Lessons Learned From SPO 1.0

Chris Kane, founder, Jounce Media

Data-Driven Thinking” is written by members of the media community and contains fresh ideas on the digital revolution in media.

Today’s column is written by Chris Kane, founder at Jounce Media.

Depending on when you start the clock, we’re now two to three years into the first wave of supply path optimization (SPO). Here’s what we’ve learned and what we think is ahead.

Lesson 1: Fees Matter, But ROI Matters Most

Some exchanges currently take a 40% fee on open auction bids for commodity banner ads. And others power three-hop or four-hop reselling, creating a 60% or greater fully-loaded supply chain cost.

Those excess fees require marketers to submit elevated gross bids to clear publisher floor prices and successfully participate in competitive auctions. Those excess fees also directly depress publisher economics. Practitioners have focused on take rates during the first wave of SPO, and we expect savvy marketers will continue to prioritize protecting against excess supply chain fees.

But a myopic focus on low fees can also backfire for marketers and publishers. A supply path that has a 0% take rate has no value if it is plagued by technical failures. Header bidding auctions, especially those integrated through a client-side wrapper, are prone to timeouts and other types of technical breakage. These issues, which we call transaction failures, keep buyers from buying and sellers from selling. And our research indicates that more than half of publishers operate at least one supply path that experiences transaction failure.

And then of course there are all of the product capabilities that make exchanges more than a commodity business. Some exchanges offer real-time pricing guidance that helps programmatic buyers cost efficiently compete in first price auctions. Some enrich bid requests with new audience identifiers or other audience-based targeting signals. Some actively shape the bid requests they issue to DSPs to eliminate low quality ad opportunities. These value-added features can more than offset single digit percentage point differences in take rates.

After several years of chasing supply chain fees, we’ve learned that marketers care only indirectly about take rates. What they really care about is return on investment. Maximizing campaign ROI requires a holistic approach to supply chain management that considers more than just fees.

Lesson 2: Publishers Still Don’t Control More Than Half Their Supply

The “reseller” label in publisher ads.txt files takes a lot of heat, and rightly so. It is common for a DSP buyer to participate in an auction where the chain of payment is DSP > Exchange A > Exchange B > Publisher. Critically, that same DSP buyer can often bid directly into Exchange B, accessing the publisher’s auction with more financial and technical efficiency. We call this practice rebroadcasting.

We’ve known about rebroadcasting for years, but the rollout of the IAB’s sellers.json initiative in 2019 opened the industry’s eyes to a much more nuanced view of reselling. It allowed buyers to identify a new type of reselling in which an intermediary (a company that is not the publisher) has full control over an ad serving decision.

This situation happens when a technology company like Taboola owns exclusive right of sale for an ad slot on a publisher’s page. It also happens when a media company like Disney syndicates its content to a third-party property. And this is a very big deal. More than 50% of web, app, and CTV video auctions are not controlled by the publisher.

The next wave of SPO will take a more refined approach to reselling. Rebroadcasting will face mounting pressure, and marketers will make data-driven decisions about which intermediary-controlled ad units create value for their campaigns and which do not.

Lesson 3: DSP Capabilities For SPO Are All Over The Map

The supply landscape is changing quickly, and most DSPs are struggling to maintain pace.

Buyers thought they should optimize for low fees, but now they want mechanisms to balance supply chain fees with auction performance. Buyers thought they should eliminate all reselling, but now they want to precisely control which intermediaries are eligible for each campaign. Presumably, buyers will change their minds again, and they’ll expect DSPs to be ready with solutions to meet their new needs.

The DSPs most organized around supply path optimization do two things. They enable granular reporting that allows savvy marketers to quantify campaign performance at the supply path level. And they expose granular targeting solutions that allow these savvy marketers to enable and disable individual supply paths. The most sophisticated DSPs take this targeting a step further, enabling marketers to prioritize participation in some supply paths and deprioritize (but not entirely disable) participation in others.

In some DSPs, these path-level bidding capabilities are generally available to every buyer through the standard UI. Other DSPs haven’t even begun the work. Unfortunately, we estimate that more than 75% of programmatic spend is executed through DSPs that do not support rigorous supply path optimization.

There’s an expression that the future is here, but it’s unevenly distributed. In 2021, that uneven distribution of DSP capabilities will leave many programmatic buyers on the SPO sidelines.

Lesson 4: The Juice Is Worth The Squeeze

Marketers who take a data-driven approach to supply path optimization consistently improve campaign ROI by 10% or more.

By reducing their exposure to supply chain fees, marketers can secure media with lower gross bids. These marketers additionally implement path-level bidding controls to ensure their bids are never exposed to points of technical failure in the supply chain. And finally, by building custom DSP bidding algorithms, these savvy marketers actively manage their participation in auctions for the highest quality publisher-direct and intermediary-controlled auctions.

This SPO playbook is now a reality for many marketers who partner with DSPs that are building out supply chain management capabilities. Marketers whose DSPs do not yet support rigorous reporting and targeting should continue to apply pressure to shape product roadmap decisions.

But regardless of a marketer’s DSP choice, what is available to every marketer in every DSP is inventory curation that is powered by trusted ad exchanges.

Nearly every major ad exchange powers a wide diversity of supply paths – paths with low fees and paths with high fees, paths with rock solid integrations and paths that are prone to technical failure, paths that lead to publisher-controlled supply and paths that lead to intermediary-controlled supply.

The most forward-thinking of these exchanges are now ready to partner closely with brands and agencies to contain supply chain fees, curate supply paths that achieve campaign ROI, and provide deal ID based activation that is scalable across all DSPs.

In 2021, exchange partnerships are a marketer’s best bet for curating the programmatic supply chain. More than anything, SPO 1.0 taught us that the relationship between programmatic buyers and programmatic sellers cannot be adversarial. The need for deeper partnerships between programmatic buyers and trusted exchanges is more critical than ever.

Follow Jounce Media (@jouncemedia) and AdExchanger (@adexchanger) on Twitter.

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