Demand-path optimization (DPO) and supply-path optimization (SPO) are processes designed to organize an efficient path to an ad inventory from both the publisher’s and the advertiser’s ends.
Both optimization processes involve conducting broad research, analysis, and reorganizing links in the digital media-supply chain so publishers and advertisers can achieve specific goals, such as balancing operational costs, maximizing ad revenue, and eliminating unnecessary business partners.
DPO and SPO fall under the umbrella term ad-path optimization (APO).
In this article, we look at the key differences between supply-path optimization (SPO) and demand-path optimization (DPO) and their benefits.
- Demand-path optimization (DPO) and supply-path optimization (SPO) are processes designed for organizing an efficient path to an ad inventory from both ends, publishers and advertisers.
- Supply-path optimization (SPO) is when demand-side platforms (DSP) try to improve the path to ad inventory.
- Demand-path optimization works the other way — publishers try to make purchasing their ad inventory easily accessible and cost-optimal simultaneously for media buyers (advertisers and ad agencies).
- The DPO process carried out by publishers supports the SPO process carried out by media buyers and helps enforce a well-working advertising ecosystem and increase transparency.
A Brief History of the Supply-Path Optimization (SPO) And Demand-Path Optimization (DPO)
The introduction of header bidding technology revolutionized how publishers sell their ad inventory by allowing multiple demand-side platforms (DSPs) to bid on it via supply-side platforms (SSPs).
However, this also increased operational costs for DSPs as they had to process large numbers of bid requests, sometimes resulting in duplicate bids for the same impression. As a result, DSPs and SSPs began looking for ways to optimize their business partnerships and the path to ad inventory to reduce costs.
This gave rise to Supply Path Optimization (SPO) and Demand Path Optimization (DPO), now essential strategies in the AdTech industry.
What Is Supply-Path Optimization (SPO)?
Supply-path optimization (SPO) is the process in which demand-side platforms (DSP) try to improve the path to ad inventory, i.e., find the shortest and most profitable way. DSPs use real-time algorithms to determine the bids that will meet the goal.
Thanks to SPO, bids that did not bring optimal results are replaced by bids that take the shortest and most effective way to a publisher’s ad inventory. This optimization also gives SSPs and publishers higher ad revenue.
What Is Demand-Path Optimization (DPO)?
Demand-path optimization works the other way — publishers try to make purchasing their ad inventory easily accessible and cost-optimal simultaneously for media buyers (advertisers and ad agencies). The process also works with real-time algorithms. These mechanisms collect and analyze data that help identify the value each buyer brings to the publisher.
The types of data collected through DPO include:
- Transaction costs.
- The ease of reaching the desired media buyers.
- Ad revenue.
After optimizing the demand path, publishers typically stay with the most influential clients, meaning transparent and committed media-buying partners.
To conduct the DPO process, publishers analyze many factors, such as bidding rates, requests per second, how many links advertisers go through to buy from publishers, etc.
Demand-path optimization also analyzes the whole digital business environment: supply-side platforms (SSPs), exchanges, ad networks, trade desks, and demand-side platforms (DSPs).
Identifying the areas of analysis and conducting the analysis are only the first steps in the demand-path optimization process.
Publishers must also optimize their supply paths, eliminate non-essential business partners, and negotiate with their media-buying partners to achieve the ultimate goal of maximizing revenue and efficiency in the ad supply chain.
What’s the Difference Between Supply Path Optimization (SPO) And Demand Path Optimization (DPO)?
The DPO and SPO processes have a lot in common. Their main goal is to optimize the path to buying and selling ad inventory. The second important goal of both DPO and SPO processes is to identify business partners who have a streamlined and uncomplicated media-supply chain, which means eliminating unnecessary technologies or non-essential business partners in order to achieve specific optimization goals.
So what are the differences between them?
DPO is the term reserved for publishers, and SPO is for advertisers.
Publishers focus on how advertisements and impressions are sold and how to generate optimal business results from different demand paths.
On the other hand, advertisers are concerned with the acquisition of impressions and aim to identify a reliable path to ad inventory that provides a positive return on investment.
Similarly, SPO is dedicated to the party that “opens” the process: advertisers and their opportunities.
Below are the main differences between DPO and SPO.
Who Benefits From SPO?
The SPO process is beneficial primarily for advertisers as they aim to carve out a convenient path for themselves to reach the right publishers.
SPO’s objectives could cover reach, win rate, cost efficiency, or anything else. One example is the cooperation of The Goodway Group and PubMatic to ensure a constant SSP percentage take rate.
However, they are not the only beneficiaries. Besides advertisers, other actors will benefit from SPO: AdTech companies, agencies, and publishers.
Who Benefits From DPO?
