Supply Path Optimization (SPO) is a critical strategy in digital advertising, with 87% of brands, agencies, and DSPs actively using it. The main reasons for its popularity are its ability to ensure brand safety, reduce ad fraud, and boost ad revenue.
Despite the massive global digital ad spend expected to reach $526 billion by 2024, only 51% of this money ends up with publishers.
SPO aims to fix this by making the supply chain more efficient, ensuring that more revenue reaches publishers. With the digital advertising ecosystem becoming increasingly complex, SPO helps pass through the various technology providers and middlemen.
Effective SPO strategies can reduce ad tech supply chain costs and improve access to better quality supply, ultimately leading to better user acquisition (UA) performance.
In this article, we’ll try understanding supply path optimization and explore the core SPO strategies and how they contribute to digital advertising success.
Understanding Supply Path Optimization in Layman’s Language
Supply Path Optimization (SPO) is like finding the fastest and best-priced way to get ad space on the internet. It’s what Demand-Side Platforms (DSPs) do to make sure they’re spending money wisely.
It’s like finding the best route to get goods from one place to another efficiently and cost-effectively. Imagine you have to deliver packages to different cities, but you want to choose the routes that are fastest and most affordable. SPO helps companies figure out which paths (or channels) are best for buying digital advertising space.
It helps them avoid wasting money on inefficient routes and ensures they get the most value for their advertising budgets. Just like finding the quickest way to deliver packages saves time and money, optimizing supply paths in advertising saves resources and improves outcomes.
Think of it as a delivery company trying to find the quickest and cheapest route to drop off a package. With SPO, advertisers are like the delivery company, trying to find the best way to reach the ad space they want without wasting time or money.
DSPs use smart computer programs that work really quickly to figure out the best price to pay for the ad space they want. These programs are always learning and changing to make sure advertisers get the best deal possible.
Benefits of Supply Path Optimization
Efficiency
Supply Path Optimization (SPO) simplifies the process of buying ad space by spotting and avoiding repeated auctions. It’s like sorting through a stack of papers to find and remove duplicates, making the task faster and more organized. This efficiency helps Demand-Side Platforms (DSPs) choose the best bids more easily, saving time and resources.
Transparency
With SPO, advertisers gain a clearer understanding of the middlemen involved in the ad buying process and the fees they charge. It’s like lifting the curtain to see who’s handling your money and how much they’re taking. This transparency gives advertisers more control over their advertising budgets and ensures they know where their money is going.
Higher Revenue
SPO isn’t just beneficial for advertisers—it also helps publishers increase their ad revenue. By reducing costs and providing more transparency in the ad supply chain, publishers can improve their overall profitability. It’s like finding ways to cut expenses and increase income, leading to a healthier bottom line for publishers in the long run.
What Role Does Digital Marketing Play in Supply Path Optimization
Digital marketing and supply path optimization are closely intertwined because SPO focuses on optimizing the process of buying digital advertising space within the complex digital marketing ecosystem, helping advertisers achieve better results and cost efficiencies in their digital marketing campaigns.
SPO is primarily focused on optimizing the buying process of digital advertising space. Programmatic advertising is a specific method of buying and selling digital advertising space through automated processes and algorithms.
Digital marketing involves promoting products or services using digital channels such as websites, social media, search engines, email, and mobile apps.
Digital Advertising
Digital marketing often involves buying advertising space on various digital platforms to reach target audiences. This can include display ads, video ads, sponsored content, and more. SPO specifically focuses on optimizing the process of buying this digital advertising space.
Complex Ecosystem
The digital advertising along with programmatic advertising ecosystem is complex, with multiple intermediaries such as ad exchanges, demand-side platforms (DSPs), supply-side platforms (SSPs), and ad networks. SPO helps advertisers navigate this ecosystem efficiently by identifying the most effective supply paths.
Cost Efficiency
Buying digital advertising space involves costs, including ad placement fees, transaction fees, and intermediary fees. SPO helps advertisers optimize their supply paths to minimize costs while maximizing the value they get from their advertising campaigns.
Data and Analytics
Digital marketing relies heavily on data and analytics to measure campaign performance, audience behavior, and ROI (return on investment). SPO leverages data analytics to evaluate supply paths, identify inefficiencies, and make data-driven decisions to improve advertising outcomes.
