Download Lecture 11 Slides

The Economics of
Digital Advertising
March 17, 2016
Jeff Gottlieb
Associate Manager, Media Services
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Agenda
» General Survey
» Basics of Display Advertising
‣ How Real Time Bidding Works
‣ Ways to Buy Display Advertising Online (How the Market Works)
‣ Challenges to the Digital Display Ad Industry
» Basics of Facebook Advertising
‣ How does Paid Social differ from Display?
‣ Challenges of Advertising on Facebook
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General Survey
Besides print and TV,
where are you seeing
ads? What forms do
they take?
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Basics of Display Advertising
How Does Real-Time
Bidding Actually Work?
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How the Digital Display Market Works
» Buyers (Advertisers, Agencies, Trade Desks)
‣ Goal: Maximize ROI/ROAS (or minimize Key Performance Indicator, or KPI)
‣ To do this, buyers try to purchase inventory (ad space) on websites at the
lowest possible price
‣ Use Demand Side Platforms (DSPs) and the DSPs’ proprietary algorithms to
optimize towards a certain KPI, such as Cost Per Sale (CPS) or Cost Per
Order (CPO)
» Sellers (Websites, Publishers)
‣ Goal: Maximize Revenue from selling ad space
‣ To do this, sellers try to sell their inventory at the highest possible price
‣ Use Supply Side Platforms (SSPs) to find marketplaces where they are able
to auction off their ad space at the highest price possible
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Different Ways in Which Display Advertising is Bought and Sold
» Traditional Direct Buys
‣ Advertiser and Publisher make deal offline, advertiser sends creative assets
to Publisher, Publisher serves the ads
‣ Only one buyer, only one publisher
‣ Usually very high prices due to premium inventory
» Automated Guaranteed Buys (Direct Deals)
‣ Exactly the same as traditional direct buys, except negotiation and
agreements happen online through special platforms (i.e. iSocket)
‣ Prices still high due to premium inventory
‣ Only one buyer, only one publisher
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Different Ways in Which Display Advertising is Bought and Sold, Continued
» Private Marketplaces (PMP)
‣ Publisher makes packaged deals of inventory (may not be best quality
inventory) with a price floor
‣ Advertisers make agreement with Publishers to run on these packages (a few
advertisers to one publisher)
‣ SSP creates Deal ID on behalf of Publisher and sends this deal ID to Advertisers
‣ Advertisers input Deal ID to target inventory in their DSPs
‣ Auction occurs for this inventory across these advertisers (like RTB, but instead
of a lot of bidders, there are only a few)
» RTB
‣ No deals are negotiated
‣ Publishers sell inventory through SSPs and ad exchanges
‣ Advertisers bid on inventory through DSPs
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Main Challenges Facing Digital Display Advertising Industry
1) Viewability
2) Ad Fraud
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Viewability
» According to the IAB (Interactive Advertising
Bureau), an ad is considered to be in view if the
following requirements are met:
‣ Standard ads: 50% of the ad is in view for more than 1
second
‣ Video ads: 50% of the ad is in view for more than 2
seconds
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Why is Viewability an Issue?
» In the end, if a person does not seen your ad, you are throwing ad
spend away
» Consider an ad “above the fold” and an ad “below the fold” that
are both served on an ESPN webpage
‣ An “above the fold” ad loads immediately on to the page without the user
need to scroll the page
‣ A “below the fold” ad will also load immediately on to the page, but the
user has to scroll down in order to see the ad
‣ The user finds a link to an article he/she wants to read that is located
“above the fold,” and he/she clicks the link and leaves the page
‣ The money used to buy that “below the fold” inventory is wasted because
the user never scrolled down to see it
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Steps Taken to Solve Viewability and More Challenges
» Pre-bid technologies to target inventory that is viewable
‣ Advertisers can target inventory in their DSPs that has been declared or
deemed to be viewable
» More and more publishers are declaring what inventory is above
or below the fold out of necessity
» However…
‣ Viewability measurement is currently limited to only desktop devices
(desktop computers and laptops)
‣ Mobile devices (smartphones and tablets) have no metrics to report out on
the viewability of ads
‣ Big issue here: people are gradually moving away from desktop devices and
using mobile devices much more
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Ad Fraud
» Ad Fraud is the fraudulent selling of online ad
space, where most of the time ads are not seen
by humans
» In other words, advertisers are buying
impressions that are not actually real
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Ad Fraud, Continued
» How is this being done?
