Supply Path Optimization, or Taking the fog off the ads way

Supply Path Optimization, or Taking the fog off the ads way

As the programmatic ecosystem was getting progressively more complex over the years, it became more and more difficult to track the chain that each ad goes through from the seller (website) to the buyer (advertiser). Due to the development and availability of monetization technologies, this path can consist of many iterations, which makes programmatic confusing and not always transparent.

To solve this problem, Supply Path Optimization appeared - an algorithm for evaluating, analyzing, and optimizing the purchase of digital advertising from the point of view of the supply chain.

What does the SPO evaluate?

The algorithm analyzes partners-suppliers of advertising inventory (both direct and intermediaries), their sequence, quantity, and quality.

Supply Path Optimization aims at reducing the number of suppliers in the chain between the publisher and the advertiser, and as a result, reducing the cost of commissions to intermediaries, and control over the quality and price of each impression.

How does it work? 

Depending on the source, one can see very different approaches and optimization mechanisms. However, all of them can be reduced to the arithmetic mean, having received approximately the following sequence of actions:

  • conducting an internal audit of the procurement situation; assessment of the supply path and its length; understanding which partners/SSPs are involved;
  • conducting an in-depth assessment of each SSP according to multiple criteria to obtain objective parameters for the next stages;
  • carrying out the selection and consolidation of the number of partners to make relations more transparent and trusting, as well as to increase the efficiency of purchasing advertising inventory.

As you can get from these steps, SPO is not a singular action but rather a constant process of improvements that is carried out in cycles and constantly contributes to better practices. That being said, of course, this also means that it requires constant attention and analysis. And if the advertisers’ benefit from this is quite obvious, why should publishers bother? Let's figure it out.

What’s in it for publishers? 

A study by the British organization ISBA, conducted in 2020, revealed an interesting problem: publishers receive only 51% of advertising budgets, resellers in the chain receive the rest, and it is not known at all who gets 15%. Thus, despite some popular opinions, more SSPs don’t equal better revenue. Thinking in the long-term rather than the short-term, publishers should bet on more exclusivity and trust - both things SPO helps to achieve. 

So both advertisers and publishers benefit from Supply Path Optimization because due to the development of a more transparent supply chain and the increase of trust between all parties in the programmatic auction, a much more measurable monetary advantage comes.

What are the overall benefits of SPO? 

Now that we’ve settled the basics, let’s dive deeper into the concrete benefits that Supply Path Optimization holds. And those are quite a few! 

No duplication in the supply chains, which means media buying becomes more effective and transparent. 

Better business decisions. SPO massively improves the advertisers’ understanding of the ad inventory, prices, and other parameters of the different SSPs they use. This allows for more precise evaluation and efficient allocation of resources. 

Handling of reputational risks. Non-transparent supply chains can lead to the appearance of the ad on some shady resources, the ones you wouldn’t want to be associated with. SPO helps to eliminate such projects from the supply chain and get only reputable publishers, thus keeping the business image safe. 

Better allocation of budgets. This means at the same time less spending for the advertisers and more revenue for publishers thanks to a cleaner list of publishers in SSP. A stronger market all in all. Supply Path Optimization clears out everyone who’s not ready to invest in their reputation or quality. Competition increases, contributing to the even greater strengthening of the companies that were able to pass the selection. But with the simultaneous increase in profit, it doesn’t turn into a meaningless “battle royale” - instead, a productive environment is created where each participant strengthens the others.

Summary

The programmatic ecosystem is constantly evolving. Thanks to the work of organizations such as the IAB and its members, new tools, mechanisms, and algorithms are being introduced to make this ecosystem more transparent, efficient, reliable, and fraud-free. Supply Path Optimization is one of the important algorithms on the path of programmatic development. Today, this algorithm can be safely called the present and future of a transparent supply chain in programmatic advertising, both for individual participants and for the industry as a whole.

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