This post originally appeared in AdExchanger on July 11, 2018.
Ask any two people in the industry what supply-path optimization (SPO) is, and you’re highly likely to get two different answers.
For some, SPO refers to identifying and optimizing spend to the cheapest or most direct pathway to specific supply sources. For others, it references the ability to apply automated intelligence to the bidstream to clean up some of our industry’s more nefarious practices, like bid duplication and auction gaming.
While the fuzzy definition has obviously limited a shared industrywide understanding of SPO and what it can do, the varied applications of the term point to perhaps a more vital truth: The supply path still needs cleaning up, and on a multitude of fronts.
A brief history
I first read the phrase supply-path optimization in August 2016 when Brian O’Kelley called out the aggressive tactics some SSPs deployed to win auctions in the then-new and hypercompetitive header bidding world. The routing of spend away from SSPs running suboptimal auctions was the solution to combatting these shifty practices, O’Kelley said.
The industry erupted in the months that followed. Auction dynamics became a hot topic, with headlines like, “DSPs To SSPs: ‘Clean Up Or We Cut You Off’” and “Big Changes Coming To Auctions, As Exchanges Roll The Dice On First-Price.”
Under pressure, most major SSPs began shifting to first-price auctions, threatening to send second-price auctions toward programmatic extinction. Many argued that first-price auctions were better because they made programmatic more predictable: If you win the auction, you pay what you bid. Transparency for buyers, more revenue for publishers. Simple.
But in the past several months, there has been frustration about auction games and louder calls for greater transparency and fewer fees. That’s why we are still talking about SPO, perhaps more than ever.
So what needs to change this time around for SPO to take hold and have a meaningful impact?
Define what SPO means to your business
If there’s no real industry consensus on what SPO is, there’s sure to be disagreement about what exactly constitutes an optimal supply path. Is it the pathway with the fewest hops or fees? Is it the pathway that delivers the best performance? Is it the pathway that ensures maximum publisher payout?
It depends. There’s no one-size-fits-all approach, and every brand, agency, DSP and SSP will have their own definition of what an optimal path to supply looks like for them, depending on their own business interests and priorities.
Marketers starting to explore SPO for their programmatic initiatives should be clear on what they want to achieve, then work with their agency and partners to develop and execute a strategy that drives to those end goals efficiently and confidently across buying platforms.
Taking ownership of SPO strategy
SPO has traditionally suffered from a lack of ownership. Many brands push it to agencies, while many agencies push it to the platforms. And many platforms claim they are already doing it, whatever “it” may be.
While tech partners may be necessary to deploy SPO, it’s not OK to abdicate full responsibility since there may be competing interests. Done well, SPO can create real differentiated value for a business and potentially save real money. Brands should be prepared to dig into the weeds, ask questions, demand data and challenge assumptions about optimal supply sourcing, even their own.
Setting KPIs and staying vigilant
SPO is never a set-it-and-forget-it proposition. Supply paths change daily – even hourly – as do campaign, brand and media-buying goals and KPIs. Optimizing pathways manually or through automation requires constant human supervision and intervention.
To ensure SPO initiatives are having the desired effect, brands should set tangible KPIs and create processes to regularly measure results, evaluate partners and track progress against their goals. Luckily, there’s more data available today than ever before to help them do this, but they must be prepared to allocate the time, energy and tech required to make heads or tails of it. Then they must evolve their SPO tactics and initiatives over time to maximize their impact.
In his first blog post discussing SPO, O’Kelley predicted that competing interests and an incentive structure that favors the most aggressive actors would prevent us from finding a solution that creates “optimal outcomes” for advertisers and publishers.
While we’ve undoubtedly made strides in cleaning up the supply chain and implementing practices, protocols and procedures to safeguard advertiser investments in programmatic, current headlines and FBI investigations indicate that we’ve still got some work to do.
With more than 85% of total US digital spend expected to be transacted programmatically, one thing is clear: Supply-path optimization is no longer a novelty for programmatic buyers. It’s a necessity. Will this finally be the year we take it seriously?