‣ Program-based: Malware & Bot Traffic
⁃ Fraudulent activity driven by code that impersonates real web site visitors
‣ Pixel stuffing
⁃ Placing an ad’s code into 1x1 pixel in an ad-supported portion of a website
(placement), making the ad unviewable. Most times, two ads are “served” in
one location
‣ Ad Stacking
⁃ Placing more than one ad on top of an ad-supported portion of a website
(placement), thus only allowing the top ad to appear
‣ Companies Selling of Fake Traffic and Publishers using them to boost traffic on their
site(s)
‣ Setting up fake websites and content, and using proxies to fool platforms
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Why Ad Fraud Is Bad News for the Industry
» How rampant do you think ad fraud is?
» How much media spend from advertisers was lost due to ad fraud
in 2015?
» What steps are being taken in the right direction?
‣ Ad Verification Tools and Pre-Bid Technologies in DSPs
» Is the situation getting better or worse?
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The Rise of Mobile Advertising
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The Rise of Mobile Advertising
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Let’s Pivot A Bit and Talk About…
Advertising on
Facebook!
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How Does Buying Ad Space on Social Networks Differ from Display?
» How auctions are won are much more “black box”
‣ In regular display, quite simply, if you set your bids high enough, you will
win the auction
‣ In Paid Social Platforms, like Facebook, not only is your bid amount
considered, but so is the actual quality of your ad!
‣ Thus, the “equation” for a final Facebook bid is the following:
Final Facebook Bid = Bid Amount x “Ad Quality Score”
‣
‣
This “equation” is very similar to how a paid search ad on Google works
Many factors go into the “Ad Quality Score,” such as relevancy to a target
audience and quality of the image used, to name a couple
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How Does Buying Ad Space on Social Networks Differ from Display?
» No measurement for fraud nor viewability!
‣ Social Networks do not allow third party companies to track these ads, for
fear personal identifiable information (PII) will be stolen
‣ Because human action is needed to create social network profiles, paid
social networks assume that when they serve an ad to a profile, they
assume a human is logged in
‣ Ads live in the feeds, and live there forever!
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Main Challenge: Battling the Black Box
» Unfortunately, a lot of the factors that go into “ad quality score”
on social networks are out of the advertisers control, and
advertisers are mostly at the mercy of the black box
» There is, however, one thing an advertiser has complete control
over…
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Images and Cutting Through the Clutter of the Newsfeed
» Advertisers are in complete
control of what images go
with their advertising
» Thus, the emphasis for
advertisers is to use
compelling images in their
ads that will catch users’
attention and make them
engage with the ads.
» This is done through likes,
shares, comments, and clicks
through to advertiser
websites.
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Native Advertising (aka The Balancing Act)
» Native ads fit into the
website but need to stand
out from the clutter to
increase engagement
» This is where photography
plays the key role
‣ Stunning image that stands
out on the website but
looks naturally part of the
interface
‣ Increased emotional
engagement translates into
likes, shares, favorites,
retweets, etc.
22
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The Future of Digital Advertising – Mobile, Mobile, Mobile
» Main areas of growth
‣ Paid Social (Facebook,
Twitter, Instagram!)
‣ Native advertising
‣ Mobile video
» Main area of divestment
‣ Traditional banner ads
23
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Mobile, Social, and Native Ads
» Integration of social media and mobile
has been a huge factor in driving native
ad innovation
» Scroll instead of search
‣ Social content is a stream (i.e.
Facebook Newsfeed), with all user
attention on the stream
‣ In-line content better than browsing
24
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The Future of Digital Advertising – Where Are We Headed
» While desktop still plays a major role in the industry, mobile and
paid social platforms offer a lot more opportunity of growth in the
digital ad space
‣ For example, ad space in mobile apps is growing exponentially
‣ More social networks, such as Pinterest and LinkedIn, are just
dipping toes into advertising
» Thus, finding solutions for ad fraud and viewability on mobile
devices and social networks/apps are becoming more and more
important in the digital landscape
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