Navigating the challenges to succeed in ad tech
Bridie Barrett, media analyst at Edison Investment Research, explains how ad tech companies can overcome the main challenges facing them day-to-day
Digital advertising is booming. Globally, $170bn will be spent by brands on digital advertising this year and eMarketer expects it to grow at a 13% CAGR to 2018. This growing spend and the fragmented nature of digital audiences is fuelling the rapid expansion in the number of ad tech providers â the intermediaries whose platforms power the digital advertising ecosystem by matching supply and demand for advertising space.
Given the size of the market, the prize for the best performing platforms is potentially significant. However, the industry is beset by challenges, led by fundamental shifts in platform, technology and format, and compounded by the threats of fraud and ad blocking. Ad tech companies hoping to capitalise on the opportunity will have to find the solutions to these challenges in order to succeed.
Managing the transition to mobile
The move to mobile is the dominant trend. eMarketer forecasts the global mobile advertising industry to grow at c. 50% p.a. to over $100bn by 2016, overtaking desktop in many key markets. As consumers move in ever greater numbers towards mobile platforms, the companies behind the digital infrastructure of advertising must evolve in tandem with the market and seamlessly deliver the same quality of user experience.
Although this is especially relevant for companies still focused on desktop, the sea change forces all providers to keep pace with the new technological standards as this is not just a question of platform, but also of format. Users are typically receptive to different types of content while on the go, with emphasis on richer, more visual and less text heavy ads.
Overcoming fraud
The measurability of digital ad impressions should be one of the great attractions the sector has to offer. Ad tech fraud, however, which manifests itself as âbotâ online traffic or ads rendered invisible by being stacked on top of each other, inflates estimates of viewership and distorts the accuracy of recorded impressions. This could represent over a third of all traffic, according to the Interactive Advertising Bureau (2014).
Exchange providers are tackling fraud by using a combination of blacklists and proprietary technology to filter traffic for fake impressions. To achieve this they are also partnering with service providers such as Fraudlogix to fight blocked IPs or Nielsenâs Digital Ad Ratings for third-party evaluations of advertising reach.
These efforts have a record of raising click-through rates and prices as they improve inventory control. Significant commitments, however, come at a cost. AppNexusâ imposition of extensive traffic filters, for example, resulted in transactions on the exchange falling by two thirds.
Developing these credible frameworks to justify their metrics is essential for quality players to build a reputation for trusted service with a reliable ROI. A failure to do so could accelerate the already ongoing migration towards the private exchanges of tech giants such as Facebook and Google.
Reaching consumers in spite of ad blocking
The rising adoption of ad blocking software, already used by an estimated 200m users worldwide, is adding to the woes of the sector. As the most immediately affected, publishers are taking steps to counter this, e.g. with Axel Springer recently banning visitors armed with ad blockers from the hugely popular Bild website.
This battle inevitably spills into the ad tech sector – partly because altering platforms to counter blocking software often interferes with the properties that make ads easy to track and serve. Close collaboration between exchange providers, publishers and indeed the users of ad blockers will be essential to address this growing threat.
The technical hurdle of native advertising
The expansion of native advertising â content curated to blend seamlessly into the host website, such as sponsored articles â sets a high bar for the technical agility required of ad tech providers. An abundance of different formats is emerging, and with it the difficult task of efficiently trading media space and filling it with adapted content.
The picture is further complicated by the rapid increase in programmatic real-time bidding (RTB) for impressions. Altogether the various types of programmatic exchanges are expected to account for over 80% of all display advertising spend by 2018. To make the most of this, companies have to invest heavily in the technologies behind their ecosystem and take them to the next level in terms of machine learning and technological flexibility.
There is plenty of change still to be expected, then, for the exciting field of ad tech. In order to succeed against this competitive backdrop and attract the investment they need, providers will need to demonstrate exposure to growth areas such as mobile and video, a clearly defined product and strategy that will ensure they outgrow the market, deep and recurring relationships with quality customers and a reputation for verifying the quality of the service they are selling.