Similarly to SPO, the main beneficiary of DPO are publishers as they take steps to grow their revenue, make explicit connections to advertisers and show brand-safe ads on their websites.
Let’s look at DPO’s benefits for both publishers and advertisers.
Benefits of DPO for Publishers
Media-buyer identification. The IAB TechLab created a mechanism of Buyer.json to help publishers and other intermediaries recognize media buyers. Buyers have to publicly declare who do they represent.
- It is helpful when the publisher want to cut the lines with untrustworthy advertiser who show, e.g., inappropriate, malvertising and nefarious ads.
- By eliminating bad actors, they secure their businesses, reputation and their users.
- Last but not least, DPO highlights which media buyers display low-quality ads and ads that slow down the page.
Path identification. If publishers invest time in recognizing advertisers’ path to buy ad inventory, they can reorganize their operations, focusing on the effective ones and closing the ineffective ones.
Re-calculating ad revenue. DPO is a great way to check what fees publishers pay to other entities in the media-supply chain and see if these entities bring them real value, e.g., ad revenue. Publishers also will know which media buyers have low credit scores and don’t pay their bills on time.
A transparent path to ad inventory. Advertisers who see a clear path to buying ad inventory will likely spend more on buying impressions, meaning the publishers will likely earn more.
An optimized path also means publishers can prove their value to advertisers and establish a long-term business relationship.
Business Benefits for Advertisers
Demand-path optimization also provides some benefits for advertisers as well.
Stronger position for negotiations. Once the publisher and advertiser agree on establishing a long-term relationship, the advertiser can negotiate better terms of the cooperation as they plan to spend more with the selected publishers.
They can also buy premium inventory on the open marketplace (i.e., via OpenRTB) rather than paying a higher cost in PMP deals.
How Can DSPs and Advertisers Implement SPO?
SPO is not a one-time activity but a constant improvement process. There are essentially four steps to consider and implement SPO, as described by PubMatic:
- Step 1: Internal assessment
- Step 2: SSP evaluation
- Step 3: Consolidation
- Step 4: Ongoing optimization
Below are some more details about these 4 steps.
Internal assessment refers to framing your business values. In other words, you need to describe what you want to achieve in advertising your services and products and pull back from activities that don’t support your efforts. In this phase, you should have estimated numbers and goals set.
During this stage, you can consider, e.g., how many business partners you would like to have (and pay for their services), what audience you would like to reach, how many customers you can reach with advertising, etc.
SSP evaluation is about building the strategy and including evaluation criteria in it. Otherwise, how would you know your strategy works?
Consolidation refers to preparing comprehensive test scenarios. These tests will allow you to spot ineffective SSPs and ad exchanges regarding campaign performance and things connected to the integrations.
It’s good to test different types of inventory and campaigns as they show various performance indicators. It’s also good to implement seller.json, a mechanism to verify the entities who are either direct sellers or intermediaries.
Further optimization is simply repeating the steps above once in a while, preferably several times a year.
PubMatic also describes three tactics for SPO:
- Pruning long-tail SSPs.
- Consolidating with a few key partners.
- Leveraging real-time algorithms.
Read about them more here.
How Can Publishers and SSPs Implement DPO?
In order to implement DPO from their side, publishers need to analyze the flow of impressions and identify the paths through which advertisers are buying ads. The goal is to determine which paths are the most profitable and promising in terms of return on investment. Publishers can then optimize their supply paths by eliminating or modifying the least profitable paths and focusing on the ones that offer the best potential for revenue and efficiency improvements.
For this purpose, publishers can:
- Leverage your data: Publishers can look at different pieces of data that matter to them to select the right partners. For instance, how fast does the page load with ads (page load time), what are the win rates, what is the response time, is the ad of a given quality, and is the advertiser overdue his payments? Basing decisions on data and not hunches will help you achieve your results.
- Participate in SPO: You can help your customers optimize supply-path processes to eliminate unnecessary intermediaries. The easiest way to help in SPO is to contact your buyers directly.
Demand-path optimization (DPO) and supply-path optimization (SPO) are processes that help publishers and advertisers achieve their goals by optimizing the path to ad inventory. SPO is for advertisers, who use it to find the most profitable path to ad inventory, while DPO is for publishers, who use it to make it easy and cost-effective for media buyers to purchase their ad inventory.
Both processes use real-time algorithms to analyze data and identify the most effective business partners. The goal is to eliminate unnecessary business partners and increase transparency in the media supply chain.
SPO benefits advertisers by providing them with a safe and comfortable path to ad inventory, while DPO benefits publishers by helping them increase revenue and make clear connections to advertisers. Other benefactors of these processes include AdTech companies, agencies, and publishers.
Overall, DPO and SPO are important for creating a well-functioning advertising ecosystem that benefits both publishers and advertisers.