Challenges Addressed by Supply Path Optimization
Bid Duplication
With the rise of header bidding, advertisers and agencies often place bids on ads across multiple ad exchanges. They do this hoping to increase their chances of winning impressions.
However, this strategy can backfire, leading to bid duplication. It’s like accidentally purchasing the same item twice online. This not only wastes resources but also confuses the system, making it less efficient.
Intermediaries
Between the Demand-Side Platforms (DSPs), which are the entities looking to buy ad space, and the publishers who sell the ad inventory, there are often many intermediaries involved. These intermediaries can include ad networks, exchanges, and other platforms.
While they serve a purpose in facilitating transactions, they also introduce inefficiencies and unnecessary costs into the process. It’s akin to having too many middlemen in a transaction, each taking a small cut and potentially slowing things down. These inefficiencies can hinder the smooth flow of ad placements and drive up costs for advertisers.
Implementing Supply Path Optimization Strategies
Consolidate Strategic Partners
Instead of scattering bids across numerous partners, focus on collaborating with a limited number of trusted partners, such as SSPs (Supply-Side Platforms) and ad exchanges. By consolidating efforts, you can streamline operations and build stronger, more effective partnerships.
Work with a select number of SSPs and ad exchanges rather than spreading bids across many. By focusing on trusted partners, you can streamline the supply chain and reduce inefficiencies.
Smart Bidding
Prioritize bids that are more likely to succeed. By focusing on smart bidding strategies, DSPs can optimize their resources and increase their chances of winning valuable ad placements.
Stick to the bids that have the highest chance of winning. Avoid unnecessary bidding on duplicated auctions or low-value inventory.
Avoid Non-Participating SSPs
Refrain from purchasing ad space from SSPs that restrict DSPs from participating in second-price auctions. By steering clear of non-participating SSPs, DSPs can ensure fair and transparent bidding processes, maximizing their chances of securing optimal ad inventory.
Stop buying from SSPs that don’t allow DSPs to participate in second-price auctions. Opt for partners who provide transparent and fair auction mechanisms.
Evaluate Relationships
Assess the nature of your partnerships with publishers, considering whether they are direct relationships or through resellers. By evaluating these relationships, DSPs can make informed decisions that align with their SPO objectives and maximize the value of their advertising investments.
Consider the direct vs. reseller relationships with publishers. Direct relationships often lead to better inventory access and transparency.
Cut Off Long-Tail SSPs
Identify and reduce partnerships with long-tail SSPs (e.g., resellers) that may not add significant value to your supply path.
Streamlining partnerships can help focus resources on more impactful relationships, improving overall SPO effectiveness.
Conclusion
To sum up, Supply Path Optimization (SPO) is a key strategy in digital advertising, offering ways to make ad buying more efficient and transparent while boosting revenue. By using SPO tactics like choosing the right partners and bidding smartly, advertisers can use the digital ad world better.
As digital advertising along with programmatic advertising keeps changing, SPO remains crucial. By sticking to SPO principles and staying updated, advertisers can find new chances for growth and success.
In simple terms, SPO helps advertisers spend their money wisely and work better with others in the digital ad world. By following these ideas, advertisers can set themselves up for success in the online marketplace.
FAQs
1. How does SPO impact smaller advertisers or businesses with limited resources?
Smaller advertisers can still benefit from SPO by focusing on strategic partnerships and leveraging available resources efficiently.
2. Are there any potential drawbacks or risks associated with implementing SPO strategies?
Potential drawbacks of SPO include increased complexity in managing partnerships and the risk of inadvertently limiting access to valuable ad inventory.
3. Can SPO be applied effectively across different advertising channels, such as social media, display ads, and video ads?
Yes, SPO principles can be applied across various advertising channels to optimize ad spend and improve performance.
4. What role does data privacy and compliance play in SPO implementation?
Data privacy and compliance are critical considerations in SPO implementation to ensure adherence to regulations and protect user data.
5. How can advertisers measure the success and ROI of their SPO efforts?
Advertisers can measure the success of their SPO efforts by analyzing metrics such as cost savings, improved ad performance, and increased revenue attributed to optimized supply paths.
