Why supply-path optimization hasn’t lived up to its promise

SPO was devised as a way to counter some of the unintentional side effects caused by the introduction of header bidding five years ago. Demand-side platforms went from handling one bid request at a time to around 20 from different exchanges thanks to header bidding. Lesser-known exchanges that were previously in the shadows came into the mix, creating multiple routes to the same impression. SPO was created to untangle this and make it easier to see who sold what impression.

Trouble was, no one on the buy or sell sides ever agreed on a common definition for what it does and who stood to benefit from it. Buyers thought SPO insights would help them negotiate better terms with vendors and reduce the number of times they inadvertently bid multiple times on the same impression, while sellers saw it as a way to understand how DSPs bid on impressions to increase their chances of making a sale.

It’s debatable as to whether SPO at scale has been possible for any of those stakeholders yet, according to Tom Kershaw, CTO at The Rubicon Project. “SPO has been effective, but it’s also been a manual process of making cuts and tweaks to supply sources,” said Kershaw. “In an industry that’s doing billions of transactions an hour making changes manually doesn’t work. The more we do manually, the worse off we tend to be in ad tech.”

SPO boils down to this: In a programmatic market littered with vendors selling the same impressions, savvy buyers know which sellers to pick and why because they have data on the best route to them and what a fair price is to pay for ads. It’s a simple concept that’s deceptively hard to do. Early attempts at SPO were neither sophisticated nor straightforward. For instance, buyers would have to go to extreme lengths like shutting off or opening up entire exchanges to find out who they bought from. It was a practice reserved only for the smartest programmatic buyers. And yet many of those early efforts were deemed smart because they were built on commercial relationships and intuition, not because the buyer had the inside track on sellers.

It paved the way for a certain kind of SPO that let buyers buy impressions from a handful of trusted ad tech vendors. They’re trusted because they’ve promised to give the buyer a range of benefits from transparency on how much of their money goes to the publisher to discounts on CPMs in exchange for more of their budget. Agencies, not advertisers, have been the ones to drive this form of SPO as it extends their buying power to biddable media. GroupM, Havas and Goodway Group have used SPO this year to broker better deals with fewer supply-side platforms, for example.“Agencies are saying they want to limit the supply path because they want control over what they’re buying,” said Rajeev Goel CEO of PubMatic.

When Havas, on behalf of a telco client in the U.S., cut the number of SSPs it used from 42 to seven earlier this year, it didn’t know which ones provided value before they were dropped. Some exchanges went if they didn’t share log-level data about auctions; others went if they refused to reveal information on the fees paid to publishers and some were dropped due to the fact that the agency’s trading team knew little about them, said Andrew Goode, head of programmatic at Havas at a Rubicon Project event in September.

Cutting the number of exchanges made sense for the holding group given there are a lot of different exchange “paths” to buy the same impression. It’s also been hard for buyers to trust exchanges in recent years due to suspicion over the legitimacy of how they make money.

But this form of SPO is far from perfect. By funneling budget through fewer exchanges, Havas could still end up paying the ones it axed, for instance. Blacklisting an exchange doesn’t actually stop a buyer from buying from it. Some Exchanges are selling to other exchanges, after all.

“It is vital everyone in the industry keeps the pressure on to increase transparency on the supply side,” said Paul Frampton, CEO of Goodway Group’s European arm, Control v. Exposed. The agency negotiated its own low-fee paths to supply with SSP PubMatic earlier this year. “It’s not yet a perfect science but we are confident that we are significantly improving both transparency and quality around the origin of an impression,” said Frampton.

Almost all exchanges have some reseller inventory.

“The average impression in programmatic has been auctioned 15 times before an ad is ultimately served,” said Ari Lewine, chief strategy officer of ad exchange TripleLift. That means the same impression is being recycled 15 different times by sellers and resellers before it actually gets transacted. It makes for a less transparent, more expensive way to buy impressions along less efficient paths.

Turning off all resold inventory might throttle duplication in auctions, but it could also block the buyer’s access to unique ad units. “An SPO strategy can’t be to turn off all resellers. It has to be more precise,” said Chris Kane, founder of programmatic consultancy Jounce Media. “There are some resellers that are quite valuable.”

This is why some buyers are starting to adopt a data-driven approach to SPO thanks to the sellers.json and the SupplyChain Object transparency tools from the Internet Advertising Bureau Tech Lab. Both tools reveal the actual source of an impression so buyers can now determine how an exchange gets its inventory, for instance, whether it’s through a wrapper like Google’s Open Bidding, which handles multiple auctions for a single impression for publishers, or the inventory from another exchange.

Getting exchanges to make that information publicly available via the IAB’s tools hasn’t been straightforward. In fact, it was only after DSP The Trade Desk demanded the exchanges it bought from used Sellers.json that it was widely adopted. Enforcement started in the summer and since then 34 of the 50 most widely adopted, have shared a sellers.json file as of Sept. 28, per Jounce Media.

DSPs like The Trade Desk have added features so that buyers can use its bidder to build custom bidding algorithms that follow the most direct route to supply or offer unique ad formats.

After earlier attempts to get it done stuttered, SPO is now getting a second wind. New tools from ad tech vendors are making it easier for buyers to control how they buy impressions, while SPO was prominent during recent earnings calls with The Trade Desk and Telaria. Despite the slow start, SPO is set to be central to how ads are bought in online auctions moving forward.