Will blockchain upend digital advertising as we know it?
The tech could solve myriad issues pertaining to ad fraud and non-transparency, but would be yet another disruption to an industry still scrambling to achieve digital transformation.
Even as digital advertising reaches parity with TV in terms of media spend, the space is having a decidedly rough go of it in 2017. Some of the most influential marketers in the world like Procter & Gamble are peeling back tens of millions of dollars from digital budgets as issues like ad fraud, brand safety, wonky metrics and general non-transparency continue to siphon off dollars and hamper business performance.
Online ad companies, to put it pointedly, are quickly losing the trust of brands. But for those who still cherish digital's flexibility, wide creative canvas and globe-spanning scale, blockchain technology is looking more and more like a balm to many of the channel's glaring and growing blemishes. Two pillars of blockchain — micropayments and smart contracts — were cited by multiple sources interviewed for this piece as being able to clean up and greatly simplify the digital media supply chain.
That shift that would, in turn, cause a lot of disruption, and shake up an agency and ad tech space that's repeatedly had trouble catching up with the demands of digital transformation and a quickly fragmenting media landscape.
"This has the potential to really change the game in terms of how agencies are compensated," Dustin Engel, head of analytics and data activation at the independent full-service agency PMG, told Marketing Dive. "This opens the floodgates in terms of what actions are actually going to be the most meaningful for my business.
"If I want to talk to new customers, I can actually establish micropayments if certain criteria are hit," he said, noting that those criteria can be as granular or broad as an advertiser wishes. "That really changes things for advertisers, which turns into more spend. It's just a question of, how does an agency deal with a change in their economic model and contracts with their advertisers to be able to manage to that?"
Breaking down the blockchain basics
Marketers can be forgiven for not knowing the nitty-gritty of blockchain given how nascent the technology is. First manifesting in a white paper by the elusive computer programmer Satoshi Nakamoto in 2008, blockchain quickly gained traction in the financial sector in the forms of Bitcoin and Ethereum. But how does it actually work?
"At the core of every blockchain is the distributed ledger — a distributed database of sorts — which keeps full copies at multiple locations that are kept in sync through the open internet or private networks," Wil Schobeiri, CTO at MediaMath, explained in an emailed statement. "Every time a transaction occurs, it's replicated to and verified by all participants in the network. The record of transactions is always available to every participant, and they are notified with each new transaction."
"Blockchain brings to the industry [...] the ability to coordinate and come to a trusted conclusion on data."
Co-founder and CEO, MetaX
Parties in a blockchain are linked together by what are called smart contracts, and desired actions can be accounted for individually in micropayments executed in real time. Engel pointed to MetaX, which runs the adChain protocol, as an early example of blockchain being leveraged for digital advertising.
"What blockchain brings to the industry is really just the ability to coordinate and come to a trusted conclusion on data," Ken Brook, co-founder and CEO, MetaX, said in a phone interview. "You can trust it because it's secured and no one owns it — there's no incentive to modify this information that's being accessed."
Creating a secure digital business environment will only become more pressing as government regulation in response to cybersecurity and fraud threats looms larger, per Brook.
"This industry has always been known to be unregulated by the government," he said of digital advertising. "If we're not enforcing guidelines and standards that protect data and allow us to be responsible, then we'll continue to see the government step in, place fines and get more involved."
For marketers, the tech also presents an opportunity to rectify the long-standing neglect of online consumers who are inundated with often intrusive ads but rarely acknowledged or rewarded for their time. The same payment system between advertisers and publishers under blockchain extends to consumers, who can be given tokens for engaging with ads, providing data or completing other activities that add brand value, creating a more equitable exchange that could stymie the adoption of ad blockers, according to Brook.
"What blockchain creates is essentially an active consumer," Engel said. "That's existed for some time — I will pay you if you do X, Y and Z, and typically the result of that has been you get somebody to sign up as a lead, not necessarily a sale. It's basically wasted money and the illusion of lead volume."
Marketers, in an example from Engel, could also compensate influencers not only to demonstrate and buy products as they do now, but also socially influence around those products at scale via micropayments, clearing waste in the influencer market and making the channel more actionable. And blockchain, or at least a steadier adoption of micropayments applied to these business areas, could be arriving far sooner than some might expect — within the next 18 to 36 months, sources said.
Risks and roadblocks
Unlike other emerging tech areas, blockchain won't need to reach critical mass to make a serious dent in the industry. All it really takes is one standout example to attract more interest, according to Engel. He said that, while fraud is a top concern — an estimated $16 billion in ad dollars is lost to bot traffic annually — the split of working to non-working dollars put into marketing is what truly pains digital advertisers at the moment.
