In this second of three parts, I am going to outline the general landscape of digital marketing and ad buying as it stands today, with its middlemen and systems for brokering transactions between buyers and sellers.

“We have a media supply chain that is murky at best and fraudulent at worst. We need to clean it up, and invest the time and money we save into better advertising to drive growth.”

– Marc Pritchard, Chief Marketing Officer, Proctor & Gamble

Digital marketers must feel like ships adrift on a tempest-tossed sea. While trying to set a true course by calculating and quantifying PPC, CPM and CTR, the deck has been swaying beneath their feet. Proctor & Gamble recently cut its digital media spend by $200 million with no loss in sales. That means a bulk of their ad purchases were not reaching intended audiences.

Types of Digital Advertising

Google and Facebook are the two digital marketing channels driving the whole system. Competitors hold such a small market share as to be negligible. Together they are referred to as “the duopoly“. To understand why P&G’s ad spend was so misspent you first have to understand how these two behemoths sell digital ad space. There are three types of digital advertising:

1. Pay-Per-Click (PPC) Search | Search ads are what you get when you’ve Googled something on the web. There are two kinds, text-based and image-based.
2. Display | Display ads can be placed anywhere on a web page, and can use any digital media format including text, images, video, flash programming, or any combination thereof.
3. Social | Social ads appear on, you guessed it, social media networks. Facebook is the undisputed frontrunner with 92% market share.

Pricing Models

The Google Display Network reaches 90% of Internet users worldwide, across millions of websites, news pages, blogs, and Google sites like Gmail and YouTube.

– Google Ads home page

There is no reason to doubt Google’s own statement about its reach. They have a market capitalization of $835B. They’re more than a few hundred pounds heavier than the other gorilla in the room, Facebook, at $487.5B, which reaches 51% of Internet users. Let’s look at how they make money. There are four basic pricing models for digital advertising:

1. Cost-per-Mille (CPM) | Also known as Cost-per-Thousand, advertisers pay for every thousand views, or impressions, that an ad gets.
2. Cost-per-Click (CPC) | Advertisers pay every time users click on their ad.
3. Cost-per-Lead (CPL) | Advertisers only pay when they’ve captured certain information, such as an email address, or a name and phone number, from someone who clicked on their ad.
4. Cost-per-Action (CPA) | Advertisers only pay for more involved interactions, such as closing a sale with a credit card transaction.

Segmentation

• Demographics. Advertisers can target an audience based on a wide range of criteria. In many cases can include gender, age, buying behavior, stated income, profession, or any other information about themselves which they’ve volunteered in user profiles, or which can be discerned through other available sources. (I’ll save privacy issues for another article.) This is sometimes referred to as vertical segmentation.
• Geographics. Advertisers can also narrow their focus to geographic territories and regions. In many countries, you can target right down to the postal code level, and even within a specific radius of a given address. This can be referred to as horizontal segmentation.

Exactly how much an advertiser pays for their ads is determined by a set of sophisticated algorithms through an auction process based on the type of ad, the pricing model and the segmentation. When a user types something into a search engine or visits a website, Google uses a variety of criteria including ad quality and advertisers’ stated budgets and bid caps, to sell available ad space to the highest and most qualified bidder. Part of the advertiser’s quality score is the relevance of the ad to the keywords chosen as well as the target web page. This is to avoid bait-and-switch schemes and satisfy the user’s expectations to the greatest degree possible. Many may recall the bad old days when clicking on an otherwise innocuous ad led you to a porn site!

The Middleman

So, Google acts as an advertising broker between the sellers of advertising space (websites, YouTube content creators, blog publishers, etc.) and the buyers (digital marketers and advertisers). Not all advertising-based media rely on Google to serve up ads for them. There are a small percentage that sell their space directly to the advertisers, cutting out the middleman and retaining the profits. The reason that most sites do use Google can be summed up in one word: Trust. Because of their very sophisticated mechanisms, including their quality scoring system, sellers see Google as a very reliable source for high-quality and relevant advertising, while advertisers see Google as a portal to millions of browsers around the world that they wouldn’t have otherwise been able to access.

However, no one has control over the consumer, whose valuable information is at the core of the whole paradigm, and whose buying behavior is the holy grail of all business activity.

So what is Marc Pritchard so upset about?

• Transparency. Or the lack thereof. No one seems to know if the ads that are being purchased, especially under the CPM model, are actually being viewed by appropriate audiences. Particularly in the case of display ads on websites, it’s not known whether a particular website is appropriate to the brand being advertised. In some cases it may actually be damaging to a brand, an issue known as “brand safety”. Imagine an ad for a retirement community showing up on a children’s learning website where it’s just irrelevant, or, worse, a prescription pain killer ad displayed next to an article on opioid addiction where it appears tone deaf. Neither one is going to be very effective.
• Fraud. Website owners and publishers get paid for serving up advertising. So do YouTube and Instagram users who frequently upload quality content. Some nefarious characters have figured out that if you upload the content, and then get robotic software to mimic actual users, you can fool Google into thinking real eyes have seen the ads and thus get paid. The robots can generate fraudulent page loads or video views on multiple servers to generate higher CPM rates. The largest offender seems to be a Russian system known as Methbot.
• Measurement. Inconsistent and fuzzy measurement systems permeate the entire digital media ecosphere. While metrics like hits, views, visitors and impressions seem to have strict statistical definitions, their impact on marketing effectiveness is ambiguous at best. It doesn’t matter if an ad gets a thousand impressions, if they’re not making the right impression on the viewer. The issue of appropriateness is much harder to measure. The Media Rating Council is working to define a set of standards by which measurement can be much more effective across all media channels, including television, print and Internet.

Marc Pritchard is certainly not the only CMO with concerns. Many deep-pocketed, established brands are worried about where their money is going. But blockchain technology shows the potential of upending everything. Blockchain could put advertising sellers and buyers in direct contact with each other and, ultimately, in direct contact with the consumer. Can you imagine being paid to watch a video or read an email? It could happen.

In Part III, I am going to show how blockchain could revolutionize the way advertisers and marketers interact with distribution channels, and ultimately their customers.

Stay tuned. More to come!