Programmatic technology has revolutionized digital advertising through automation. It has allowed us to optimize sales, streamline operations and use audience targeting to greatly improve the front-end buying and selling process. However, brands, agencies, publishers and vendors are still manually settling payments on the back end the same way they have been for decades. Outside of fraud, this is the last major bastion of inefficiency in ad tech.
The evolutionary force to address this inefficiency may have originated from a somewhat unexpected technology — Bitcoin. While Bitcoin has yet to gain widespread adoption, its underlying technical architecture—The Blockchain—is turning heads from the likes Uber, Airbnb, Microsoft, NASDAQ and major banking institutions. Goldman Sachs believes the technology “has the potential to redefine transactions.”
Today’s financial transactions require third-party mediators to manually validate information and mediate risk. This takes time, incurs additional cost and leaves room for human error or security breaches. These processes are considered “centralized” as they are conducted on local databases by each party involved.
The Blockchain, on the other hand, uses a distributed, or “decentralized” digital ledger that allows for a large number of transactions to be carried out in a way that greatly increases reliability, reduces costs and removes layers of inefficiency. Instead of using traditional, centralized databases, The Blockchain distributes consensus to every participant within the system, verifying and recording transactions automatically and instantaneously. This removes the need for middlemen.
As the technology becomes more sophisticated and able to facilitate “smart contracts” through new protocols like Ethereum, the complexity and scope of these decentralized transactions are growing. For example, agencies or DSPs could automatically pay publishers once certain pre-negotiated campaign objectives, such as reach or impressions, are met. Since smart contracts are self-executing, publishers would be paid instantly. No longer would they have to wait on a traditional 30, 60 or 90 payment term to be compensated.
With total US digital ad spending to hit $67 billion this year, automating and decentralizing our traditional payment processes and avoiding discrepancies could mean big savings across the industry. While the total costs of digital advertising’s back-end operations are hard to estimate, $54 billion a year is spent settling trades, maintaining records, addressing reconciliations and facilitating regulatory reporting for financial trading on Wall Street. Financial institutions are keen on using blockchain technology to reduce these costs in the financial sector and advertisers and publishers could realize the similar savings and efficiency if the digital advertising industry followed suit.
Much like the World Wide Web of the early ‘90s or programmatic technology of the late 2000s, The Blockchain still feels ahead of its time. However, thriving under rapidly changing market conditions often entails a fundamental re-evaluation of the current way of doing things. The question is—will The Blockchain be the next evolution of automation in digital advertising?
By Forrest Whaling (@fwhaling)
Senior Marketing Manager