Digital Advertisements – You are the centerpiece of “digital advertisement exchanges”

Estimated reading time: 5 minutes.

your data is the most important commodity in the world today – Worth more than Gold and Oil.

The data that you generate while making any payment, or while searching on Google, or sharing on WhatsApp, Snapchat or FB, tweeting, or retweeting are all being stacked up, and analyzed. For what? To provide more products/services to you so that you can spend more, like more, search more, and share/tweet/retweet more…

advertising revenues

In 2019, Google’s ad revenue amounted to 134.81 billion US dollars (83% of Google’s total revenue) v/s US$ 69,655 for Facebook (98.5% of total FB’s revenue).

Google generates advertising revenue through its Google Ads platform, which enables advertisers to display ads, product listings, and service offerings across Google’s extensive network (own sites, partner sites, and apps) to web users (additional details below). The company holds a market share of around 90 % in a wide range of markets, having little to no domestic competition in many of them. China, Russia, and to a certain extent, Japan, are some of the few notable exceptions, where local products are more preferred.

Google’s data and analytics platform products have been the largest drivers of growth in Google’s revenue over the years.

Google and FB may be the leaders in the online Ads market. However, another tech giant is getting closer now more than ever.

In the data storage/cloud market, Amazon is currently the undisputed leader. In 2006, Amazon Web Services (AWS) was launched as a cloud computing platform to provide online services. One of the largest clients of AWS is the streaming video service Netflix, which uses Amazon’s services to store their content on servers throughout the world. Some other famous or top-notch companies that use AWS (based on EC2* monthly spend data) are Twitter, Airbnb.

*EC2 lets users run their applications on Amazon’s instances. Why companies use AWS? Simply because it is cost-effective and it is easier to scale based on their demands. Building own datacenters and doing all this own their own would cost them a fortune, and they would not be able to focus on their core business.

While AWS represents only 11% of Amazon’s total revenue, it continues to serve as the company’s cash cow after years of dominance in the market, at a greater scale than Alibaba, Microsoft, Google, and other companies.

However, there could be another cash cow for Amazon soon…

Amazon’s advertising business (only tiny at the moment as compared with Google’s 83% or FB’s 98.5%) is booming ! Analysts at Juniper Research believe Amazon.com Ad revenues will swell to $40 billion by 2023, a growth of 470% from its advertising revenues in 2018.

Online advertising is A MONOPOLISTIC MARKET

The majority of online display advertising space is bought and sold via “advertising exchanges”, just like electronically traded financial markets. The only difference is that in advertising exchange marketplace, only one player dominates.

In 2005, borrowing practices from the Wall Street, advertisement business became a commodity business from being a relationship business for many decades.

Over the years, the advertising market has become less competitive. Now Google dominates this market.

Google operates the largest exchange (known as Google Ad Exchange) and also owns leading intermediaries** that publishers (e.g. newspapers such as The New York Times or a Blog page) and advertisers or buyers (such as Walmart or a local dry cleaner) must use to trade. Google not only sells others’ ad spaces but also its own spaces appearing on its websites, such as Google search and YouTube.

Google Dominates the Online Ad Market

**Intermediaries: Buy-side – These are the buying tools/platforms that small and large advertisers use to trade. They also enable advertisers to store their adverts/creatives and allows them to track metrics and set the buying parameters for their campaigns. The small and medium advertisers use self-service tools such as Google Ads, whereas large enterprise uses enterprise software tools/platforms, such as Google’s DoubleClick Bid Manager (now known as Display & Video 360), or Amazon DSP, or Facebook Ads Manager.

Supply-Side These platforms, also known as Ad Servers (e.g. Google Ad Manager, combining features of two former services from Google – DoubleClick for Publishers and DoubleClick Ad Exchange), helps publishers to manage/sell their inventory on several ad exchanges in an automated manner.

As per eMarketer, nearly 1/3rd of US advertisers spending on display ads goes to tech and software intermediaries (the so-called “ad tech tax”) just to execute ad transactions, before publishers receive the rest as ad revenues.

how you are continuously being tracked

Tracking your identity is of utmost importance to advertisers. For example, when you go to The New York Times and probably read an article let’s say about Endangered Lemurs finding a private refuge in Madagascar, their Ad Server (probably Google Ad Manager) will assign an ID to you (e.g. 1Q2W3E). Whenever you return to the websites again (maybe even after a month), the same Ad Server will recognize you as 1Q2W3E, and may show you an advertisement about planning your holidays in Madagascar, even though you might be reading an article on US elections.

still there is hope for privacy, at least for some users

Without access to your user IDs, the demand for ad space decreases, and their prices on exchanges drop dramatically as a result. As per a randomized controlled experiment conducted by Google in 2018, prices for ad space trading on Google’s exchange drop by 50+% when advertisers cannot identify users associated with ad space for sale. This happens when the user has disabled cookies, the most commonly used technology for tracking.

After Apple introduced Intelligent Tracking Prevention feature# with the release of iOS 11 in September 2017, the cost of reaching Safari users has fallen more than 50% since then. This shift is significant in the online advertising business because iPhone/iPad/iMac owners are generally affluent and help in generating more ad revenues.

Following Apple’s footsteps, Firefox also locked down on ad targeting in 2017.

#Intelligent Tracking Prevention uses on-device machine learning to block cross-site tracking, while still allowing websites to function normally.

Sources: Whitepaper by antitrust scholar Dina Srinivasan on ‘Why Google Dominates Advertising Markets’, Google’s/Facebook’s/Amazon’s SEC Filings and Fiscal Results Documents, Juniper Research, The AlgoAware study by the European Commission, Google Ads, Amazon DSP, Facebook Ads Manager, Google Display & Video 360, eMarketer, The New York Times, Safari Privacy Overview, Report by Google on ‘The effect of disabling third-party cookies on publisher revenue’

You are the centerpiece of ‘digital advertisement exchanges’

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