What makes ad tech one of the fastest-growing industries and why it needs to evolve

Ad tech is one of the biggest industries in the world and one of the most complex — it is a complicated network of bidding exchanges, data-management platforms, ad servers and various supply-side and demand-side platforms.

It pumps billions of dollars’ worth of investment, employment and ad spend into the global economy every year. From the duopoly of Google and Facebook, and Silicon Valley startups, to regional advertising companies across Europe, Asia and Latin America, every player is working hard for a slice of this $200,000,000,000 global industry.

What makes ad tech so lucrative?

Well, the answer to that is quite simple — businesses need to advertise in order to tap into their target audience. So they invest hugely in ad tech companies to make sure their ads go to the right users.

Ad tech, however, does not deal with the creative processes of creating engaging ads. The industry concerns itself with the processes of making advertising faster, intuitive and more effective.

Almost the entire industry runs on complex algorithms fueled by a massive amount of user-behavior data. This data is reaped from user activity throughout the internet. The biggest players in the game — Google and Facebook — hold the maximum number of users of any online service. As such, they are able to utilize and monetize it much more effectively.

Further, they maintain access to user-behavior data generated on other publisher sites by having them deploy third-party cookies on your browser. All of the sites (partner sites) that make use of Google’s and Facebook’s ad services are, in essence, letting the two companies access your online activity.

Google and Facebook store this user activity on their servers and as soon as users access another partner site, they are recognized by the servers and shown ads based on their previous activity.

The ads create revenue for the advertisers, pushing them to invest more in digital advertising.

That is how ad services makes billions of dollars every year.

The digital duopoly and impending doom

Google and Facebook held about 84% of the global digital media investments in 2017. The stronghold of this duopoly on digital advertising doesn’t seem to be weakening. But for the rest of the players in the industry, the situation couldn’t get worse.

Worst-hit are the publishers. Highly popular media publishing names like Huffpost, Mashable and Buzzfeed that are dependent solely on digital media advertising failed to make a profit last year:

Huffpost failed to meet its advertising targets.

Mashable, after failing to meet its advertising targets and losing money, sold for $50 million, a value about $200 million less than it was once said to be worth.

Buzzfeed is laying off employees.

The Daily Mail makes (four times) more money from its UK-centric newspaper business than its online site, which happens to be the most popular English language website in the world.

That is certainly not good news.

It is expected that in 2018 big names such as Buzzfeed will lose their status as billion-dollar brands, only because they cannot compete with digital media advertising giants like Google and Facebook.

Even partner site publishers that made a profit last year received only 70% of the ad revenue they generated with 30% of it being eaten up by Google and Facebook.

Moreover, publishers have to rely on Google and Facebook for the metrics on the ad revenue generated.

In a nutshell, Google and Facebook use the activity data generated by users on publishers sites to let publishers monetize their content by selling ad space to advertisers.

They provide advertisers with the capability to target particular groups of users based on the data collected. In doing so, the duopoly retains 30% of the ad spends and provides publishers with only 70%.

Publishers can either choose other ad services and fail to compete with Google and Facebook or accept the low profit offered so magnanimously by the duopoly.

The amount of money being spent on digital advertising is expected to only increase and so is the duopoly’s hold on it.

Any competition?

While challenging the duopoly’s 84% share of global digital media might seem daunting, publishers have been striving hard and many have been listening.

European Union recently locked horns with Google and Facebook over how they utilize user data and monopolize the ad tech industry.

While EU is planning to implement heavy regulation on these ad tech giants, it is more likely to cause just a small dent in the duopoly.

Someone would still have to come up with an effective alternative for digital advertising that doesn’t infringe on user privacy and continues to help publishers monetize their content.

Companies like Amazon and Snap Inc. are often purported to pose a threat to the duopoly but fail to eventually capitalize on it.

There has often been a lot of discussion about major publishers joining forces on a neutral platform for mutual sharing of user activity and other data but not much has resulted from it, owing mostly to a lack of sustainable framework or technology to enable such an arrangement.

The establishment of blockchain as a revolutionary technology, however, opens up new opportunities to fight against the digital duopoly, and startups like Zohem are already on the way to developing sustainable replacements for the ad tech mammoths.

The switch to a blockchain-based solution would also mean that user data stays decentralized and completely anonymous.

Further, Zohem has also been working at incentivizing the sharing of data by publishers.

Once implemented, not only would publishers receive a major chunk of the ad revenue generated but they would also ‘earn’ by simply sharing anonymous user activity on the blockchain.

Such developments are likely to open the ad tech industry up for an effective revolution, which is exactly what it needs right now.

Bottom line: the duopoly of Google and Facebook, while being beneficial for advertisers in the short-run, can prove detrimental to the ad tech industry in the not-so-long run.

If allowed to work unchallenged like they have till now, the two giants are likely to set their own rules and standards in the industry that will harm both the publishers and the advertisers, making money only for the duopoly.

It is imperative that new, innovative solutions are implemented soon for the ad tech industry to function in a non-monopolistic, effective and transparent manner.

A good potential solution for this is decentralizing the ad tech framework on a blockchain.