The future of online advertising: Part 1

Acronym-lovers rejoice! The rise of real-time, automated trading in online advertising brings with it a swathe of new technologies, trends and terms… and marketers best get up to speed. 

Welcome to the first in a series of five articles examining the topic of data-driven, automated trading in online advertising and its implications for marketers, media buyers, publishers and their audiences. Each week over the next five weeks we’ll bring you a new instalment. 

Just under 10%. Possibly just on 10%, now. That’s the range mentioned when online advertising folk talk about the proportion of online ads currently served through automated trading in Australia, although the exact figure is not known. Two years ago, the US was sitting at less than 5%. In 2012, that figure has grown to more than 60%.

That Australia will follow a similar path to the US is not guaranteed, but it is highly probable and, if it does, estimates (guesses, really; there is presently no way to make informed projections) put the AsiaPacific real-time bidding (RTB) market at $5 billion by 2015. Even though the rate of uptake may not be the same – the number of sources of ad inventory in the States dwarfs that locally – the question is no longer ‘if ‘. It’s not even ‘when’. There is no question anymore. Very soon, you will be purchasing online advertising through automated trading. To put it simply, the rise of real-time bidding means that soon each impression will be sold individually, in the blink of an eye, bringing powerful targeting capabilities and increased efficiencies to advertisers.

DSPs – just the tip of the acronym iceberg

In marketing circles, recent talk has centred on demand-side platforms (DSPs). What are they? And what will they mean for your digital campaigns? To get a full picture of the topic, however, DSPs must be looked at in context.

Paul Fisher, CEO of the Interactive Advertising Bureau (IAB) Australia, says that focusing on particular acronyms is limiting, that DSPs is just one component of the much broader trend towards automated trading of online ad inventory through RTB, and marketers need a more rounded understanding. “Marketers certainly do need to understand how their media buying agencies are now going to evolve their planning, buying and trading behaviour on their behalf,” he says.

For advertisers, DSPs are the door to the realtime bidding ecosystem, where ads are traded on an impression-by-impression basis, in fractions of seconds, in virtual marketplaces spread over the internet.

In terms of ‘changing the game,’ one parallel being drawn is with search marketing. A few short years ago, search engine marketing (SEM) needed a serial feature like this one, which if read today would probably provide a few chuckles at the expense of our past selves’ naiveté. In two years from now, advertisers will look back and wonder how they ever survived without DSPs and RTB. The inefficiencies currently accepted as normal will make us cringe.

In a basic sense, a DSP is a technological platform used by advertisers combining several interrelated functions:

  • connection to multiple sources of online ad inventory such as ad exchanges, ad networks and publishers,
  • a place for advertisers to input the rules on which they wish their bidding to follow (for more power, add your existing customer and third part data here), and
  • a collector of analytical data for further optimisation.

For many advertisers, all of this will be handled by their media agency, although some very, very large online advertisers (e.g. Amazon) have built their own DSPs.

The automated trading ecosystem

Are you following me?

Imagine this scenario: a potential customer of your online fashion store arrives on your website one morning. She spends a few minutes browsing your range.

She looks at some skirts. She leaves. Later that day, she’s reading the finance section of her favourite news website. What kind of ads does she see? Previously, she would see ads for credit cards and retirement funds, because everyone who reads financial news must want to buy financial products, right? But what if she sees an ad for skirts? Your skirts. The very skirts she was umm-ing and ahh-ing over that morning. That’s retargeting, and not even a particularly powerful example of it (keep reading for that). It makes talk of things like ‘reach’ and ‘frequency’ seem misguided.

Fisher expands, “After 30 to 100 years of buying advertising across media, marketers can now really start to address their media specifically, whether it’s to specific marketing segments or, quite possibly, to individuals or, certainly, highly defined groups.”

The opportunities for marketers to reduce wastage are enormous, says Fisher, including the reduction of wastage across traditional media, therefore improving returns on investment. And we’re only at the beginning. Where will this be in two years’ time? Who knows?

“Something like just under 10% of all online advertising in the US traded last year through exchanges, and this year it’s expected to be 67%,” Fisher notes. “It’s astounding. Even in an industry with spectacular figures and data, that is an astonishing figure.”

Evaluating an impression

You only get out what you put in

In the previous example, our potential customer followed just one of a mind-bogglingly large number of possible paths. The legwork for advertisers, therefore, is teaching the DSP how to evaluate the value of each impression, and how to choose the best creative to serve in that impression, based on a potentially infinite number of variables. Age, sex, income, marital status. The previous five minutes’ browsing history. The previous five years’ purchase history. It’s a big undertaking. Is it worth it?

Consider this: perhaps our skirt-browser had got all the way to the checkout and changed her mind at the last minute. An offer of 10% off might get her over the line. Perhaps it’s 13 February and she just spent an hour on a dating site. An appeal to her inner romantic may get her to click. Yes, the amount of creative required to serve each potential scenario seems overwhelming, but now consider that the skirt-buyer we’ve been talking about is a thousand skirt-buyers every minute, or a home-buyer. Advertisers that go through the initial pain will reap the rewards of higher click-through and conversion rates.

Julian Tol, CEO of Brandscreen, the company that provides the ‘under the hood’ technology powering the DSP offerings of most of the major global agency groups (client names include Publicis, Omnicom, IPG, Mediabrands. Havas and Ogilvy), says companies that switch to RTB see efficiency gains almost immediately. “If you could actually lower your cost per acquisition by something like 30%, which is about what we find on average when people switch over, you’re lowering your cost of acquisition of a credit card or a flight booking by 30%, and that is a game changing number.”

