Supply Path Optimization: How to Bring Order to Your Media Buying

The more complex the system is, the more chances that something goes wrong in it. But when something goes wrong in an environment as crazy as ad tech, what do you do?

The answer is you do supply path optimization, dear reader! The term has become a new panacea for solving all things wrong in advertising, but we feel that viewing it like that is missing the point.

Time to put the confusion to an end. Today, we dissect SPO. What is it exactly? How do you do SPO yourself? Does it work only for advertisers? What are the clear benefits? We’ve got a lot to cover, so let’s not waste any more time.

What Is Supply Path Optimization?

In short, supply path optimization is shortening the amount of middlemen between advertisers and publishers.

At least, that was the original meaning of the term. Over the years, SPO has evolved into a strategy advertisers use to find the most efficient and cost-effective way to buy digital ads.

Basically, SPO is an algorithm that helps advertisers unscrew the complexities of a programmatic supply chain, find the best deals, cut unnecessary expenses, and make the whole thing more transparent.

“But hey, Epom, wasn’t the whole point of programmatic advertising to make buying and selling ad placements as easy and fast as possible?” It was, dear reader; let us explain what went wrong.

Why Did Supply Path Optimization Appear?

Back in the old days of digital advertising, there was no programmatic. Advertisers would buy ads directly from publishers.

The practice is still alive and well thanks to ad servers, but that’s the subject for a different article.

Then came programmatic advertising, which completely changed the game. The core of programmatic, real-time bidding made buying and selling ad inventory a matter of milliseconds while also being automated. Naturally, to run this highly efficient environment smoothly, you’ve got to have a web of middlemen, including:

• Ad exchanges – marketplaces where digital ad inventory is auctioned in real time
• Supply-side platforms – tools that help publishers to manage selling ad inventory
• Demand-side platforms – tools that help advertisers to manage their ad campaigns
• Ad networks – middlemen that buy ad inventory from publishers in bulk to sell it to interested advertisers

This ecosystem worked well for a while, but then a new problem arose – publishers found out that selling to a set hierarchy of ad requests (waterfalling) resulted in lower revenue per deal. Publishers wanted to offer their inventory to multiple ad exchanges simultaneously, so they got a solution – header bidding.

This worked well for pubs because more competition = higher bids & revenue. Header bidding also allowed advertisers to immediately access high-quality inventory instead of having to stick to leftovers.

But, surprise - surprise, adding another layer to the system results in even more troubles. The massive implementation of header bidding created new challenges such as:

And here comes the supply-path optimization! You guessed it right, SPO is basically a solution to a solution to a solution. God, we love ad tech. But how exactly does it handle all this mess? Isn’t it yet another layer of complexity? No it’s not, and let’s discuss why.

How Does Supply Path Optimization Work?

First and foremost, supply-path optimization or SPO is NOT some magic automated algorithm that fixes all of your problems at the push of a button. Quite the opposite, the process of optimizing your supply path is quite manual at its core.

Surely, as many DSPs on the market do, you can cheat and write machine-learning algorithms to optimize for you, but you’d still have to pay close human attention to what’s going on. Otherwise, it’s useless.

Don’t worry, though. While that implies a hefty portion of strategic analysis, that also means you can do SPO with any DSP and won’t require developing additional tools.

Also, SPO is not about doing a single thing. It’s more about multiple strategies that each solve a particular problem of real-time bidding. Which issues and how exactly? Time to find out:

Problem 1: Too Many Middlemen Increasing Cost

Solution: Consolidating the number of SSPs and ad exchanges

Too many SSPs and ad exchanges mean there are too many mouths to feed on each step of a programmatic auction. This is a classic problem of a programmatic chain and the main reason why the term SPO appeared back in the late 2010s.

Instead of working with 10+ SSPs, advertisers should choose a smaller number of strategic partners that offer high-quality inventory with transparent pricing. Done ideally, this lowers the costs, eliminates auction duplication and overall makes your supply path much healthier.

How do you do that? If your DSP can do it automatically, then the algorithms will detect duplicate inventory, optimize the bid routing, and create SSP blocking rules.

Even if your DSP can do all of that, we’d recommend going manual.

• Analyze log-level data to check which SSPs provide actual value.
• Identity and remove redundant SSPs selling the same inventory
• Test and compare win rates across SSPs

Problem 2: Wasting Budget on Losing Bids

Solution: Stick to the bids, bringing the highest chance of winning

This one is a natural sequel to the previous strategy. Instead of spreading the budget with a thin layer on multiple auctions, focus on high-profit bids where winning is realistic.

