Doing SPO? Be Aware Of These Unintended Consequences

SPO unintended consequences

Supply-path optimization (SPO) has become a selling point for agencies looking to bring value and savings to clients in programmatic.

An SPO strategy allows buyers to cut out players in the programmatic supply chain that don’t add value, such as resellers or exchanges that sell only duplicative inventory, while simultaneously funneling more spend toward exchanges that have direct relationships with publishers.

But often, SPO negotiations revolve around lowering fees and offering volume-based discounts to buyers. When these negotiations lack the necessary nuance, brands can face consequences, such as constrained scale and the choking off of access to unique supply, including specialty ad units.

SPO that isn’t handled carefully can also unintentionally strengthen Google’s dominant position in the programmatic supply chain.

These are the pitfalls buyers should look out for when doing SPO.

Less choice

A smart SPO strategy allows buyers to continue accessing all types of quality inventory, which help clients hit their KPIs.

Buyers risk constraining their access to supply if they cut off certain SSPs solely based on criteria such as fee negotiations or volume discounts, at the expense of evaluating the safest and most efficient path to inventory.

“If you narrow your possibilities through commercial pressures, you can restrict bid opportunities,” said Andrew Goode, EVP and head of biddable media for North America at Havas Media.

If buyers limit themselves to just one or two supply partners, they can miss out on access to unique ad formats, including those specific to CTV and digital out of home, or to native placements on premium publishers only available through specialized exchanges.

The CTV space is so fragmented, that buyers are nearly doing SPO simply by just creating a media plan, said Justin Scarborough, programmatic media director at indie agency PMG.

Havas Media, which has been doing SPO for more than three years, still works with seven core SSPs and brings in additional partners when mandated by clients or for unique creative executions.

“If you cut off your ability to scale, you failed in your job,” Goode said.

Some agencies are taking a different approach. GroupM, for example, hammered out a deal to route the majority of its demand through Index Exchange in early March, although it’s unlikely the agency will restrict client access to specialty ad formats.

Agencies also have to be careful not to limit their primary supply partners too much in order to remain agnostic for their clients – an area where both parties have been burned in the past.

“Our clients would rather have their campaigns delivered in the right place,” Goode said, “and that might be outside the reach of the exchange.”

Strengthening Google

But a blunt SPO strategy could also inadvertently transfer more power to Google, which already dominates the programmatic supply chain.

Agencies hold the leverage over independent SSPs, which ultimately rely on their demand to survive. But because brands are dependent on so many other parts of Google’s business, including YouTube, search, Google’s ad server and DV 360, negotiations with Google are tougher.

“It’s difficult to hold Google to the same supply standard as you can other exchanges,” said Amanda Martin, EVP of supply partnerships at Goodway Group.

Through its position as an end-to-end ad tech stack, Google has inherent advantages because it can push supply toward its own media within its walled garden. PMG often sees that the percentage of media bought through AdX, for instance, is higher when using DV 360, Scarborough said.

Open Bidding, Google’s header bidding wrapper, can also favor funneling inventory to AdX. Open bidding also allows Google to take a fee on every bid, while Prebid, the industry’s open source wrapper, is free.

“There’s some bias when working within someone’s own wrapper,” Martin said.

And Google also has strength in its first-party data set, which will become even more important to brands as third-party cookies disappear.

“When cookies are deprecated, Google has a customer match solution, a DSP and those pipes,” Scarborough said. “SPO could be predicated on first-party data at that point.”

Because of these strengths, Google is also not as willing to bend to agency demands as independent SSPs, which are looking to the buy side as a lifeline as they face consolidation.

Google, for example, only released its sellers.json file this month, days before the Q2 deadline it set earlier this year and seven months after its competitors. Only 5% of the file was complete.

At the end of the day, publishers decide where to route their supply – and AdX is often one of the first places they go. AdX is an important partner for most publishers, given its scale in the long tail and thanks to Google’s powerful data.

“Other exchanges aren’t differentiating based on inventory, per se, but on tech that supports direct relationships,” Martin said. “Google brings truly unique inventory from the long tail.”

But Google’s dominance doesn’t mean it always gets its way in SPO negotiations. Havas Media has managed to hammer out a deal with AdX that meets its transparency criteria, such as understanding its fees.

“Sometimes there’s a fear that you just can’t touch Google, but there are always conversations you can have,” Goode said. “I would not be working with Google if it wasn’t a partnership that achieves our goals.” 

A bright spot for SSPs

SPO also continues to evolve. As sellers.json becomes a bigger part of the SPO process, buyers are getting more granular.

By revealing how many times a piece of inventory was resold before reaching an exchange, sellers.json allows buyers to identify the most direct path to a publisher. That helps them do SPO more granularly across partners, rather than completely turning off certain platforms.

In that vein, sellers.json allows buyers to move away from broad negotiations centered on fixed-rate fees with SSPs and toward finding specific paths that are more efficient at meeting client KPIs.

As Goodway Group’s Martin described it: “I used to have a hammer, and now I have a scalpel.”

1 Comment

  1. Great article. The SPO landscape certainly has a lot of moving parts. Characterizing open bidding as "Google's header bidding wrapper" lacks some precision however. They do not operate in the header bidding layer of the ad stack. They compete only in the GAM side auction and not directly in the header bidding auctions provided by bidders that participate directly in the header bidding layer. It's more precise to characterize it as bringing in similar demand as header bidding into the AdX/GAM auction and allowing another opportunity to improve yield and fill. Comparing them both as "header bidding" misses important nuance. Namely, that one winning a given impression is not necessarily a loss for the other since they operate at different layers.

    Reply

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