Four Key Trends Shaping the World of Digital Advertising By Thomas Baldwin

Contact: @thomas_baldwin � baldwint@wharton.upenn.edu

In this analysis, I address two key questions: What essential elements distinguish modern

day digital advertising from traditional advertising? And – perhaps more importantly – what key

trends are currently shaping the online advertising industry? I argue that four primary factors

distinguish digital advertising from the traditional advertising of yesteryear: interactivity,

measurement, personalization, and transcendence. Additionally, I assert that four key trends are

reshaping the world of digital advertising as we know it: real-time technology, big data-enabled

targeting, multi-screen ubiquity, and the social-mobile nexus. Read on to learn more.

Digital advertising is the promotion of goods and services via the internet. The ultimate

objective of digital advertising is the same as that of traditional advertising: to engage consumers

through media channels in a way which incentives the purchase of a given company’s products.

Ultimately, the same corporate priorities drive all forms of advertising, whether digital or

traditional. Increased consumption of given corporate entity’s goods leads to greater revenues

and profits, thus satisfying the company’s fiduciary responsibility to its stakeholders.

While both digital and traditional advertising share the same fundamental raison d’etre,

they vary dramatically in a number of important operational respects. For the sake of expediency,

I will not touch upon on the entire universes of differences which separate these related fields,

but rather focus on the most important and obvious dissimilarities. In my view, four key

elements distinguish digital advertising from traditional advertising: interactivity, measurement,

personalization, and transcendence. I will briefly address each of these in turn.

Interactivity refers to the ability of digital advertising to create a back and forth dialogue

with a particular consumer or target demographic. Digital advertising is not simply about

delivering a passive impression; rather, it is about interactive outreach that incentives a particular

action, whether a click, the viewing of a video, a “like,” a “tweet,” or an on-the-spot purchase.

Meanwhile, traditional advertising is largely passive. It appears in magazines, newspapers, on

billboards, or television, and while it may leave an impression on the viewer, it lacks the ability

to elicit an immediate response.1

Digital advertising enables high degrees of measurement and information gathering.

Through the utilization of tools like cookies, and further empowered by the rise of big data,

advertisers and publishers alike can obtain vast amounts of data regarding the consumers they

engage with via online advertisements. Measurement enables more targeted delivery of ads, and

provides more precise tracking of return on investment. Traditional advertising, by contrast, is

not conducive to measurement. It is difficult to determine how many people performed an action

after viewing a newspaper ad, while such measurement is relatively easy in an online

environment.2

Digital advertising is highly personalized and targeted. The measurement mentioned in

the prior paragraph enables ad networks and publishers to serve up targeted demographics that

meet criteria of interest to specific advertisers. Facebook, for example, allows advertisers to

quickly and easily filter their target demographic by age, geography, areas of interest, and other

criteria, enabling the serving of ads to specific populations in a highly cost effective manner.

While some targeting is possible with traditional advertising – for example, ads in a magazine

1 Stephen Powers and John Rymer, “Unify The Digital Experience Across Touchpoints,” Forrester, 8/22/2012

2 David Cooperstein, “The Future of Media Measurement,” Forrester, 1/15/2010

that appeals to gardening enthusiasts – the level of personalization and filtering available in the

online world vastly exceeds that of the offline world.

Digital advertising transcends boundaries that limit the reach of traditional advertising.

Spatial and geographic constraints mean that traditional advertisements, whether in magazines,

newspapers, or on television, will primarily reach local, regional or national audiences. Online

advertisements, by contrast, are accessible to virtually anyone with an internet connection. In the

offline world, publishers have limited reach because billboards, newspapers and magazines

cannot easily obtain global scale. With digital advertising, publishers such as Google, Microsoft,

and Facebook can truly deliver global audiences (except in certain circumstances where they are

blocked by national governments, such as that of China).

In this remainder of this paper, I argue that four key trends are shaping the online

advertising industry: real-time technology, big data enabled targeting, multi-screen ubiquity, and

the social-mobile nexus. These trends are fundamentally altering the ways in which marketers

approach and interact with consumers. Finally, it is important to recognize that these trends do

not operate in isolation; to the contrary, they are deeply interrelated, and play off each other in a

variety of multiplicative and synergistic ways. In the following pages, I examine each of these

trends more closely, with an eye towards identifying the ways in which they are conditioning the

development of the digital advertising industry.

The first trend we will explore is the increasing proliferation and use of real-time

technologies within the online advertising industry. In the early days of the internet, online media

buyers placed ads by interfacing with sales teams at web publishers, such as Netscape and AOL.

These were person-to-person interactions between advertisers and publishers that resulted in the

sale of premium inventory, the display slots that appear on the homepages of highly trafficked

web properties. While the nature of the internet means that almost any page with content that

attracts eyeballs can be a source of ad inventory, the manual nature of the early online ad sales

process prevented remnant inventory (ad slots that appear on less highly trafficked pages within

a given publisher’s site) from being filled on a real-time basis at prices attractive to advertisers.