"You could have a large advertiser that really cares about their ratio of dollars that are actually working dollars versus non-working dollars saying, 'Hey, look at the amount of middle layers I could potentially cut out if an open exchange exists and I can ensure reduced fraud and high brand equity' — that is something that can turn the tide quite a bit," he explained.
On the other hand, one notable disaster that calls into question blockchain's security proposition could turn marketers away. Enthusiasts often tout blockchain as being "unhackable," which is almost certainly untrue, according to Alanna Gombert, former GM of the IAB Tech Lab, who recently resigned from that position to pursue a role in the private sector.
"As an industry, we should be cautious not to create a solution hunting for a problem."
Other threats to the technology's appeal include it getting overly-privatized too quickly. Blockchain thrives on being an open-source project, Engel said, and over regulation or control by a handful of entities would inevitably deflate some of its potential. And while blockchain's newness makes it exciting from a top-down perspective, a lot of the applications are more theoretical than applicable to digital advertising at the moment.
"For one thing, writing to a block right now for real-time bidding, the system is too slow," Gombert said. "It's not ready for prime time." Engel noted that blockchain exchanges only deal with "a fraction of transactions per second" compared to more established ad exchanges — a problem that can be compounded by the demands of media verfication and data storage.
As exchanges like Bitcoin and Ethereum generate larger amounts of hype in other sectors like finance, marketers should be sure to measure expectations and carefully consider why their business should adopt blockchain beyond the promise of a catch-all solution.
"As an industry, we should be cautious not to create a solution hunting for a problem," Schobeiri warned. "Simpler, lower-tech solutions to increase transparency and ad verification will be easier and faster to implement broadly."
The next big disruptor
That's not to say marketers shouldn't be preparing for a blockchain-based future, as those that don't could experience serious churn. Global management consultancies like Accenture and Deloitte, which already encroach on the turf of traditional ad agencies, are building their own private blockchain initiatives, Engel said. Consulting shops have historically had stronger tech backgrounds than agencies, and by getting to the blockchain market earlier they could win over brand clients that are more carefully eyeing the space.
Agencies ultimately need to work to make the intersection between media and technology less bifurcated, but the demands of blockchain can be intensive and will require deeper specialization.
"The learning curve is steep," Schobeiri said. "Implementing and managing a blockchain is a complex task, and maintaining blockchain nodes is not something that most in our industry have experience with."
"You basically take a lot of the logistics and the middlemen out of the equation. [Blockchain] creates a little bit more of a clear line of sight."
Head of analytics and data activation, PMG
Smart contracts and micropayments, if widely adopted, would also simplify and strip back a number of technology layers in digital advertising to the point of eliminating many roles, shaking up ad tech along with agencies.
"You basically take a lot of the logistics and the middlemen out of the equation," Engel said. "It creates a little bit more of a clear line of sight."
Cutting out some of the clutter extends to agency-client business relationships as well, especially as it pertains to billing practices, which are already under intense scrutiny for a lack of media transparency.
"You think about the billing process in its own right, that's a pretty complicated endeavor when you're talking about the amount of people that you need to handle paying for media, validating/reconciling media costs — things like that," Engel said. "What [blockchain] does is it potentially creates less waste.
Not to say that any one of those entities actually disappears," he added. "It's just that their role might change."
Globalizing digital advertising and beyond
Though marketers would be smart to digest blockchain's potential applications slowly and implement it with a measured hand, it's hard to overstate the seismic shifts the technology could cause in how businesses are run online.
"The reason why the bitcoin systems and blockchains were developed was to reach people globally," Gombert said. "A large percentage of the world is unbanked. If they have access to cryptocurrency, the whole world changes.
"It's not just about digital advertising in the U.S. It's what happens when you get access to 2 billion more people of working age in the world," she said.
Beyond reaching an untapped well of consumers in an entirely new way, blockchain will synthesize and grow alongside other bleeding edge tech tools that are already starting to reshape the way digital advertising works.
"We can leverage AI [artificial intelligence], ML [machine learning] — all these technologies to do the best that we can, but blockchain in a lot of ways plugs those gaps for us, which would then just augment all of the machine learning and all of the artificial intelligence that we layer on top," Brook of MetaX said.
"That's what I think agencies are getting excited about," he added. "As they start to understand what this technology is and how it could potentially be utilized, they start to see how they could be better at what they already do."
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