ISBA’s study into programmatic supply chains released towards the start of the year confirmed what most in the industry already knew: there’s still a lot of inefficiency and a lack of transparency in digital advertising.
We’ve seen a renewed push from agencies this year to cut out inefficiency through ‘supply path optimisation’ (SPO). Some agency groups have been working directly with supply-side platforms (SSP) to route the majority of their demand through those partners, and the agencies receiving more transparency over fees and costs in return.
But as ISBA’s report pointed out, it’s not just the buy-side which is losing out from inefficiency. ISBA’s study found that just half of advertisers’ spend ends up in publishers’ hands. Some of the cuts taken by the middlemen are completely legitimate, and boost the overall value of impressions sold for all parties involved. But others end up lost somewhere within the murky programmatic supply chain.
Consequently in recent months we’ve seen more focus on ‘demand path optimisation’ (DPO), the sell-side equivalent of SPO.
The Basics
As is the case with SPO, many different practices can be grouped under the label of demand path optimisation.
But on a basic level, it refers to the process by which publishers try to better understand how advertisers buy their inventory, and then work to identify the most efficient paths from buyer to seller.
As programmatic trading has evolved, a complex web of ad tech middlemen has built up between the advertiser and the publisher. Many publishers have chosen to work with a wide variety of SSPs, to maximise the demand they have access to. And simultaneously advertisers and agencies may route their demand through a selection of DSPs, to utilise each DSP’s sell-side connections.
As a result, a publisher can end up receiving multiple different bids from the same advertiser for the same impression, with middlemen providing little value taking a cut of the advertisers’ spend. Not only is revenue lost, but these complex supply chains can cause issues around latency and ads not displaying properly.
The Technical Detail
Both publishers themselves and the SSPs they work with might engage in DPO. From the SSP’s perspective, DPO is a part of their core value proposition anyway – developing algorithms and analysis bidding patterns to efficiently source demand, and bring in the most value for their publisher and broadcaster partners.
This will involve practices like building an understanding of which demand sources give access to which types of advertisers, in terms of the audiences they’re looking for. And it will mean cutting out tech partners whose costs outweigh their benefits, both in monetary terms and in terms of the complexity they add to the supply path.
Publishers and broadcasters themselves meanwhile can analyse both the buy-side sources they’re connected up with, and the SSPs they use to reach these buyers.
This might mean speaking with advertisers and agencies to understand which tech companies they prefer using to buy which types of inventory, and which audiences they’re looking for. This will help the seller choose which SSPs to work with, based on their own connections to these buy-side tech partners.
Supply path optimisation feeds into this, as media agencies are committing to funnelling more demand through specific SSPs. Understanding these partnerships can be an important part of the DPO process.
DPO can also involve building an understanding of what the buy-side needs from sellers in order to be able to bid on inventory, and ensuring these things are available. A seller might find, for example, that while their audience is very valuable to a particular buyer, that buyer needs to be able to measure certain quality metrics which the seller doesn’t currently provide. Identifying these blocks to investment and correcting them can lead to more efficient demand sourcing.
Publishers and broadcasters might also choose to directly examine their SSP relationships, and the unique value each SSP brings. This can involve finding out whether each SSP has access to any exclusive demand which isn’t available through other SSP partners (and how valuable that exclusive demand is), comparing SSP fees, assessing levels of transparency for each SSP, and examining historical performance.
Sellers might also use the DPO process itself to push for more favourable terms from their tech partners, asking for incentives to extend their relationships.
It’s important to remember though that DPO is not just a case of cutting fees and maximising short-term revenues. DPO also involves weighing up the impact different tech partners might have on their audiences’ user experience – preventing slow loading ads, low quality ads, or disruptive experiences. And sellers might want to evaluate their tech partners’ payment terms and financial security too, to avoid the risk of payment defaults.
The Pros and Cons
Since DPO is a process of cutting out inefficiencies for publishers, its benefits are fairly obvious.
If successful, DPO will help drive up publishers revenues by helping source demand from the right buyers. And this in turn will have benefits for the buy-side, giving brands and advertisers clearer and more efficient paths to reach the audiences they’re looking for.
DPO should also provide a better user experience overall, by helping to eliminate latency and disruptive or annoying ads. This in turn should help publishers and advertisers build better relationships with their own audiences.
IAB Europe, in its guide to SPO released earlier this year, said that DPO is particularly important for video advertising.
“Given the added tech complexity and emphasis on user experience and load times, DPO helps sell-side teams streamline the transaction process so the entire ad lifecycle is simpler,” says the guide. “In some cases, publishers see that some ads fail to deliver, and this is often caused by high amounts of demand-side complexity. When analysed and simplified correctly, ad performance will improve and buyers will feel safer purchasing your inventory.”
Finally, DPO can reduce the workload for publishers and broadcasters’ own ad ops teams, given the reduced number of partners they’re working with. Ad ops teams may, for example, receive dozens of reports from their tech partners each day detailing their performance, and sifting through all these reports can be time consuming. Cutting tech partners reduces this work load.
But in order to reap all these benefits, publishers and broadcasters have to commit significant resources to DPO. Signing up new SSP partners in order to attract more revenue is easy (hence why so many ended up with a wide variety of tech partners in the first place). Untangling this web, and identifying who is really providing value, is much more complicated. This is especially true for smaller publishers, who might not have programmatic specialists capable of really understanding their programmatic supply chain.
Smaller publishers may also struggle to build the same sorts of direct relationships with the buy side that larger sellers might have. A long tail publisher network or CTV startup will likely find it difficult to get much time and attention from the large media agencies, and so will have a harder time understanding those agencies buying methods.
And while DPO is partly a remedy to a lack of transparency in the programmatic ecosystem, this intransparency also makes it harder to do. Where SSPs and other tech partners aren’t open with their fees and their bidding data, it’s difficult to properly gauge their value.
Publishers and broadcasters might be able to demand more transparency from some of their partners, threatening to cut them off if they don’t comply. But others might be seen as too valuable in terms of the demand they provide, making these sorts of threats unconvincing.