You can manually prioritize high-probability bids on many DSPs. Also, monitor auction reports to detect patterns in bid failures. Based on the data at hand, adjust bid strategies accordingly.

Problem 3: Unfair Auction Pricing

Solution: Stop buying from SSPs that don’t allow to participate in second-price auctions

We’d like ad tech to be fair and just, but that’s simply not the case in this cruel world. Some SSPs take advantage of first-party auctions by pocketing the difference between a bid price and what the publisher receives.

On the contrary, in a second-price auction, the highest bidder wins the impression but only pays $0.01 more than the second-highest bidder instead of their full bid. This is obviously beneficial for advertisers, but publishers also win themselves potential partners.

What do you do with all this info? Supply path optimization, in this case comes down to:

• Reviewing bid pricing manually to detect where first-price auctions are inflating costs
• Negotiating lower SSP fees for first-price inventory
• Manually blacklisting SSPs that don’t allow second-price bidding

Problem 4: Long Supply Chain

Solution: Make filtered lists for SSPs that sell traffic directly

Some supply providers don’t sell directly but resell impressions through layers and layers of intermediaries.

At its core, reselling is not a bad thing; many ad networks do this for a living. The difference is that with the ad networks, you know what you’re getting into, while SSP resellers hide what they’re doing.

Fighting this scam is not that easy. You can check your ads.txt and sellers.json files to verify if an SSP is selling inventory normally. The issue is that long ads.txt files extend page loading times.

So the most reliable way to implement supply path optimization would be cross-checking SSP revenue share to ensure money isn’t lost to unnecessary middlemen and then block the sneaky bastards.

Problem 5: Low-Quality Inventory

Solution: Stick to the sellers who offer more exclusive inventory

The last problem is well-known even to those who’ve never heard of SPO supply path optimization. Some SSPs offer a widely available generic inventory across multiple SSPs, meaning advertisers compete more and pay higher prices for the same crappy ad placements.

We’d advise:

• Working directly with premium publishers
• Check SSP deal terms to confirm exclusivity
• Set bid priorities for premium placements

How Do You Implement SPO: Key Takeaways

So, to make a quick sum-up, instead of buying through multiple SSP examples, we recommend:

• Shorten the number of SSPs and ad exchanges used
• Stick to the highest-winning bids
• Stop buying from SSPs that don’t allow second-price auctions
• Make filtered lists for SSPs
• Stick to the sellers who offer exclusive inventory

If you do everything correctly, your supply path will say, “Thank You!” and maybe even your media buying team will send you a gift card on Valentine’s day. But what if you don’t buy ad placements, what if you sell them?

Supply Path Optimization for Publishers: DPO

Dear publishers, we haven’t forgotten about you, although, we won’t make this section nearly as long. Hopefully, you’ve read the text above and not just skipped to this point.

Just like advertisers do supply path optimization, publishers do demand path optimization. The point is the same but backward: to eliminate the abundance of demand sources that compete for inventory but do not add any value. For example, some DSPs bring:

• Low-quality demand (ads that don’t pay well, ads that don’t comply with the law)
• Long payment cycles (slow payouts or bad credit)
• Hidden fees (yes, just like some SSPs do)

And just like SPO, DPO for publishers helps to maximize revenue, cut unnecessary spending and improve transparency.

How DPO Works

Seeing the points below may cause a dejavu effect, but that’s completely normal. Demand-side optimization rhymes with the aspects covered by SPO. Namely, DPO implies:

• Analysis of demand data: check which buyers provide the highest CPMs, win rates and payment reliability;
• Cutting out a long demand chain: remove resellers & middlemen that add extra fees and pay less
• Adjusting auction mechanics: set up floor prices and private marketplaces attracting premium advertisers;

Naturally, if you build your own ad network that interacts with publishers and advertisers, we recommend using both DPO and SPO.

Why Is Supply Path Optimization Important?

All these long explanations aside, what have we learned today?

SPO is no longer a DLC to your programmatic game; it’s a required update. Surely, it’s quite inconvenient to realize that the main way to make media buying easy has itself become so bloated and complex. But that’s the reality we live in.

Supply path optimization isn’t just a panacea to all of your problems, it’s a truth serum that helps to discover what you’re actually paying money for and why.

So, what are you waiting for? Grab a solution that has all the necessary tools for transparent advertising – Epom white-label DSP! Our team of experienced managers won’t leave you hanging and will give advice on how to use SPO the best.