Andrew Birmingham

About Andrew Birmingham

Andrew Birmingham is the director of the Which-50 Digital Intelligence Unit.

The rise of the advertising technology industry

Andrew Birmingham has the need-to-know guide for the ever-changing advertising tech industry and the benefits you can reap.

 

To understand just how complicated the buying and selling of digital advertising inventory can be, consider the comparison of Ad Tech to Wall Street by Michael Driscoll, CEO of Metamarkets. The ad tech world processes about 400 billion transaction-like daily events, compared to the New York Stock Exchange’s 6 billion trades.

Unlike the marketing automation world, which tends to be dominated by a few global software providers, ad tech has a plethora of sub-categories with its own vibrant and often distinct set of providers. While this had its part in triggering the evolution of the sector, something more fundamental gave rise to the diversity and incredible innovation that followed, focusing on inventory as a unit of currency, as opposed to the audience (which was the publishing and media industry’s original sin).

Publishers around the world made a truly awful and self-destructive decision early on in the age of digital publishing. Rather than focusing on the value they provided, or the audience they reached, instead they tacitly agreed to compete on inventory – page impressions became the early currency as buyers held fast to the idea of cost per thousand (CPM). These days, cost per click may have emerged as a relatively uncontroversial measure, but even today it’s common to meet media buyers that want to bring everything back to a CPM.

As inventory started trending towards infinity, the marketing budgets steadfastly refused to follow suit, which turned into a glut of unsold inventory. Enter the ad networks. These companies, which started simply as third-party sales teams (hands up if you’re old enough to remember Bertini Murray) sought to initially sell remnant inventory at distress rates.

It was a seductive message for the media owners, but ultimately poisonous. By the middle of the last decade, as much as 85 percent of display inventory, in what was still primarily the desktop web, was distress inventory. In order to ensure that maximum profits could be extracted from minimum prices, the process of buying and selling needed as much friction stripped away as possible – say hello to real-time bidding platforms.

Marketers had to find a way to control the many systems that fed into their single view. which was only as accurate as the tags on their sites. This lead to the emergence of tag management, ostensibly to ensure brands are getting what they paid for.

In their description of the rise of the ad tech sector, industry analysts Gartner stated:

“The pre-digital advertising market was predominantly managed by media agencies. Digital advertising gave rise to successive waves of ad technology innovation: search advertising, ad networks, real-time bidding (RTB) marketplaces and, most recently, a landscape of programmatic providers and technologies that use data and algorithms to automate and optimise audience targeting strategies across channels and deal structures.”

According to the same source, Google is the clear leader throughout this evolution, pioneering ad tech standards and assembling a comprehensive ecosystem of solutions. Facebook is the prime threat to usurp the throne. And the scope and scale of companies like Google and Facebook has not discouraged the next wave of independent ad tech innovators.

The agencies themselves have benefitted from unsuccessful attempts by ad tech companies to sell overly complex self-service solutions directly to marketers, according to Gartner. Yet despite some success, their share of ad revenue trails ad networks and ad tech providers by a wide margin.

In its ad tech guide, the researchers at Gartner are fairly blunt about the challenges faced by marketers who want to utilise various aspects of ad tech. They see an emerging gap in digital advertising between organisations that can effectively exploit things like programmatic media and those who can’t. Efficiency and effectiveness in advertising are often at odds and gains can be difficult to realise as marketplace transactions tend to involve more intermediaries and have less transparency than expected.

Fraud and waste are common. The market’s complex and global structure attracts bad actors and many ads go unseen by human eyes. Privacy issues add further complexity and risk to digital advertising, and mobile migration is exacerbating the issue. Talent for the sector is scarce. The growth and opportunity of programmatic advertising is absorbing expertise faster than education systems can produce it.

The research also notes that the rise of data-driven ad techniques has accelerated the in-sourcing of ad operations at the brands that it supports. According to the study, companies with revenue of more than $US500 million report the percentage of digital advertising work performed internally rose from 54 percent in 2012 to 76 percent in 2014.

Early adopters of ad tech are starting to realise the benefits, which Gartner lists as:

  • Improvements in the efficiency and effectiveness of ads, as organisations are able to bring more internal sources of data to bear on targeting and buying decisions, which fuels deeper insights and advanced opportunities in the form of customer analytics delivered by ad tech.
  • New and better forms of engagement, as advertising combines with content marketing and website personalisation to create more seamless experiences.

Analysts such as Gartner have identified a number of trends they say will continue to impact ad tech in the near future, We’ll see the advancement and creation of more channels and formats, not only in the programmatic markets like TV and digital out-of-home, but also newer formats such as real-time-bid mobile and video will become increasingly significant in programmatic markets.

When combined with the continual growth of private exchanges on the desire of premium publishers to extract the maximal value, met with advertisers who will seek more guarantees and brand safety, this will give birth to more sophisticated system of unified measurement, when a single view of the customer and the campaigns orchestrated across the range of channels and devices is required.

The Gartner report sums up the opportunity and risk behind this growing sector, simply stating:

“As a fast-growing market with seemingly unlimited access to capital, ad tech is ripe for merger and acquisition activity, as well as strategic alliances, In particular, standalone components on the demand and supply sides will now feel pressure from investors and customers to expand their capabilities or risk losing their share.”

Originally published on Which-50. Reprinted with permission. 

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