This represented a massive long-tail of unrealized value creation, both for publishers as well as

for advertisers.3

Recognizing the inefficiencies associated with unfilled remnant inventory, technologists

within the online ad industry began working on platforms that would allow publishers to sell

remnant inventory on a real-time basis to advertisers looking to supplement their premium

purchases with remnant impressions. Advancements in technology, coupled with improved data

transfer speeds, slowly made real-time bidding a possibility. In layman’s terms, real-time bidding

platforms provide the technological backbone that supports the bidded buying and selling of

online advertisements within ad exchanges.4,5

The increasing use of real-time technology is upending the way in which marketers

approach the ad purchasing process. Sales-force driven purchases of inventory are on the decline,

as real-time platforms make it cheaper and easier to engage in programmatic buying of both

premium and remnant inventory. Real-time ad exchanges have made vast amounts of previously

inaccessible remnant inventory available to advertisers at attractive prices. This, in turn, has

helped accelerate the amount of ad dollars going to the digital portion of the overall advertising

pie. Similarly, in many global markets, there is a significant disconnect between the rate of

3 Interview with Allison Sanbongi of AppNexus

4 Shar VanBoskirk, “Demystifying the DSP,” Forrester, 3/2/2010

5 Joanna O’Connell, “Making Sense of the Digital Media Buying Platform Landscape,” Forrester, 12/7/2011

online media consumption, and the amount of ad dollars going to digital impressions. Real-time

enabled programmatic buying allows advertisers to leverage audience data to make measurable,

high-ROI ad purchases, helping bring online ad spend more in line with online’s share of

eyeballs. In short, real-time technologies are allowing marketers to approach ad buying in a more

efficient, informed, and cost-effective fashion than ever before.6

The second trend we will examine is big data enabled audience targeting. Big data refers

to the processes and challenges associated with parsing massive data sets collected in fields such

as internet search, genomics, and finance. As new forms of sensors and monitors capable of

collecting data become ubiquitous in modern-day society, the amount of information that is

available for processing and analysis is growing at an unprecedented rate. Targeting, meanwhile,

refers to the use of customer data, whether behavioral, psychographic, or demographic, to

execute highly targeted online ad campaigns which are notable for their precision, efficiency,

and ROI. The convergence of these two phenomena is what I call “big data enabled audience

targeting,” and it is a trend that has significant ramifications for online ad industry practitioners.7

The hyper-abundance of customer data represents both an opportunity and challenge for

online marketers. While large amounts of information can lead to more precise targeting, thereby

generating efficiencies on both sides of the advertiser-publisher equation, data is worthless

unless it can be parsed for actionable insights. With this in mind, we can see that big data

enabled targeting is changing the way marketers approach audiences in several ways: (1) Greater

advertiser demand for the type of data inputs that enable fine-tuned audience targeting and

segmentation; (2) the development of specialized data management platforms (DMPs) designed

specifically to sort through and break down reams of complex customer data to serve advertiser

and publisher needs; and (3) the use of more technologically nuanced and precise targeting

parameters that provide access to increasingly well-defined subsets of consumer populations.8

The third trend we explore in this paper is multi-screen ubiquity. Today’s digital media

consumer doesn’t rely on a single channel in order to access online content. Rather, in many

instances, he operates in a state of near constant connectivity, going from mobile, to PC, to

tablet. Furthermore, he frequently engages with two screens simultaneously. This may take the

form of employees who check Facebook on their phones while at work, or television watchers

who live tweet their views on the latest developments in their favorite soap opera as they unfold

in real time. Downward pressure on hardware costs, combined with improvements in the speed

and reliability of mobile and tablet internet, will only accelerate this trend.

As with the phenomenon of big data enabled audience targeting, the trend of multi-screen

ubiquity is simultaneously a challenge and an opportunity for digital marketers. The proliferation

of consumer touchpoints has made multi-channel consistency an important prerequisite for the

maintenance of brand integrity. As Stephen Powers and John Rymer point out, “customers love

their devices but also want consistency across the devices and apps they use.”9 While optimizing

for consistency across mobile, tablets, and the web can prove challenging, the investment helps

6 Gavin Dunway, “Como Vai Voce, DoubleClick Ad Exchange? Latin American Launch Q&A With Scott Spencer,

Director of Product Management,” AdMonsters, http://www.admonsters.com/blog/como-vai-voce-doubleclick-

ad-exchange-latin-american-launch-qa-scott-spencer-director-product-m, accessed 4/25/2013 7 David Hallerman, “Digital Advertising Trends for 2013,” eMarketer, Inc.,

http://www.emarketer.com/Webinar/Digital-Advertising-Trends-2013/4000064, accessed 4/25/2013 8 Michael Greene, “Keep up with Advertiser Targeting Demands,” Forrester, 7/19/2011

9 Stephen Powers and John Rymer, “Unify the Digital Experience Across Touchpoints,” Forrester, 8/22/2013

advertisers develop more meaningful and higher-yielding relationships with today’s increasingly

fickle consumers.

