The Evolution of Supply Path Optimization

Transcript for Audio Article Below

Our industry loves its acronyms, but there’s one in particular that you need to understand if you’re going to be a successful programmatic marketer: SPO (supply path optimization).

So what is SPO exactly? Why did it come about? How does it work? And what benefits can brands expect it to deliver now and in the future?

SPO is all about finding the most direct path to what you want most: the chance to show your ad to the right consumer on the right publisher at the right time and at the right price.

The shorter the path, the more you can avoid a range of pitfalls, like paying more than you need to for inventory, making multiple bids for the same impression or having your ads appear in placements that are inappropriate for your brand.

To understand SPO, we need to go back in time to see how and why the ecosystem developed as it did.

In the early days of digital advertising, inventory was sold via direct deals between publishers and agencies who represented their clients. The model was relatively straightforward and transparent. Marketers knew where their ads would appear, when they’d appear and how much it would cost.

However, this was a highly inefficient and manual process. Scaling campaigns across dozens of publishers wasn’t always feasible. Publishers, meanwhile, were often left with a lot of unsold inventory that they wanted to monetize.

Enter programmatic advertising in the mid-2000s. The level of automation programmatic provided made it much easier for advertisers to cherry-pick the audiences for their ads. And on the supply side, programmatic enabled publishers to fulfill more of their inventory.

Over time, venture capital money began pouring into tech companies that could add new value and capture some of the advertiser’s media budget. Consider this: In 2011, there were only 150 unique companies on the LUMAscape; by 2018, the number of companies ballooned to 7,000, with all of them seeking a cut of the advertiser’s media budget.

Around 2016, a new development emerged: header bidding. This development enabled publishers to gain access to even more advertiser bids through more exchanges, thereby increasing their fill rates and creating more sources of revenue. The trade-off? Things got a lot more complicated very quickly. Marketers soon lost track of how their budgets were being spent, what partners they were working with and which publishers their ads were running on. Worse yet, the same impressions were often sold via multiple ad networks and ad exchanges, sometimes at wildly different prices.

Marketers grew increasingly frustrated with the state of the market. In 2017, Procter & Gamble's Chief Brand Officer Marc Pritchard told the industry that it had to clean up its “crappy media supply chain” or risk losing his business. He encouraged other advertisers to do the same.

A few years later, PwC and ISBA published “The Programmatic Supply Chain Transparency Study,” which shed new light on the murkiness of the digital media supply chain. The study — which included 15 advertisers, 12 agencies, 5 DSPs, 6 SSPs and 12 publishers — showed that publishers, on average, received half of advertiser spend. 15% of advertiser spend – the unknown delta, representing around one third of supply chain costs — could not be accounted for.

SCALE If we winnow our supply partners down from 40 or 50 to just a handful, can we still provide clients with the scale they need for their campaigns?

QUALITY Are all the publishers in our pool of supply brand-safe and high quality? What vetting procedures do we need to put into place? Are they TAG Certified Against Fraud? Have they adopted the IAB standards that block blind or semi-transparent traffic?

UNIQUE Is the inventory we offer truly unique? Or are we offering the same options as everyone else? Is our supply chain a notable competitive advantage? What relationships do we need to focus on in order to ensure bespoke media?

TRANSPARENCY Do we have log-level visibility into every placement? Can we tell our clients precisely where their ads appeared and how much each cost? Do we have the insight we need to continually optimize our supply chain?

No doubt these criteria are table stakes to anyone claiming they do SPO, but SPO can (and should) shoot for higher goals. The digital ad tech industry is in a bit of a tizzy these days, what with privacy regulations upending the way we’ve operated over the past 20 years. Can SPO help marketers home in on their audiences now that third-party cookies are going away?

To many, SPO may have a role to play in identity resolution (aka recognizing a consumer across all of his or her devices and IDs). Brands rather like activating their audiences in Big Tech’s walled gardens. If you recognize someone you talked to earlier, you can pick up where the conversation left off. That’s the true benefit of identity resolution. So imagine being able to activate your audience across the open web? It’s the next frontier for SPO.

Today, these criteria are table stakes. Any buyer conducting their own review of their supply partners knows they must ensure scale, quality, unique inventory and full transparency. But once the list of partners has been consolidated and the path to quality inventory simplified, what else can marketers expect from their partners going forward?

One trend we see from sophisticated marketers is the need to activate data-driven audiences across the open web in any ad format and on any device. Many brands bring their own first-party data to the table, intent on leveraging it to create audiences of their most sought-after consumers.

Also, the last few years have seen major investments in database marketing platforms, each with its own proprietary identity solutions. In 2019, IPG announced its acquisition of Acxiom, and Publicis announced its acquisition of Epsilon. In 2020, Dentsu completed its acquisition of Merkle. More recently, WPP’s Wunderman rebranded as Choreograph.

Today, any brand working with a major agency can create its own audience segments using any one of these identity solutions. But marketers need to work with supply partners, ideally with their own supply side identity graph, to activate these audiences and reach their consumers through programmatic channels with maximum scale and accuracy. This is how marketers will be able to leverage the same people-based marketing strategies across the open web that they’ve been able to achieve within the walled gardens.

The most recent trend that has emerged from some of the world’s leading marketers has focused on environmental sustainability. The carbon footprint of the Internet, gadgets, and the systems that support them account for 3.7% of the world’s global emissions. In addition to verifying their marketing dollars are being spent efficiently, the world’s leading brand marketers also want to ensure they are being environmentally responsible.

Working with cloud-based ad exchanges can decrease the carbon emissions of a marketer’s media supply chain and provide them with buying paths that are more sustainable over the long term.

The media supply chain has clearly evolved over the past few years, and SPO has played a major role in ensuring that marketers can get more value out of their programmatic dollars, while publishers can continue to thrive and provide value to consumers. One thing we know for sure is that the landscape will continue to change and technology providers throughout the industry will continue to innovate.

Now that you know what SPO is, what should you do with that knowledge? Ask your media-acquisition partners a lot of questions, beginning with the way they charge you for inventory. Are you paying a flat CPM? If yes, ask why. Also ask if there are better, less costly routes to acquiring inventory for your campaigns?

SPO today is a complex business, often requiring multiple teams of data scientists to analyze channels and calculate infrastructure, operational and traffic acquisition costs to determine an ideal supply chain. At the end of the day, SPO is all about transparency, and you can’t control your media costs without it.