Can Blockchain be the saviour of the Digital Advertising Industry?

The model of digital advertising is quite like our traditional banking structure. If the Internet were a country, the Central Banks of it would be the oligopoly of Google, Facebook and Amazon with “consumer data” being the currency on which the economy survives. The financial intermediaries or lenders of the currency would be the supply side advertising exchanges who control the inventory (currency aka consumer data) and the borrowers are the demand side exchanges who control the advertisers.

If a simplified financial system looks like this:

Fig.1: Simplified financial system

then the simplified view of programmatic (digital) advertising market looks like this:

Fig.2: Simplied digital advertising system (DMP: Demand Management Platform, DSP: Demand Side Platform, SSP: Supply Side Platform)

Simply put – programmatic marketing is a way to target what types of audience you wish show your advertising to. Which can encompass segments across demographics such as age, gender, social standing, to geographic in certain areas of the country. Programmatic media buying, marketing and advertising is the algorithmic purchase and sale of advertising space in real time. During this process, software is used to automate the buying, placement, and optimisation of media inventory via a bidding system. Automating the process means that it can be done in real time and doesn’t rely on the human touch, manual insertions and manual trading.

First, the brokers & dealers who help intermediate sharing consumer data are the Demand Side Platforms (DSPs) and Supply Side Platforms (SSPs). Second, the fund managers (portfolio managers) is a blended model of marketing intelligence of the software/platform and the media buyer in the media agency. Third, the financial exchanges are the Demand Management Platforms (mostly owned by Google, Facebook, Twitter, Amazon or LinkedIn) that allow DSPs and SSPs to clear and settle customer data in lieu of advertising. However, what’s missing right now are the credit rating agencies in this model as Google & Facebook are walled gardens and don’t let their data be audited by 3rd party agencies which creates a centralised exchange of audience/consumer data and the need of trust in these companies. Fifth, the financial regulators that regulate and supervise all players in the system are the Google, Facebook and Amazon [triad from here on] themselves. Summarily, the triad is the judge, jury and executioner of the internet advertising landscape.

Due to the opaque transaction systems at the exchange level, the advertising industry faces a loss of $7.2 Billion in global ad fraud problem. The current programmatic advertising landscape is highly opaque and fragmented. Far too many intermediaries stand between advertiser and publisher. This causes inefficiency in pricing while intermediaries fees consume huge part of publishers’ revenue. For example, Google Adsense takes a 32% cut for allowing you to find suitable advertisers. Reliable estimates of typical intermediary fees are hard to get (due to non-transparent structures), but estimates point to around 50% fees. Some high profile cases point to even more absurd fees upto 70%. Just to recap: advertisers pay $3.00 per thousand impressions while the publishers who actually deliver these impressions only get $1.50, or perhaps even $0.90!

Fig.3: More accurate state of digital advertising ecosystem 

Part of the problem that causes this fragmented market is that there is no one standard of communication between advertisers. The AdTech (Advertising Technology) industry is trying to establish such standards, but the dominant model of Real Time Bidding (RTB) is extremely expensive and does not scale well.

For some costs were the least of the concerns compared to brand safety (for example, a UNICEF ad running on a porn site!). Brands such as Procter & Gamble are aiming to cut upto $140 Million in digital ad spends because of brand safety concerns. And Unilever (the largest advertiser in the world) has spoken outloud in the press of its concern of ad fraud due to which its cutting back on digital ad spends in 2018 till the triad comes out with the transparent model (costs as well as the exposure place and frequency).

Blockchain can render various ad exchanges obsolete by making an open platform that will enable advertisers and publishers to find themselves and trade directly using the blockchain. Standardized exchange and easy access to market will foster development of open algorithms that will enable publishers to be their own SSP and advertisers to be their own DSP.

