Is supply path optimization important for publishers?

Comparative depiction of supply path optimization

Ever since header bidding became the new way of buying and selling ad inventory, bidding on multiple ad exchanges simultaneously has become a commonplace practice to maximize scale. Of course, with this new method, issues such as bid duplication have also cropped up — to scale.

At times, publishers could send and receive upwards of 30 bid requests for the same impression at one time. This was the start of the problem we’ve been seeing with bid duplication. That’s where supply path optimization comes in.

Supply path optimization was designed to solve the issue of bid duplication by identifying it and removing it. However, there are other factors that come into play. Oftentimes, supply path optimization is discussed from the advertisers’ perspective.

Today, we’re going to focus on why programmatic supply path optimization is also important to publishers.

What is supply path optimization?

Supply path optimization (SPO) aims to answer the question, “What is the best and most direct source for an advertiser to buy an impression from?” The goal is to create the shortest and most efficient “path” to the impression presented between the advertiser and the publisher. Every additional platform or vendor involved in buying and selling an impression comes with their own fee for their services.

Let’s use a simple example with 5 ad tech players.

Visual example of what supply path optimization intends to solve.

An advertiser is willing to pay $10 for an impression. The bid reaches the advertiser’s agency, then their DSP, goes through an SSP, until it finally reaches the publisher. Each of whom charges a service fee that eats away at the original bid. While the advertiser may have set a $10 bid as their maximum willingness to pay, the publisher receives just $5.76 after selling them an impression. A little over 50% of the original bid.

In theory, it would seem beneficial to the publisher to maintain supply path optimization as there are fewer platforms taking a cut out of the impression. However, given bid shading, this might lead to lower CPMs for the publisher. According to Clearcode, bid shading is defined as an algorithm (typically used by demand-side platforms) that looks at the historical bid data to help advertisers pay the lowest possible for an impression during first-price auctions.

As awareness of supply path optimization increases, the process of implementing it is becoming more popular. Advertisers are increasingly preferring to work with publishers who can also provide them with an optimized path.

Why should publishers care about supply path optimization?

To recap, in a straight path scenario, fewer middle people between the advertiser and publisher may result in fewer cuts. However, given bid shading, the buy-side aims to buy the impression for as low as possible, which isn’t great news for publishers.

Publishers also value maintaining premium connections and CPMs. By preventing their advertising inventory from being available across multiple routes, direct sales teams are able to command higher CPMs when working with advertisers.

Finally, an interesting byproduct of supply path optimization has been its ability to reduce fraud through the use of an ads.txt file. As a reminder, an ads.txt file tells the buy-side which SSPs a publisher is working with. DSPs can bid directly with a publisher when they know that a trusted SSP represents them. It helps brands buy advertising inventory with confidence while making it difficult for fraudsters to profit from selling publisher inventory that doesn’t belong to them.

How does the sell-side work with supply path optimization?

When we talk about supply path optimization, we’re essentially talking about the process of reducing intermediaries that can cause bid duplications and other challenges to arise in programmatic ad bidding. Typically, supply path optimization is discussed from the buy-side’s perspective. But what about publishers?

More specifically, how does the sell-side work with supply path optimization?

  • Limited ads.txt file: Publishers aim to maintain direct contracts with major SSPs with unique demand to help make direct lines to the advertiser. This involves limiting the number of SSPs in their ads.txt file.
  • The use of price floors: Bid shading favours the buy-side and results in publishers seeing lower CPMs. To maintain a sustainable CPM for their business, publishers can add price floors to prevent advertisers from lowering their bids to the lowest possible winning price.
  • Private marketplace deals (PMPs): PMPs help to create a direct path between your SSP and an interested DSP. As PMPs are designed to eliminate the need for ad exchanges, they are effectively built with supply path optimization in mind.

What can publishers do about supply path optimization?

Keep your ads.txt file clean

As a publisher, you should consistently monitor and evaluate your current SSP setup.

Start by identifying how many ad tech vendors you are currently using to purchase your advertising inventory. Understand where your ad impressions are originating from and where your advertising spend is going. Test and evaluate which SSPs and ad exchanges you can potentially drop without substantially affecting your monetization efforts.

Combine this assessment with our ads.txt best practices for publishers to improve your SPO.

OpenPath by the Trade Desk

The Trade Desk has been working behind the scenes for years to create a more tangible solution to SPO.

OpenPath by The Trade Desk aims to provide advertisers and publishers with an SPO platform that creates a direct path to premium ad inventory. According to The Trade Desk’s press release, OpenPath is meant to enable publishers to integrate directly with The Trade Desk and give advertisers direct access to their impressions.

As a result, publishers can be better positioned to maximize revenue from their inventory. In doing so, OpenPath could reduce bid duplication.

In summary

Let’s tie this back to the original question, is supply path optimization important for publishers? Yes, it is.

While SPO is usually discussed from the perspective of buyers, it also greatly affects publishers. Both in terms of CPMs, as well as transparency.

This level of transparency is needed to bring advertisers and publishers closer together, which creates stronger and long-lasting partnerships.

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