What is Supply Path Optimization (SPO)?

Supply path optimization (SPO) is a hot topic these days in programmatic advertising. The fast pace of change in the digital ecosystem is forcing brands and agencies to closely review and monitor the way they collect information about people, how they identify them, and how they reach their desired audiences in their advertising. SPO is an important component of the improvements an organization can implement in their advertising strategy. SPO seeks to ensure that every step a digital ad takes from initial bid to ad placement is efficient. The Goodway Group defines it in this way: 

Supply path optimization (SPO) identifies the right path to bid and win inventory at the best price, empowering you to take ownership and accountability for your supply chain. SPO’s goal is to help buyers access quality inventory and minimize wasted impressions.

Much like the spring cleaning that some of us have yet to start and others have already completed, SPO requires a scrubbing of any unnecessary or non-optimal transitions in the placement of an ad. But to better understand what this really means in the digital advertising ecosystem, let’s take a trip down memory lane. 

In the early days of programmatic advertising, real-time bidding (RTB) was a technological breakthrough to place digital ads. The process used a waterfall approach where the ad space or inventory was auctioned to one exchange at a time. When a suitable bid was offered, the auctioneer (aka a demand-side platform or DSP) pounded its electronic gavel, cried “SOLD!” and the ad was placed, all within milliseconds. It was relatively easy for a brand to understand where its ad would likely appear. The publisher also benefited from this approach, having control over the waterfall process by establishing who got to bid first, and so on. 

However RTB often created latency; pages seemed slow to load while all the ad buying and selling was happening in the background. And publishers felt like they were likely leaving money on the table since the auction was not necessarily won by the highest bidder but rather by the first ad exchange to offer an amount they were willing to accept. 

Enter the age of header bidding, which sought to solve these problems. Header bidding occurs when multiple advertisers simultaneously bid in a digital auction to win ad space on a website. There are two primary benefits this evolved process brought to the digital advertising ecosystem – faster auctions and the assurance that publishers were earning top dollar for their inventory. 

But as is often the case, with change comes complexity. For advertisers header bidding made it become much more difficult to understand and predict where an ad might appear. The publisher also no longer knew whose ad would appear on its site. 

How SPO Makes Programmatic More Transparent and Efficient

The digital advertising ecosystem has been accused of being an indecipherable quagmire of players and hand-offs for advertisers trying to reach their audiences, with fees at every hand-off. Imagine a heaping bowl of spaghetti, with one strand being the perfect path to the best destination your ad could have to reach your people. But you can’t pull that one piece of pasta out of the bowl – you have to follow it from one end to the other in the bowl without getting covered in sauce. Good luck! 

Optimizing your brand’s media supply path can help you avoid the heaping spaghetti bowl and be more confident about where your ad will be shown and how it will get there, through the narrowing down to those channels where your campaigns perform best. 

To get started, brands or agencies should monitor the performance of their campaigns over time, noting where performance is highest. Most likely some ad exchanges, private marketplaces (PMP) or even publisher groups outperform others. Once noted, consolidate your campaigns to about the top five channels. By focusing on a select group of channels, your brand will enjoy:

• Greater transparency into where and how your ads are showing up, improving brand safety
• Enhanced advertising ROI due to the magic combination of better performance and lower campaign costs 
• Increased buying power on and with your key ad exchanges/PMPs/publishers

But studies have found even more benefits: 

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Partnering With Select Exchanges Key to Achieving Business Goals

Changes in the digital advertising landscape such as the impending cookie apocalypse, changes to Apple’s iOS app tracking permissions, evolutions in privacy legislation and more are requiring a thoughtful approach to advertising in general and digital advertising in particular.  A strong SPO strategy will improve the future-resilience of your brand. 

In the 2019 survey noted in the graph above, a closer relationship with SSPs was in the top benefits SPO offers. Since then a number of huge shifts have occurred in our industry:

• Google has assured the market that third-party cookies are indeed going away in 2023, dramatically impacting how campaign audiences will be built and ads delivered on their properties.
• California and Virginia have both passed consumer privacy laws, offering residents greater control over the way their personal data is used and shared. 
• Several other states are also developing consumer privacy legislation, including New York, Massachusetts, Hawaii, North Dakota and Maryland. 

And let’s not even begin to look at the way the global pandemic has changed consumer behavior, especially online!

These changes underline the urgency of basing your SPO initiative on strong relationships with trusted partners. From the brand or advertiser, it is important to clearly outline the brand goals including KPIs and guidelines around where, how and how often their ads should appear. On the side of the ad exchange, PMP or publisher, there should be transparency about destinations, fees, and in light of the impending demise of the third-party cookie, a discussion about how the ads will be delivered. Will they continue to leverage cookies as long as they can, utilize other identity resolution methods, or set up direct interactions with key partners? 

Changes in the digital advertising ecosystem underline the urgency of basing your SPO initiative on strong relationships with trusted partners.

In some ways, it feels like the more things change the more they stay the same. Rather than remaining in a somewhat murky system of digital advertising where ads should show up in the right place at the right price for the right people, future-resilient brands will base their digital advertising on trust with a handful of strategic partners.