The challenge facing the online advertising market10/07/2012 15:02 by Chris Cox
Online advertising is a big deal; in 2011 approximately £4.8bn was spent in the UK alone on this medium, a rise of over 14 percent on 2010. The biggest growth area within this is the Real Time Bidding (RTB) market. RTB allows advertisers to specify a consumer type they want to target, the site they want to target them on, and then bid against competitors to display their particular ad. This happens at a rate of billions of slots for ads being auctioned every day, and has led to the creation of a highly complex and extremely rewarding system, both for advertising agencies, and the businesses which use them. However, the problem is that like any complex and established system, it is at risk of disruption if the underpinnings of this system start to unravel. New technology is emerging which begs the question, is that disruption about to occur?
To service the demand for data, online tracking has increased exponentially in recent years. Advertisers and big data retailers can use tracking cookies to build a surprisingly detailed footprint of individual internet users. On the 50 most visited websites, data collection volume increased 400 percent year-over-year since November 2010, according to new research by Krux Digital. What does that mean in real terms? According to Krux, “the average visit to a web page [within the top 50 sites] triggers 56 instances of data collection.” Thus, a model has emerged based on advertising agencies tracking the consumer online in real time. Without that knowledge it’s impossible to know which ad is being shown to which consumer. With online advertising revenues set to pass print ad revenues this year, the need for targeting has never been so critical. And yet, this is the fundamental weakness of the model as it stands.
Consumers have become progressively aware of tracking, and for some, the level of data scraping is too much. This has led to the creation of technologies like Ad Aware, which can remove and block tracking cookies, and AdBlock, which uses a variety of data sources to identify and block ads from appearing on user’s screens, rendering tracking cookies irrelevant. Previously these might have been the preserve of the privacy conscious, but increasingly the technology is built direct into the internet browser.
There are also moves to create an international “Do not track” (DNT) standard for websites, which would give consumers more rights whilst adding another stumbling block for advertising agencies, and the businesses that use them. DNT is a setting contained in most browsers which tells any site you visit that tracking is not welcome, if the user chooses to enable it. Right now, sites have to make it clear there are tracking cookies in use but DNT is not a legal standard, although European regulators are starting to take a tougher stance, saying that consumers should be prompted by their browser to ask if they want to turn DNT on, with an explanation of what it means to do so.
The fact that such a standard is being discussed reveals a well-known truth: people want to control their data, whilst advertisers and big data resellers want to possess and monetise it. Of course, the market is reacting; Twitter recently moved to adopt the DNT, whilst Microsoft is indicating that Internet Explorer 10 is likely to ship with DNT turned on as standard, stating the move was “an important step in the process of establishing privacy by default, putting consumers in control and building trust online.”
With such significant disruption on the horizon, it’s not surprising that some new models are being considered to enable advertisers to continue to target consumers. One novel idea is being proposed by the creators of the site Megaupload. Despite well-publicised legal troubles, they claim to be on the cusp of launching “Megabox”, a service which will provide free music to users. The catch is that in order to access music, you have to download an app which will put advertising in your browser, or you can pay a monthly amount for ad-free access. Similarly, apps like Angry Birds have been successful by providing ‘in-game’ advertising in return for free versions of the app.
Ultimately though, it is user preference that will guide the market. Whilst internet users express a broad preference towards greater privacy online, the reality is far muddier, with consumers often giving their data away, whether knowingly or unknowingly. However, as the technology to better secure privacy becomes more accessible, in particular with consumers being prompted by their browsers, it may well be that advertisers have to start to find new ways to target consumers.
What isn’t in doubt is that disruption is coming, whether consumer driven, inspired by a corporation or imposed by regulators. Whoever is able to find a solution may be first off the mark in reaping the rewards of this major advertising sector.
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