visibility over their media spend. 

This has a knock-on effect of reducing the load on the DSPs servers, which when you work with BeesWax means that your own DSP cost, in turn, is reduced.

You can learn more about SPO, or Supply Path Optimization in our webinar here.

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While the term ‘SPO’ has been used to refer to different parts of the supply decisioning process, for the purposes of this Guide, we define SPO as ‘a process in which multiple variables are assessed to drive buyers towards the most efficient buying path’.

A quick look at the history of digital advertising has seen it rapidly evolve from direct publisher relationships and IO based buying to the rise and fall of ad networks, before the more recent transition to programmatic real-time trading using supply side platforms (SSPs)/exchanges and DSPs. While this shift has made digital trading more efficient and effective, it has also shifted the direct relationship advertisers and agencies historically had with publishers to intermediaries such as SSPs responsible forsupporting the 

programmatic ecosystem.

In recent times further disruption has occurred. Where traditionally each SSP would have mainly exclusive publisher relationships, the advent of header bidding democratised inventory access and allowed publishers to cast a wide net, while working with numerous SSPs simultaneously on a level playing field. This in turn allowed them to increase their auction liquidity and open access to advertiser demand. While header bidding delivered many benefits for publishers and advertisers, it also delivered the unintended consequence of further moving them apart while adding more complexity to the ecosystem and the supply path.

The increased sophistication of the programmatic ecosystem has led to a loss of transparency and increased opacity for advertisers and agencies, specifically related to the fees charged by intermediaries.As early as 2017, CMO’s started demanding to know how many media dollars flowed to publishers vs. those consumed by the ad tech layer. As they dug deeper, savvy advertisers started to find undisclosed fees introduced by some SSPs, which were charging both publishers and advertisers, while inflating their profit margins. Under (legal) pressure SSPs quickly removed undisclosed buy-side fees in an effort to restore goodwill with both publishers and advertisers. This gave rise to calls for transparency. SPO was born, and an increased amount of scrutiny was levelled at the supply path.In order to really understand SPO and all of its different aspects, it is important to understand the history of auction dynamics and the changes that have led to the rise of this technique.

SPO is a dynamic decisioning model to reduce path duplication, discrepancies, integration quality, all to determine a buyer's optimal path to supply. There are multiple variables taken into consideration when deciding whether a supply source should be ‘SPO-ed’. Technology platforms use algorithms that cluster by inventory type (Web, App), media type (Video, Native, Display), domain and geography. In this way, special components from publisher inventory can be identified. Additional metrics can be used to better understand the path and classify the inventory; such as impression requests, placement levels, eCPM, viewability measurements, discrepancies, and the winning rate of bids. 

1.6 A more strategic approach to SPO

Recently we have seen buyers evolve their SPO strategy through consolidation efforts. Buyers are in a process of evaluation with their SSP partners to consolidate incoming bids and deepen relationships with partners who bring more value, quality and transparency. Buyers are also seeking to understand and control the specific paths (combination of sellers, resellers, integration type) they are accessing certain inventory through in order to drive spend more efficiently through the paths that are delivering value.