A lot has been said about Supply Path Optimization (SPO) over the past few years – and for good reason.
A recent study found that the vast majority (95%) of ad buyers are currently implementing or planning to implement SPO technology, with 52% of ad buyers saying half or more of their advertising budget is transacted programmatically.
So, what is SPO and how should advertisers and agencies be thinking about it?
Defining Supply Path Optimization
Supply Path Optimization is the strategy through which buyers look to remove redundant intermediaries and streamline their access to supply. There are many reasons why agencies and advertisers are taking a close look at supply paths, but the main three would be: 1) to reduce infrastructure costs, 2) to increase performance, and 3) to maintain transparency for inventory quality.
SPO in mobile has an additional level of complexity compared to the web because ads on mobile devices are facilitated mostly through software development kits (SDKs) – and understanding the type of SDK connection can have meaningful implications to that path optimization.
Understanding the Key Players in SPO
The main players to consider for SPO analysis are the sellers, the exchanges, and the demand-side platforms (DSPs).
Starting with the seller, or app publisher in mobile, each app needs to evaluate and prioritize many sources of demand to optimize its yield. To do this, they work to integrate SDKs that represent the exchanges. Understanding the type of SDK connection each exchange has with the app publisher can have major implications for how you, as a buyer, can think about prioritizing these partners. To simplify this, there are three types of SDK partners:
Mediation SDK – The platform that acts as the central ad server and ultimate decision-maker on what ad will be shown to the end-user. Those mediation SDKs that enable unified auctions allow buyers to participate in the first and final auction. As a buyer looking to optimize your access, connecting to supply through the mediation partner gives you the most direct and full access to that publisher.
Advanced Bidder SDK – A demand source directly integrated with the app publisher and participating in the unified auction conducted by the mediator SDK. This type of buyer participates in the real-time auction with their bidder and uses their SDK to render. They rely on the mediator SDK to host the first and final auction for their access.
Traditional Network SDK – Or waterfall-based network is an integrated partner set up in the mediation SDK with a series of priorities or price floors and does not participate in the unified auction. If the impression is unfilled at the top priority, the same network would be called again to run an auction for the second, third, fourth, and so on until it is filled.
These networks have no way of communicating their true price in the auction, and because of this setup, the waterfall creates a tremendous amount of duplicative bid requests. A DSP buying supply through this type of exchange is likely to see up to 10 times the number of bid requests for each unique impression opportunity compared to the mediated SDK partner. Since the mediator SDK conducts the first and final auction, the waterfall priority established with these networks is translated into a first look or exclusive access, duplicating and obfuscating the actual price and scale.
Whether mediator, bidder, or traditional, these SDK partners are direct to the publisher and can be seen in sellers.json and app-ads.txt. However, behind these direct SDK partners also exist hidden intermediaries that are not integrated directly and resell the auction to other buyers.
These resellers are exchanges or networks that add another auction to the programmatic chain, include additional tech fees, and provide zero visibility into where that impression opportunity originated from. As a DSP, you can look to identify and limit your buying through reseller channels as an immediate way to reduce inefficiencies in your SPO strategy.
Creating Efficiencies in SPO
Developing an effective SPO strategy on mobile can be a challenging initiative for DSPs and buyers. Now that we’ve outlined the different types of SDK partners above, here are three key ways in which buying through mediated SDK partners directly helps advertisers with SPO:
Infrastructure efficiency: There could be an exponential number of requests for every opportunity to serve an impression. Let’s look at an example where a publisher is working with a mediation SDK like AppLovin’s MAX and five SDK networks. Three of those networks are advanced bidders participating in the unified auction, and the other two are traditional waterfall networks.
If a DSP is integrated with all of those supply partners, they will effectively be hit with one request from the AppLovin Exchange (ALX), three requests from each advanced bidder, and up to 10-20 times the number of requests for each waterfall network. That one impression opportunity has now turned into more than 24 requests to that DSP’s server. This does not include resold or indirect sources of supply, so this duplication stands to increase further, causing a major drag on infrastructure costs as servers are becoming increasingly expensive to maintain. You can minimize these server costs by eliminating connections with traditional network SDKs and reseller connections that inflate requests without providing an added benefit to access.
Performance efficiency: We can break down performance efficiency by looking at competition and price. As you can imagine, with the above scenario and inflated server costs, you also run the risk of self-competition as you bid into each of these supply paths without knowing they all represent the same impression opportunity.
Direct access eliminates intermediary tech fees that reduce your buying power from a pricing standpoint. It is hard to understand fee transparency with direct access as traditional networks may not disclose their auction pricing. The cleanest way to assess competition and price is to focus on the unified auction that minimizes the risk of self-competition while providing more transparency in fees.
Premium access and scale: Each supply-side platform (SSP), whether SDK direct or reseller, differs in access, data collection, and support for measurement and verification solutions. In addition to considering infrastructure and performance efficiencies, buyers must ensure they can adequately target and measure their campaigns across the supply. For this, they need to evaluate access and support for OMSDK, key fields like sellers.json and app-ads.txt, and what invalid traffic (IVT) solutions are in place.
For DSPs and buyers looking to jumpstart their SPO optimization, prioritizing access through the mediator SDK is key. The Applovin Exchange is powered by the largest mediation SDK in mobile and can give this edge to buyers looking for the most direct and efficient way to reach publishers and the end consumer. When buying power increases and programmatic bloat is eliminated, publishers and advertisers both benefit as we grow the advertising market with efficiency and transparency.