Meanwhile, on the positive side, multi-screen ubiquity can offer unique opportunities to

drive enhanced customer interaction. Nearly every company that advertised during the super

bowl, for example, included a twitter hashtag in their ad. This led to a multiplicative level of

customer engagement, as viewers used their mobile phones or tablets to tweet about particularly

compelling ads, generating significant online buzz and reinforcing the brand message.

Ultimately, marketers must respond to multi-screen ubiquity in a proactive fashion, creating

unified multi-channel experiences while seizing opportunities to synergistically engage

consumers across multiple mediums.

The final trend we examine in this analysis is the growing importance of the social-

mobile nexus. In the United States and across the globe, smartphone penetration is rising

precipitously. Currently at 61.1% in the US, this figure is expected to rise to 88% by 2016.10 As

Greg Stuart of the Mobile Marketing Association points out, “there is no other device that is as

personal (everybody has their own phone), as pervasive (is with you all of the time), and

provides the opportunity for proximity.”11 Clearly, the opportunity to engage with consumers by

delivering mobile optimized ads is large and growing.

The opportunity horizon represented by mobile, however, grows even more attractive

when you take into consideration the nexus between mobile and social. Social media, led by

publishers such as Facebook and Twitter, represents an increasingly attractive avenue for

engaging with large populations of upwardly mobile consumers. Evidence of this dynamic can

be seen in a recent report by eMarketer, which indicated that 64% of online advertisers intend to

increase social media ad budgets in the years ahead.12 Importantly, social media consumption is

increasingly taking place via mobile phones as opposed to PCs, with over 61% of US social

network users expected to use mobile as their primary means of accessing social.13 According to

eMarketer, “by 2015, more than one-half of mobile phone users will access a social network on

their phone at least once per month.” 14

What does this mean for how marketers approach audiences? Online advertisers must

recognize that mobile is the future, and that in combination with an astute social media strategy,

the social-mobile nexus can represent an extremely powerful tool for developing meaningful

dialogues with target demographics. Marketers who rely too heavily on PC-centric advertising

risk missing out on a powerful new channel that is proving particularly compelling as a means of

engaging with young consumers whose product tastes and preferences are still being formed.

In closing, it is worth recognizing the significant level of interaction that occurs between

and among each of the key trends I have identified in this report. None of them operates in

isolation; to the contrary, they act in concert with one another and in ways that intensify and

10

Alison McCarthy, “US Social Network Users 2013: Smartphone Usage Drives Mobile-Social Growth,” eMarketer,

Inc., 4/18/2013 11

Kimberly Whitler, “Why Should Marketers Care about Mobile Marketing?,” Forbes,

http://www.forbes.com/sites/kimberlywhitler/2013/04/25/why-should-marketers-care-about-mobile-marketing/,

accessed 4/15/2013 12

Elizabeth Palermo, “Social Media Advertising Budgets Rise in 2013,” Business News Daily,

http://www.businessnewsdaily.com/4012-social-media-advertising-budgets.html, accessed 4/25/2013 13

David Hallerman, “Digital Advertising Trends for 2013,” eMarketer, Inc.,

http://www.emarketer.com/Webinar/Digital-Advertising-Trends-2013/4000064, accessed 4/25/2013 14

Alison McCarthy, “US Social Network Users 2013: Smartphone Usage Drives Mobile-Social Growth,” eMarketer,

Inc., 4/18/2013

reinforce each other. For example, real time technology, coupled with big data enabled targeting,

allows online advertisers to make data-driven adjustments to the delivery of real-time ads as they

are served. This in turn creates a dynamic feedback loop that offers levels of targeting accuracy

unseen in the market only a few years ago. Similarly, multi-screen ubiquity is intimately

connected to the social-mobile nexus. Consumers’ propensity to view mobile as their primary

access point for social media intensifies the extent to which brands can engage with consumers

simultaneously through television and mobile. In another example, we can see how big data

enabled targeting relates to the growing dominance of social-mobile. Savvy technologists are

leveraging the sensors contained within mobile phones to create novel ways to serve ads based

on the geographic whereabouts of specific consumer groups. In the near future, marketers will be

able to deliver ads to consumers located within close proximity to a brand’s stores.

The online advertising ecosystem is a fast-evolving market characterized by ongoing

innovation. Those wish to remain at the bleeding edge of the industry must pay heed to the trends

identified and explained in this report. In particular, real time technologies, big data enabled

targeting, the multi-screen phenomenon, and the social-mobile nexus represent key sector

developments that practitioners must consider moving forward.