Rise of the data scientist

‘Creative technologist’ is a colourful term for the people now in high demand in marketing departments and media agencies: data analysts. They are the new search marketers, possessing new and highly sought after skill sets, and as a result attracting salaries to match. Agencies and in-house marketing teams are changing structurally to accommodate them.

There is a skills change revolution going on, says Fisher, although no one really quite understands what those skills are yet. The industry is working that out on the fly, but on both the agency and publisher sides a strong combination of data-driven skill sets combined with creativity and innovation will be needed.

But the media planner is by no means dead, says Danny Bass, chief digital officer, GroupM; the only major agency group to go it alone and build their own DSP technology.

“Media planning and buying through a DSP or through traditional means still needs the skills of a media planner and buyer; it’s just that the tools that that person has have changed,” says Bass. “You’ll certainly see hosts of data analysts appearing in media groups, but the role of a media planner/buyer, although it will change, will still need the fundamentals of what has always been within that job.

“The interesting challenge is more so on the publisher side, who have extremely large sales teams, who have worked to a structure which, by and large, hasn’t changed for a long time – sales director, sales manager, group sales manager, account managers – it’s how a publisher will now change to address this new data driven economy.”

And for advertisers?

“Why should they be any different?” says Fisher. “I think that this is an industry evolution. So all players in the industry are going to have to go through a similar skills change period. If you’re a global or even a local advertiser, you need people in there who can process data, and you need people who can come up with creative and innovative ideas.”

The future

No discussion of DSPs, ad exchanges and RTB is complete without some speculation on the potential these technologies bring on a much broader scale than simply web banner ads. In the near future, RTB will take over web advertising, but it won’t stop there. Tol explains that good old-fashioned TV advertising may soon be ditching the ‘old-fashioned’ tag. “Whether it’s Apple TV or Google TV or Boxee or Netflix, there are many, many competitors that are trying to put a little box in your room to basically connect a device in your hands to a screen in your lounge to the internet.”

It’s all designed to bring television standards in line with the web, bringing the ability to identify a person (or at least a single screen), their behaviour and their preferences. “That could be, from the media company’s point of view, up to a thousand times more valuable than to deliver a ‘dumb impression’ out to the entire Australian audience, to two million people,” says Tol.

Fisher goes even further: “This is potentially going to start to encompass TV inventory, newspaper and print inventory, outdoor inventory, all media inventory. So, this is really a precursor to the way that all sectors of the media are going to be traded and bought in the near future.”

But let’s not get too far ahead of ourselves.

The take-home point is that very soon, you will be purchasing online advertising through automated trading. If it’s not already, your media agency will be throwing terms such as RTB, ATD and DSP at you this year. But with new power, comes new responsibilities. We haven’t even begun to explore the issues of transparency, privacy and brand safety this new wave of technology-driven ad buying is bringing, or for what strategic purposes it is most suited (hint: not just direct response), so over the next few months, Marketing will be taking a closer look at the implications and issues touched on here from the perspectives of all involved – marketers, agencies and publishers.


Terms to know:

Real-time bidding: The automated, split-second auctioning taking place all over the web for inventory in advertising exchanges.

Ad exchange: To publishers, it’s a sales channel for all the leftover impressions their human salesforce hasn’t sold, or whichever inventory they choose to make available for auction. To advertisers, it’s an ‘auction house’ for all that available inventory from those publishers, all in a single place. There are a handful of major exchanges globally, but in Australia the two you need to know about are Google’s DoubleClick Ad Exchange and Mi9’s Microsoft Advertising Exchange, who might maintain separate exchanges for mobile advertising.

Ad network: Like an exchange, it’s an ‘all in one place’ destination for advertisers to buy online inventory, but less technologically sophisticated, as a network more accurately a company that simply represents a range of publishers/websites and on-sells to advertisers. Network portfolios may be in one particular niche or vertical. Additionally, they can be ‘blind’, meaning advertisers don’t know which specific site they’re buying into. Ad networks have evolved over time to offer targeting based on things such as a user’s online behaviour (repeat visit’s to travel sites, for example). Google’s DoubleClick is an example of a major, global ad network, with DoubleClick Ad Exchange being a part of the same company but offering the real-time trading functionality

Non-guaranteed inventory: Also known as ‘remnant’ inventory. The leftover impressions that haven’t been sold by publishers directly to advertisers and can therefore be made available to the market for real-time bidding through an ad exchange.

Demand-side platform (DSP): The interface and technology powering it through which an advertiser plugs into ad exchange/s. The DSP is programmed by the advertiser/media buyer on what rules to follow when assessing possible bids.

Supply-side platform (SSP): Also known as ‘yield optimiser’, an SSP is the counterpart to the DSP, employed by publishers to optimise and get the best value for their inventory.

Trading desk: A term borrowed from electronic financial markets (to which the real-time bidding of ads is very similar) to refer to a ‘seat’ in the virtual market place. Media agencies have set up trading desks that utilise DSPs and other technologies to buy ad space programatically.

Retargeting: Serving an impression to an ‘individual’ (tracked via cookies, which more accurately is linked to the web browser, e.g. Internet Explorer, which is assumed to be a single person) known to have had some previous interaction with the brand. For marketers, this is where the power lies – good retargeting brings much higher than normal click-through and conversion rates.


Want to know more? Part Two of this series looks at DSPs and marketers, and what the rise of data-driven online advertising is going to mean for your brand, your department and you.