In the broadcast era, advertising was concentrated on a couple of media using a series of direct negotiations. Advertising agencies managed bulk purchasing of strategic spots and used their purchasing power to negotiate the best terms for their customers—the marketers. As part of their services, the advertising agencies supported marketers with creative, media planning, and research capabilities, and thereby provided a one-stop shop (see figure 4.3). Since the audiences were concentrated and the messaging was relatively unified, the ecosystem was relatively simple.
Today’s viewership and associated advertising opportunities are far more complex (see figure 4.4). There are many more media formats. The display and apps change with the devices. Advertisers have linear opportunities, which are synchronized with the broadcast and nonlinear opportunities, where the viewership is for a previously recorded broadcast. Direct negotiations and bulk purchasing for advertising spots are being replaced with auction markets.
Figure 4.3 Direct Negotiations in the Broadcast Era
Figure 4.4 Massive Audience Fragmentation and Auction Markets
Television and radio have used advertising as their revenue source for decades. As online content distribution becomes popular, advertising has followed the content distribution with increasing volumes and acceptance in the marketplace. Digital advertising is the fastest- growing segment of the advertising business. In the first quarter of 2013, Internet advertising had already exceeded $9.6 billion, which represents a 15.6 percent increase from one year earlier, according to the Interactive Advertising Bureau (IAB) and PriceWaterhouseCoopers (PWC). “Consumers are turning to interactive media in droves to look for the latest information, to connect with their social networks, and simply to be entertained,” IAB CEO Randall Rothenberg said in a statement. “This first-quarter milestone clearly illustrates that marketers recognize that digital has become the go-to medium for all sorts of activities on all sorts of screens, at home, at the office, and on-the-run”6 Based on a study by eMarketer, per capita digital advertisement per capita spending in the United States in 2013 was projected at $201, while total media spending was $404. There are over 272 million Internet users and 152 smartphone users receiving a fair amount of attention from digital advertisers. Australia, Norway, and the United Kingdom are currently ahead of the United States in per capita digital advertisement spending.7
Traditional advertising was driven by reach and opportunities- to-see. A traditional advertiser could not accurately determine who saw the advertisement, and what they did when they saw it. An elaborate system of reported information was used to predict advertising effectiveness. Nielsen provides comprehensive panels today for statistically projecting television audience information and, along with their shopper survey, this information in addition to census data is used for projecting campaign effectiveness.
Google delivered a major disruption in the advertising marketplace by offering measurements and payments based on advertising clicks. Once an advertisement is placed on a browser screen, the click-rate measures its effectiveness in getting noticed by the customer. The next wave of changes came with real-time bidding for advertising. In the online advertising world, publishers such as Google Adworks offered a bidding process in which advertisers bid for placing their advertisement. In less than 100 milliseconds, Google collects a number of bids for each advertising opportunity and decides which advertisement(s) to display on the screen. Once the screen is displayed, the user action (i.e., the click) is captured and reported.
The online advertising food chain is also becoming increasingly sophisticated. The digital advertising market is rapidly moving toward real-time-bidding involving publishers, advertisers that use a complex network of demand-side platforms (DSPs), supply-side platforms (SSPs), and big data driven data-management platforms (DMPs), as shown in figure 4.5. Online advertising provides a tremendous opportunity for advertising to a micro-segment and also for context-based advertising. How do we deliver these products, and how do they differ from traditional advertising?
The advertiser’s main goal is to reach the most receptive online audience in the right context, who will then engage with the displayed ad and eventually take the desired action identified by the type of campaign.8 Big data provides us with an opportunity to collect myriads of behavioral information. This information can be collated and
Figure 4.5 Digital Advertising Marketplace analyzed to build two sets of insights about customers, both of which are very relevant to online advertising. First, the micro-segmentation information and associated purchase history described in chapter 3 allow us to establish buyer patterns for each micro-segment. Second, we can use the context of an online interaction to drive context-specific advertising. For example, for someone searching and shopping for a product, a number of related products can be offered in the advertisements placed on the web page.
Over the past year, I found an opportunity to study these capabilities with the help of Turn Advertising. Turn’s DSP delivers over 500,000 advertisements per second using ad-bidding platforms at most major platforms, including Google, Yahoo, and Facebook. A DSP manages online advertising campaigns for a number of advertisers through realtime auctions or bidding. Unlike a direct buy market (e.g., print or television), where the price is decided in advance based on reach and opportunities to see, the real-time ad exchange accepts bids for each impression opportunity, and the impression is sold to the highest bidder in a public auction. DSPs are the platforms where all the information about users, pages, ads, and campaign constraints come together to make the best decision for advertisers.
Let us consider an example to demonstrate the flow of information and collaboration between publisher, ad exchange, DSP, and advertiser to deliver online advertisements. If a user initiates a Web search for food in a particular zip code on a search engine, the search engine will take the request, parse it, and start to deliver the search result. While the search results are being delivered, the search engine decides to place a couple of advertisements on the screen. The search engine seeks bids for those spots, which are accumulated via the ad exchange and offered to a number of DSPs competing for the opportunity to place advertisements for their advertisers. In seeking the bid, the publisher may supply some contextual information that can be matched with any additional information known to the DSP about the user. The DSP decides whether to participate in this specific bid and makes an offer to place an ad. The highest bidder is chosen, and their advertisement is delivered to the user in response to the search. Typically, this entire process may take 40-80 milliseconds.
A DMP may collect valuable statistics about the advertisement and the advertising process. The key performance indicators (KPIs) include the number of times a user clicked the advertisement, which provides a measure of success. If a user has received a single advertisement many times, it may cause saturation and reduce the probability that the user will click the advertisement.
A DMP can be effectively used to understand micro-segments and the advertising focus on these micro-segments. For example, by tracking spending on online advertising, Turn has been able to collect valuable insights about the “digital elite” segment:
“Marketers are beginning to understand the benefit of engaging the “digital elite” audience for their own brands and having a conversation with them across channels” says, Paul Alfieri, vice president of marketing, Turn. “In 2013, there’s been a 200% increase in our customers’ use of paid data to target campaigns across mobile, display, video and social, and the payoff is clear in the lift in results when they reach consumers through all the media they touch” Global marketers now have an unprecedented opportunity to reach across channels to engage in meaningful conversations with consumers moving from device to device, shifting formats and media. A recent Forrester study reveals that 90% of adults use three different device combinations to complete one simple task, such as booking a restaurant table or buying a pair of pants.
And the increased time consumers spend watching videos and checking Facebook is being noticed by marketers and matched with ad spending from New York to London, from Sao Paulo to Tokyo. In 2013, we see brands ramping up quickly to keep pace with ever-moving consumers, following them across mobile, video, display, and social media”
If the DMP were noticing a new breed of multichannel shopper, how would a marketer gear up multichannel marketing to influence such shoppers? Let me use the next section to delve into the new world of multichannel shoppers.