Recently in September 2017, the Interactive Advertising Bureau (IAB, the lobby arm of digital advertisers. Members comprise of more than 650 leading media and technology companies that are responsible for selling, delivering, and optimizing digital advertising or marketing campaigns.) has taken cognizance of the problems and have been receptive and vocal to employ blockchain for advertising.  Some of the projects in the projects and initiatives are underway as we read this (all of them are at a relatively early stage of evolution):

  • AdChain is an open protocol on Ethereum’s public blockchain. Its stated goal is to allow for building of decentralized applications, specifically for use in the digital advertising ecosystem.
  • Adex is a decentralized ad exchange that utilizes Ethereum to address problems like fraud, privacy, and consent in the digital advertising space.
  • Amino combines technologies from blockchain, payments, and adtech to bring transparency, integrity, and auditability to online advertising
  • NYIAX, a guaranteed media contract exchange, bridges the space between the financial and digital advertising ecosystems utilizing blockchain in partnership with NASDAQ
  • Rebel AI secures digital advertising and protects publisher identity and brand spend using machine learning, blockchain, and encryption technologies
  • The Basic Attention Token (BAT) utilizes the Ethereum blockchain to create a token that can be used to obtain a variety of advertising and attention-based services on a purpose-built platform.

A novel concept has come into being recently known as the AdShares Network which is a decentralised peer-to-peer market for programmatic advertising. Adshares gives advertisers and publishers ability to trade directly without the need for centralised ad exchanges. The key strengths of such a blockchain are:

  1. No middleman: direct interactions between publishers and advertisers to improve efficiency (arbitrage goes to minimum or absolute zero due to intermediaries in the supply chain)
  2. Low fees: greatly reduces fees due to improved competition
  3. No barriers: small players can compete with big corporations on equal footing
  4. Single currency: no problems in cross border commerce
  5. Censorship resistant: big players cannot silence controversial content
  6. Open data: data is publicly accessible for anyone to analyse [read: opportunity for ratings agencies and regulators which are missing currently in the ecosystem]
  7. Artificial Intelligence ready: built with machine learning in mind
  8. Adblock resitant: decentralised market reduces adblock power
  9. Better ads: ready to support coalition for better ads

Fig.4: Adshares network due to blockchain (see how it breaks the clutter from Fig.3)

Now let’s see how Adshares network makes up a successful business model.

Programmatic digital advertising spend is projected to be over $32 Billion in 2017 in the USA alone. It is expected to grow to almost $46 Billion dollars by 2019. This huge market with dynamic YoY growth is an ideal target for disruption.

Global digital ad spending is projected to exceed $220 billion dollars in 2017. The share of programmatic ads is growing. Profitability can be reached once Adshares takes over even a small portion of the ad market and satisfied with only 1% average fee collected from payments. 1% fee is an order of magnitude smaller than current rates, so even higher revenues might be possible.

Scenario Revenue per annum based on year 2017
1%of global digital ads market; 1% fees $22 Million
10% of US programmatic market; 1% fees $32 Million
10% of global digital ads market; 1% fees $220 Million

 

But is the advertising community ready to truly capture the blockchain opportunity?

We’ve been in a similar place before. The internet revolution spawned an ad tech ecosystem that transformed advertising forever. But that same ecosystem was built largely on rosy forecasting, a blind eye to harsh realities and a refusal to think honestly about the sheer complexity of the problems at hand. As a result, those transformative providers helped contribute to the dot-com bust – and laid the groundwork for a chaotic and inefficient ad tech supply chain that burdens digital marketing to this day.

Now, we’re at the beginning of the blockchain revolution and the start of what’s been called “the next generation of the internet”. As we’re laying the groundwork for that next wave, will the advertising business be honest about the challenges this time around? Or will we bury our heads in the sand yet again, lose opportunity and create new problems even as we create new innovation.

We hope ad tech’s blockchain revolution can learn the lessons that the internet revolution failed to. To that end, let’s spur a more honest discussion around the real hurdles that blockchain faces in ad tech, beginning with six major challenges any advertising blockchain solution will need to deal with.

  1. Not ready for Real Time

Many experts opine that blockchain simply isn’t built to handle the massive throughput of real-time bidding (RTB). Bitcoin, for instance, was designed to handle roughly 10 transactions per second. To be sure, that’s something of a self-imposed speed limit, and numerous solutions are in play to speed up blockchains dramatically – from the Lightning Network  to Microsoft and Intel’s recently announced Coco Framework, capable of handling up to 1,600 requests per second.

But these solutions are still orders of magnitude slower than what’s needed to handle the prevailing real-time ad marketplaces, which process roughly 5 million transactions per second. Because of this, any real-time blockchain solutions for RTB seem doomed to fail.

