Digital advertising is the focus of almost every brand’s marketing spend. As online ad space has become the dominant channel over the past several years, weaknesses in the system have resulted in fraud, inaccurate data, and financial losses. It costs the industry millions on a daily basis and leaves its stakeholders vulnerable to misrepresentation online.
The problems that technology helped create, however, may also be solved by technology. Blockchain, a distributed ledger system with trust built into the rules of the network, can help solve the serious issues faced by all industry stakeholders. The promises of blockchain are not without detractors, however, who claim the technology has not evolved enough at this point to have practical use.
Blockchain and Its Relevance to Advertising
Description of Blockchain
Most people identify blockchain with its most famous application: Bitcoin. The digital currency functions independently of centralized financial networks on a peer-to-peer network. Blockchain is a decentralized ledger that is simultaneously updated by all members of the network. A blockchain’s rules can be updated, but only by consensus of the network — not by hackers or rogue actors.
The name “blockchain” comes from the technical way the system works: Each transaction is given a particular identification or hash, that is part of a mathematical problem that must be solved in order to complete a block of transactions. Because each transaction builds on the previous one, they cannot be reversed or erased. The same white paper that created Bitcoin in 2009 also laid out a detailed framework for blockchain.
The key feature of blockchain is the trust built into how the network functions. There is no need, at least in theory, for a middleman, or third party, to verify a transaction. In the financial world, it means moving currency between individuals without having to go through a bank. It also means using currency not backed by a government, but created through the verification process of transactions. This is why Bitcoin was promoted by its advocates as a disruptive force in modern finance.
Relevance to Advertising
A blockchain can be used for almost any kind of data. Another common phrase, “distributed ledger technology,” is often used to distinguish other blockchains from the one associated with Bitcoin. A DLT can track real estate transactions, supply chains, the sale of goods — or advertising contracts. In the world of programmatic advertising, now the dominant focus of most advertisers, fraud is a significant issue. Blockchain’s built-in trust network that pairs decentralization with transparency may be applied to reduce this fraud, potentially saving advertisers billions.
There are many variations of how this might occur. One example is the use of “smart contracts,” a feature of the Ethereum blockchain. A smart contract executes automatically once triggering events have happened: such as a programmatic ad buy and verification of legitimate ad impressions. A new group of stakeholders in the advertising industry launched the Adschain Consortium to reduce fraud and increase transparency in programmatic ads, but this is just one potential use for blockchain. Industry leaders hope it may reduce the dependence of digital advertisers on the duopoly of Google and Facebook.
Advertising Issues Blockchain Can Potentially Solve
Fraud in Programmatic Advertising
According to a 2017 study conducted by 16 programmatic advertisers, the industry loses $1.27 billion due to fraud. The amount of available ad inventory on premium publishers was vastly overstated. Programmatic platforms received 57 times as many video callouts as was available on the group of domains analyzed and four times as many display callouts. In essence, this means the system that was buying ad space was buying space not actually available on those domains. As a related issue, spoofed URLs — meant to trick both automated systems and perhaps online human visitors — are an increasing problem.
The Interactive Advertising Bureau (IAB) has attempted to give advertisers a tool to fight back against this phenomenon, by launching the ads.txt tool in May 2017. This allows publishers to create a list of authorized sellers and permits advertisers to screen available advertising inventory in advance. That way, programmatic advertisers can make sure the ad inventory they are buying is not counterfeit. In December 2017, tech company Kargo claimed 100 percent compliance through the use of ads.txt.
In February 2018, the IAB produced a white paper on blockchain and its role in online advertising. The organization concluded that implementing blockchain technology could increase transparency, reduce costs and improve efficiency. Notably, the IAB not only said blockchain could eliminate fraud of the kind that is costing the industry billions, but it also claimed the network could reduce the number of queries that programmatic systems had to make, streamlining the ad buying process.
There will always be some brands who do not want to use programmatic advertising, choosing instead to carefully choose their sponsored relationships in order to maintain brand image and integrity. But programmatic advertising has largely overtaken traditional forms of marketing to the extent that it now dominates the industry, and as a result, fraud affects a large segment of online marketers and cannot be ignored.
Discrepancies on Ad Impressions
Programmatic ad buying has flaws that leave it vulnerable to exploitation by fraudsters. There is also an additional issue of the validity of ad impressions. Different systems may calculate these impressions differently, and therefore stakeholders in the ad buying process may disagree about the value of a certain campaign. In addition, bot traffic continues to be an issue across all platforms. The Association of National Advertisers issued a report on fraudulent bot traffic in 2017 and recommended that media contracts refuse payment for impressions created by non-human traffic.
