The state of supply-path optimization

Header bidding is wreaking havoc on programmatic platforms that are trying to cut costs amid an explosion in bid requests.

To cut infrastructure costs, demand-side platforms are turning to a new piece of ad tech jargon called “supply-path optimization,” which is a technology that uses algorithms to select bids that have the highest chance of winning auctions. By increasing the probability that a given bid will win its auction, SPO helps buyers avoid impressions they’re unlikely to win, supply-side platforms that depend on reselling and duplicative inventory. SPO aims to make DSPs more efficient in how they bid, which will help them lower costs and avoid shady SSPs.

Here’s what you need to know about the state of SPO.

The key numbers

  • Just two years ago, header bidding was a niche concept that only a few publishers used. Today, 72 percent of publishers who sell their inventory programmatically use it, according to ServerBid.
  • Back in 2014, buying platforms Turn and The Trade Desk processed about 1 million impressions per second. At the end of last year, Turn processed about 4.5 million impressions per second, and The Trade Desk processed 5.7 million impressions per second.
  • Rocket Fuel wouldn’t provide raw numbers, but it said that it has used SPO to reduce the number of impressions it processes per second by up to 30 percent.
  • About half of the inventory on AppNexus is duplicative, said a company spokesperson. To circumvent the redundancy, the company used SPO on 20 percent of its inventory at the start of the year. Today, the company uses SPO on 48 percent of its inventory.
  • In July, Rubicon Project acquired nToggle for $38.5 million with the intent of using nToggle’s machine learning capabilities to determine which impressions it should avoid bidding on to reduce infrastructure costs.

The buy-side view
Most advertisers want their money to wind up in the hands of content creators, not middlemen. Since SPO brings DSPs and SSPs closer together, it theoretically could reduce ad tech taxes in the byzantine digital ad-supply chain, said Rich Sobel, svp of programs and services at Publicis Media.

Reps from buy-side platforms Adobe, Sonobi and The Trade Desk said SPO will make it harder for nontransparent SSPs that rely on arbitrage to stay in business.

The sell-side view
There is little differentiation among many ad tech platforms. The new algorithms that DSPs use to place bids might bring clarity to which middlemen add value and which ones do not, said Samuel Jenning, an ad tech specialist at Disney/ABC Television Group.

“Long term, it should work to publishers’ advantage, as [SPO] will move demand from SSPs that take too much of a cut to those that give most of the money to the publisher,” said Purch CTO John Potter.

What it means for the industry
Just as header bidding was publishers’ response to Google’s ad server favoring its own exchange, SPO is the ad buyer response to stresses like duplicative inventory that header bidding exacerbated. Since SPO can help buyers avoid ad networks and SSPs who specialize in arbitrage, it could lead to a culling of shady vendors, which would ultimately shift ad dollars from middlemen to publishers, said Nathan Woodman, svp of strategic development at ad tech firm Iponweb, which uses SPO to help DSPs avoid bidding against themselves and SSPs with unclear auction dynamics.

“It’s a treatment that can benefit the whole ecosystem,” Woodman said. “The media spend running through [exchanges] remains constant, but the [ad dollars] will get redistributed to the companies that have unique inventory.”

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