Supply Path Optimization: The Kiss of Death to SSPs

Over the last year, the ad tech industry has witnessed the fast rise of header bidding and similar publisher-side mechanisms aimed at unifying programmatic auctioning for a given impression.

For demand-side platforms (DSPs), this means more liquidity, but also a three-fold increase in the volume of bid requests to handle. In the old waterfall auctioning model, only one impression was sent to many buyers, whereas header bidding is fundamentally a “many-to-many” model. Craig Mytton illustrated this mechanic perfectly in a LinkedIn post last year.

As a result, DSPs are now flooded with duplicated impressions, threatening the stability of their platform and the integrity of their campaigns.

“Header Bidding has an exponential effect on the volume of impressions received from publishers” noted Ian Trider, Director of RTB platform operations at Centro, a DSP. “Two header bidding buyers means twice the number of impressions sent, three header bidders mean three times more impressions, and so on.”

With 70% of top publishers using header bidding, this redundancy will have a profound impact on the business dynamic among programmatic actors. At the same time DSPs will be forced to de-dupe impressions, the economics along the supply chain will become more transparent.

Middlemen’s Margins in Full View

For the first time, DSPs can see how aggressive intermediaries are along the supply chain. Brian O’Kelly provided sample math in a recent blog post. In short, SSPs that bid highest will maximize revenue in the short term, but undermine campaign performance in the long term.

Like AppNexus, DSPs are responding with supply chain optimization (SPO), essentially prioritizing which SSPs are allowed to submit bids for a given app. Basically, the old publisher-side waterfall is being replaced by an advertiser-side whitelist. Only supply sources on this whitelist are allowed to send impressions for a given page or app.

In time, I believe machine learning will make these whitelists more dynamic and efficient. Looking at recent bid patterns and fill rates per ad placement, DSPs will predict which SSPs or supply sources they should privilege when bidding.

This new practice of supply path optimization will become part of any modern buying stack.

Eco 101: Perfect Competition Equals No Margin

For SSPs, this is bad news.

This pricing transparency, along with low switching costs, will put pressure on their margins.

Whichever SSP charges the highest margin will quickly see their fill rates tank, as DSPs around the world shift their buying pattern to other supply sources available for the same publisher.

OpenRTB recommends the domain name or app bundle in any bid request, so DSPs can easily identify who the originating publisher is.

IAB and TAG will do their bit by offering mechanisms within the bid stream to uniquely identify a placement across platforms. There is also discussions of  each intermediary adding a “stamp” to the ad chain, similarly to the blockchain of a bitcoin.

Reselling premium inventory will become a lot harder for those platforms that do not have access to valuable data or failed to lock exclusive access to supply.

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