Analysts have argued that a blockchain ledger could solve at least part of this problem. With a smart contract that has specific criteria that must be met in order for the obligations to be concluded, the result is fewer disagreements at the end of a campaign. As one observer noted, if a platform says there were 20,000 impressions, while the publisher says there were 22,000 and the advertiser says there were 19,000, it takes negotiation before the issues are settled and all parties are appropriately compensated. Blockchain avoids these conflicts by helping to establish a transparent and agreed-upon set of metrics.
In addition to ad impressions, smart contracts could, of course, also be utilized to ensure all elements of an advertising contract — even in the world of programmatic advertising — are properly adhered to. The benefits of trusting the blockchain in the execution of the contract are dependent upon its constituent elements being satisfied first, allowing for a fairly reliable common understanding of terms and their status of completion.
Reduced Reliance on Google and Facebook
In the world of digital advertising, Google and Facebook are behemoths; they account for the lion’s share of advertising for marketers. Marketing Dive reported in September 2018 that Google controls 37.1 percent of digital ad revenue; Facebook 20.6 percent; and Amazon in third place, but still well behind the big two, at 4.15 percent.
This poses an obvious series of issues for advertisers: Although advertising through Google or Facebook puts them on par with other marketers, it also puts them in direct competition with others seeking the same audience. Importantly, Google and Facebook control the methodology by which ads are displayed to users. Changes in algorithms and internal policies can and do happen without advertiser knowledge or consent, directly affecting revenue.
There is room, therefore, for new players in the industry who will link advertisers with publishers. Startups in the space are using blockchain to streamline this task, perhaps creating an emerging industry of advertising potential that exists outside of the Facebook and Google ecosystems but still allows brands to meet their marketing goals. These innovations are still not yet widespread, however, in part because digital advertisers are closely monitoring their marketing dollars and are not yet ready to risk experimenting with a new solution with uncertain results.
Where Blockchain Currently Falls Short
In many ways the word “blockchain” suffers from a halo effect: It is often cited as the solution to a variety of woes, from financial impropriety to lack of transparency in the food chain. The promise of blockchain has not yet been fully demonstrated, despite the high hopes of those across industries who would laud its potential to make many aspects of the economy work better and work more fairly.
In advertising, there are notable roadblocks to the cure blockchain is asked to provide. Two of the most identifiable are the speed of transactions and the reluctance of marketers and platforms to take a risk on a new way of buying and selling advertising. The ability of the industry to overcome these issues depends in large part on the analysis undertaken within the industry and whether it is blockchain or, as some commentators have argued, other solutions like artificial intelligence that are best equipped to attack the issues of online advertising.
Blockchain’s Sluggish Speed
Programmatic advertising transactions happen, by necessity, at rapid speed. IAB guidelines allow for a 100-millisecond window for responses for a real-time auction. In practice, those responses typically come in under 75 milliseconds. By comparison, the most famous blockchain application, Bitcoin, processes about seven transactions per second. That transaction speed is distinct from the average confirmation time, which varies according to the amount of traffic on the Bitcoin network and, historically, has experienced wide fluctuations.
It is vital to note here, however, that different blockchains have different processing times. By one estimate, Ethereum completes 15 transactions per second and Ripple completes 1,500 per second. That is well below the Visa network, to which financial blockchains are so often compared, at 24,000 per second. But the fact that developers are able to create networks that rely on blockchain technology and offer the necessary speed for the network to be of practical use is significant, and a sign that speed may increase in the future.
At the moment, however, it is hard to envision a blockchain that simply moves quickly enough to meet the IAB guidelines for ad response times. It is a weakness that, perhaps, could be solved by the use of blockchain in conjunction with another set of fraud detection and prevention applications, such as the ads.txt coding. However, broad adoption of programmatic ad buys based solely on blockchain technology currently seems far away.
Reluctance to Adopt New Platform
Stakeholders in advertising are dependent on current platforms and may be reluctant to engage in a wholesale shift to a new way of doing things — especially if results are not guaranteed. For that reason, the promise of blockchain technology in advertising may stay in the theoretical stages until some segment of the industry is willing to develop and execute test cases that will demonstrate the technology’s specific value.
Where Blockchain Could Go in the Future in Advertising
Despite the many unknowns, blockchain could prove to be an important step towards increasing efficiency and transparency in online advertising. As the digital ad space only grows, it is essential stakeholders take steps to prevent fraud and eliminate bad actors. Although its specific role is still largely unknown, the technology of blockchain could make online marketing a level playing field for anyone who wants to play by the rules.
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