Liftoff’s 2023 Guide to Supply Path Optimization
In recent years, we’ve seen more demand-side players in the app marketing industry engaged in Supply Path Optimization (SPO). SPO is a process of evaluating and reducing the number of intermediaries to offer advertisers more direct pathways to ad supply. While a lot has been written about SPO, many advertisers still have questions about how it works on mobile.
To help, we’ve put together a guide that provides an overview of how SPO works in programmatic ad buying.
How In-App Bidding Changed the Game
To begin with, it’s important to revisit why SPO became a crucial strategy for mobile advertisers in the first place. For most advertisers, programmatic ad buying is the dominant way to access mobile ad inventory. In the past decade, however, the programmatic supply chain has grown more complex. One of the key reasons is the shift from waterfall auctions to in-app bidding.
In-app bidding enables publishers to receive bids on each ad impression from multiple demand partners in a unified auction. As we can see above, the highest bid from a demand source wins the ad impression, guaranteeing that publishers receive the best return for each impression. For advertisers and DSPs, however, in-app bidding introduces new challenges and complexities.
While in-app bidding reduces latency and improves yield for publishers, it also creates multiple pathways to winning the same ad impression.
DSPs now receive multiple bid requests for an ad impression from different ad exchanges, leading to duplicate bids that artificially inflate prices. Simultaneous bidding also enables redundant supply-side intermediaries to resell ad auctions to DSPs and advertisers. These new inefficiencies in the programmatic chain can increase costs markedly.
Finding the Right Approach to SPO
A widely-circulated 2020 report found that 15% of advertiser spend is unaccounted for in the programmatic supply chain. The same report found that Supply Side Platform (SSP) fees average 2% higher than reported, and inventory reselling between SSPs is rife. Fees and margins can accumulate long before an ad impression is even offered to a buyer.
Here’s where SPO strategies come in. Advertisers and DSPs can recover value for ad spend by figuring out which supply partners are adding value and which ones are not. By cutting out unnecessary intermediaries, DSPs can deliver better deals for advertisers and improve campaign performance—without losing out on unique, high-quality inventory.
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