As a former analyst at an investment bank, I can say with 100% confidence that we have way too many people from the finance industry working in advertising right now. The flow of quants who were once seeking positive alphas that are now building agency trading desks has led us to commoditizing the art of advertising and sacrificing the underlying privacy of Internet users.
How It’s Happening
Buying an audience turned into buying cookie pools which evolved into real-time bidding, driving a publisher to pair the value of each user coming to their site with the advertiser that is willing to pay the most to hit that impression. Intelligent companies like BlueKai have been built to package together cookies with similar traits and sell them as faceless pools of “people who have similar online behaviors” to potential advertisers.
This is the exact principle behind securitization: pool together similar assets (in this case people who exhibit a propensity for a given behavior) and package them into one big bag of potential returns and sell them to investors (in this case advertisers on the demand side, or publishers on the supply side).
“Investors” buy these cookie pools on levels of confidence (ahem, tranches) that the cookie pool meets their perceived value. With a higher confidence, publishers are charging more to target their inventory (yay more revenue) and advertisers can pay a lesser risk across ad networks (yay more revenue for long tail pubs and a lower CPM overall). This leads to a world where publishers and advertisers are encouraged to build more and more of these cookie pools.
What This Means
Conceptually: this is brilliant - package the ads that an advertiser buys to be only the people they are targeting to reduce the risk premium of serving to the wrong audience. Publishers find many of these pools and drive up their eRPMs for their pages.
In practice: we’ve created a market where publishers and advertisers have a growing demand for more cookie pools. The supply side is relatively fixed, which means that cookie pool generators need to get “creative” to build these new lists. Unlike with mortgages where the market opened to arguably undeserving candidates, the online world is sacrificing privacy to build these lists.
It’s gross. Online advertising is so excited to be the first medium where buying impressions is less risky that they perpetuate the cycle, establishing trading desks on agencies to “maximize” the value for advertisers and publishers. What we’re doing is creating a commoditized industry of display advertising, and frankly it misses the key point of advertising: connecting emotionally with consumers.
How It Can Get Better
This post isn’t meant to purely crap on the display advertising industry. It probably drives results to the < 1% of people who engage with those ads, but it reinforces why social media is such a game changer in the world of advertising online.
We’re seeing an increased effort on creating native advertising units. Physical destinations which are built for the purpose of *enhancing* a consumer’s experience online, rather than disrupting it with an annoying banner ad (that cost a brand $25k-50k to create).
The reason I work at StumbleUpon to build our ad platform is because I don’t believe in shitty, disruptive advertising that sacrifices people’s privacy. I believe in advertising that makes you irrationally happy to engage with a brand. Want examples?
These actively bring people into the brands’ worlds, not creepily figuring out whether this person is in the market for a car. The more that marketers can remember that they are in the business of making people feel a certain emotion and less about how much each head is worth, we will weather this storm of cookie pool manipulation.
Don’t buy seedy cookie pools. Build great content. Use the right social levers. That’s the key to finding the right balance in online advertising that people can trust. Trust in your brand sells products. Never lose sight of that.