That puts a massive and growing market outside the scope of blockchain solutions. As reported in BI Intelligence, a recent poll by the World Federation of Advertisers indicated worldwide RTB revenue will hit $8.7 billion in 2017, topping $26 billion by year’s end 2020.

  1. Blockchain requires standards

Shared databases take standardization, and blockchain is no exception. Blockchain currencies like Bitcoin rely on universal agreement around what it means for one party to “pay” another. Blockchain solutions for shipping benefit from agreements on basic transactions, such as a parcel changing hands.

But digital advertising, which has swept the ad space in a short two decades, still lacks many such crucial standards. As Gartner’s Martin Kihn writes, in digital advertising, “Whole formats (like video ads) and key issues (like viewability or brand safety) barely have standards at all.”

Kihn offered that comment in 2014 – but it still holds true today. Parties regularly have different views on questions like whether an ad ran in a place where consumers could see it or how to define key target demographics. Multiply that lack of consensus across what Kihn calls marketing’s 2,000-plus vendors, and you have the real makings of chaos – and a rough environment for creating a shared database around blockchain.

  1. Solutions in search of problems

Even if blockchain can solve a key ad tech problem, is blockchain always the right answer? It’s a question many are asking.

This year, the Interactive Advertising Bureau (IAB) created a digital protocol, ads.txt, to let publishers publicize the authorized brokers and resellers of their inventory. It, in turn, allows advertisers to more easily identify and root out unauthorized and potentially fraudulent actors.

There are voices in the industry proposing blockchain solutions for this kind of transparency, but a new blockchain environment is far more complex and expensive than inviting publishers to add a piece of code to their pages. In this case, as with many others, blockchain seems to be a solution in search of a problem.

  1. A matter of trust

When it comes to rooting out fraudulent and untrustworthy players, blockchain isn’t necessarily a panacea. Truly public blockchains, such as bitcoin, use group oversight to take the place of trust. But private and consortium blockchains, by definition, rely on just a handful of actors, which means less group oversight and networks that can be more easily controlled by one actor or a small group.

Given that blockchain is essentially a radically secure version of decades-old distributed ledger technology, it’s often worth asking, given that not all blockchains are as secure as they seem, if a blockchain is really necessary – or if a simple distributed ledger will do. As noted above, sometimes a blockchain solution can be overkill.

  1. Hype

It’s easy to understand the urge to find unnecessary blockchain solutions: Blockchain is hot. Beyond leading blockchain into areas where it doesn’t belong, that hype can also drive companies to spin “blockchain lite” solutions as the real thing.

There’s a surprisingly fuzzy line between a private blockchain and a dressed-up distributed ledger; between the risks of misunderstanding what’s what and PR teams’ drive to fit products into buzzwords, it’s easy for the hype to water down the true potential – a scenario we’re already familiar with from developments like AI. And when hype overtakes reality, disappointment and burst bubbles are never far behind.

  1. Getting everyone on board

Blockchains only work as a community. This means it’s not enough to throw blockchain solutions into the market; someone needs to bring participants on board. Who will be that gathering force? Trade groups? Advertiser mandates? Something else? Until we can answer that question, we can’t get blockchain for ad tech off the ground.

Being honest about these and other challenges may be daunting, but it also provides a way forward.

For instance, blockchain for RTB won’t work – but outlets like pre- and post-buy, as well as far slower exchanges like those behind much of programmatic TV buying, are ripe for opportunity. At the same time, blockchain could provide an opening to steer the ad community to work harder for basic standards, both through existing institutions and new ones like the Ad Ledger blockchain consortium, to collectively making blockchain more feasible.

Finally, focusing on the value that solutions provide – and ignoring the hype – could make all kinds of offerings simply work better.

Ad tech and blockchain are still in their early days and are far from perfect. As Ad Ledger founder Adam Helfgott has noted, ad tech’s blockchain developments today are initial steps toward mature, systemic solutions. And if we want to set these steps down the right path, we need to be honest about what’s really working, what’s possible and what ought to be done.

Only by tackling problems with both eyes open can we create blockchain-era ad solutions that live up to the vision of what marketing technology could be.

 

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