Every move on you make on your cell phone, computer, tablet, or internet connected device is being watched. Advertisers are trying to sell you things constantly, and they’re doing it in much more efficient, rapid, and targeted ways than ever.
“Advertising and Technology,” a special report by The Economist that was released in September, details exactly how much the advertising and marketing industries have changed as of late and how it affects consumers.
Thanks to cookies and tracking methods, consumers’ penchant for sharing personal information on social media sites, and individualized digital devices, companies can advertise to you now more than ever. Most of the time, they’ll know exactly who you are and what you want.
Though technology has sped up growth, the industry is just at the starting stages of the new advertising model. Five years ago, advertisers and consumers wouldn’t have been able to predict how far it’s all come.
The Rapid Change
According to the report and a poll by software company Adobe, “most marketers say they have seen more change in the past two years than in the previous 50.” Google and Yahoo first utilized extreme personalization, which involves taking tracked data about consumers and then targeting certain ads to them. Now companies are jumping on the bandwagon. This trend has boosted the online advertising industry; in 2013, a quarter of the $500 billion global advertising industry was comprised of online ad spend. That number only continues to increase.
Why is Online Advertising #Winning?
Three things are contributing to this:
1. Mobile phones: People are spending increased amounts of time on their phones and have them wherever they go. They check them right before they go to bed, first thing when they wake up, and many times throughout the day. If you have a phone in your pocket, a company can know where you are at all times.
3. Real-time bidding: Companies can now bid for millions of ads online every second of every day. That way, they can reach consumers at the exact moment they want. While this is done primarily on websites right now, it’s going to also occur on televisions and billboards that are connected to the internet.
The companies that track users’ behavior on cell phones, follow consumers on social media, and have access to real-time bidding will succeed at reaching consumers. At this point, it’s all about who has the most data on the largest audiences.
Going to Battle for Information
The companies with the most information are going to do the best in this new advertising model. In the report, Omar Tawakol, a data broker, said that this is an information war. “This is 100% about having more information about the customer and being able to generate more commerce as a result of it.”
On Facebook and Twitter, advertisers can see names, ages, location, friends, interests, and who you’re following. Wonder why Kanye West tickets are popping up on your newsfeed? It’s because you “liked” the “Yeezus” fan page. Do you see engagement ring advertisements? Facebook shows you this because you’re in a relationship.
All of this is called “first-party” data because you have a relationship with the collector of your data. There’s also “third-party” data, which is compiled from various sources and helps advertisers build online profiles on users.
There are also data brokers, who “earn their living by helping advertisers and publishers manage their own first-party data, as well as selling them more data about users.” You may not even know it, but you could be listed as a “woman with weight issues” or “an impoverished man with disabilities” on a data brokers’ database based on your social media use and search activities. Advertisers utilize these categories to buy real-time ads.
These companies, essentially, know what’s on your brain, and they want to be there when you make a purchasing decision. They want to predict it for you, and know you better than you know yourself.
Walking the Fine Line
Advertisers know more about you than you can even imagine. However, they’re hesitant to let you know what they know. According to the report, these advertisers don’t want to look that they are spying on consumers.
“We are actively trying to figure out where the boundaries are,” said Simon Fleming-Wood, CMO of Pandora, in the Economist report. “And in the meantime we’re being conservative.”
Companies can collect all of this information in the United States because regulations are loose. The advertising business is largely self-regulated, and under it, “users can go online to opt out of being targeted with ads (but not of being tracked).”
Mobile Advertising: Easier Tracking and Targeting
Long gone are the days of the “family computer.” Now everyone in the family has a personal computer right in their pocket, and chances are, it’s on them at all times.
According to the report, in 2014, for the first time ever, “Americans will spend more time on mobile devices (not counting talking) than they do on desktop computers.” Companies are cashing in on it. They know that one person usually uses the same phone. This makes it much easier to target people with specific ads.
Between 2012 and 2013, global spending on mobile advertising almost doubled to $19.3 billion, according to statistics from IAB. However, marketers are still having issues trying to figure out this relatively new space.
Screens are small, so consumers don’t spend time on long-form content and extended video ads. They also may not notice “baby banners,” which appear on the bottom of screens. Native advertising has done well on mobile because people believe that it’s content created by their favorite websites. On mobile phones, they just can’t see that there are small icons designating that certain content is a paid sponsorship.
Advertisers are also hesitant to inundate consumers on mobile phones because they are more personal than desktop computers. In the report, John Wren of Omnicom said, “I don’t want to cross the line with a client and repent for making a mistake. There’s no commercial upside to that.”
Bidding for Eyeballs in Real-time
The advertising industry is moving faster than ever. There are people whose sole job is to sit in front of a computer and purchase millions of ad impressions throughout the day. According to the report, it works like this: when a consumer goes to a website, the browser sends messages to an ad server. The server communicates with “an exchange to provide data about that user, such as his IP address, his location and the website he is visiting. Potential ad buyers send their bids to the exchange. The highest one wins and an ad is served when the website loads. All this typically takes about 150 milliseconds.”
IDC’s research has found that about 20% of online display ads in the United States are sold in real-time, and in 2018, it’ll jump up to 50%. A study by BCG determined that when behavioral targeting was utilized, advertisers increased their ROI by 30%-50%. As the internet of things takes hold, in which all devices that can be online will be online, real-time advertising will be used in those spaces as well.
The Advertising Industry Today: Fierce Competition, Less Money
Advertising firms are faced with constant pressure today. Since there are so many ways to target users, and it has to be done in real-time, they have to always be thinking about the next step. Companies are working with fewer agencies now, which are put to the task of making more content on a smaller budget.
In the report, Brad Jakeman of PepsiCo said that in the past, they would give advertisers four to six months and a $700,000 to $2 million budget to create an ad. But today? “We need an agency that can produce content in days, with each piece costing $10,000-$15,000.”
Publishers are also suffering. Newspapers used to be the kings of classified ads, but now that position has been given to Google.
Companies also don’t need newspapers to advertise to specific groups anymore. They are finding audiences themselves and spending less money than they would to advertise in say, The New York Times or The Wall Street Journal. The report cites Kellogg’s, which spends 25% of its $1.1 billion allotted for advertising online. They use behavioral targeting and real-time bidding, which has brought the price for 1,000 impressions from $12 down to $5.40.
To make up for the lost income from ads, publishers are now producing content for brands, or licensing their existing content (which is part what we do here at NewsCred). Native advertising has also been an effective tool for companies when it’s done right. This is because it looks like “regular” content instead of an “ad” and consumers will spend time with it.
Walking the Privacy Line
According to a study by BCG that’s quoted in the report, “the privacy of personal data remains a big concern for around 75% of consumers in most countries.” Since there are no rules in place, advertisers and consumers are going to have to work hand in hand to figure out where to draw the line.
That might be a problem, however, because consumers don’t know exactly what’s going on. Transparency and a clear-cut system would help solve those problems. Clement Tsang, an ad executive in China, says that in the future, there might be a two-tiered internet: A free, slower one that will have targeted ads, and a paid faster one that would eliminate tracking.
Whether companies are going to pursue better privacy policies or opt-out services remains to be seen. What we do know, however, is that a checks and balances system is necessary so the consumer can feel comfortable. Right now, we’re only at the beginning.
Andy Hobsbawm of the firm EVRYTHNG, says it best: “If you thought there was a lot of data on the internet today, you ain’t seen nothing yet.”
Kylie Jane Wakefield is a NewsCred Contributor.
Originally published on Oct 6, 2014 11:15 AM