A day of reckoning for digital display advertising?
As Facebook backs away from its DSP plans for Atlas, columnist Wayne St. Amand takes a look at the shifting digital display landscape and what's ahead for advertisers.
Facebook recently announced that its efforts to build a demand-side platform (DSP) leveraging its Atlas and LiveRail technologies had not gone exactly as planned, and that it would no longer focus on trying to programmatically sell digital display ad inventory.
We know Facebook had been testing this route to market for some time — at least since the latter half of 2015 — so why this significant about-face?
Quality is at the heart of the matter.
What Facebook discovered in its testing was that the quality of DSP ad inventory isn’t up to Facebook standards. Here’s what Dave Jakubowski, head of Ad Technology at Facebook, said in a blog post:
[blockquote] We came up against many bad ads and fraud (like bots). While we were fortunately able to root out the bad actors and only buy quality ads, we were amazed by the volume of valueless inventory… We knew that in good conscience, we couldn’t sell what Atlas and our people-based measurement told us was valueless. Unfortunately, those ads were almost certainly dumped into another low-quality exchange where all of them were most likely purchased.[/blockquote]
A lot has already been written about the state of digital display and its problems with quality and outright fraud, so we won’t go any deeper here. That said, digital display is still a massive and growing business, but native social advertising is its biggest threat, and for good reason.
Let’s take a closer look at the numbers and industry dynamics.
The evolution of the paid media landscape
How is paid media investment trending, and what are the implications of this shift?
Industry data show the increasing value of native social advertising. Forrester’s US Digital Marketing Forecast 2014 to 2019 shows that social advertising is growing much faster — at nearly twice the rate of digital display, and 2.5 times the rate of search — 24 percent CAGR (compound annual growth rate) (social) vs. 13 percent CAGR (display) vs. 10 percent CAGR (search).
Native social advertising is also having a positive impact on commerce. According to an IPG Media Lab study, consumers’ purchase intent associated with native social ads was 52 percent, compared with just 34 percent for display ads. These data tell us that no paid media strategy is complete without a social ads investment.
As I see it, the paid media landscape has evolved into two major segments that share a few characteristics, as well as some vitally important differences.
Let’s start with display on one side. Publishers offer up inventory to advertisers, and the DSPs use real-time bidding (RTB) exchanges to enable those advertisers to manage and report on large-scale display campaigns across digital, but not social, channels.
DSPs help publishers sell remnant inventory that they couldn’t monetize directly, typically at a lower cost to advertisers. Banner dimensions aside, these traditional DSPs largely treat placement inventory and eyeballs as commodities, which naturally drives down prices and profits.
This commoditizing force and all the potential negatives that go along with it is a dynamic that Facebook and most other social channels seem keen to avoid as they build out their ads ecosystems.
On the other side, we have the native social advertising players, led by Facebook and including Instagram, Twitter, Pinterest and LinkedIn. Of course, each channel has its own rules, terminology, targeting system and creative requirements, so this has created a need for intermediation to streamline the processes that take place behind the scenes during campaigns.
These multi-channel and cross-channel social ad tech providers can be seen as a set of “social DSPs.” The social DSPs enable advertisers to manage, optimize and report on large-scale advertising campaigns across specific social channels.
Traditional display DSPs vs. social DSPs
The key difference between the traditional display DSPs and the social DSPs is that the former are creating commoditization by owning the auctions, effectively cannibalizing the market and their own lifeblood, and the latter are interfacing with the auctions owned and operated by the social channels. This is where the major shift is under way.
In short, this industry dynamic and its implications for each respective system are root causes for the differing growth rates in social advertising and display advertising.
Of course, some might argue that display is further along in its maturity and scale, and that’s resulting in slower percentage growth and smaller gains. I would argue the difference in maturity between these two markets isn’t enough to account for the difference.
Additionally, it’s absolutely true that the social channels are doing a much better job of protecting quality and fighting fraud than the scores of smaller publishers and networks serving the world of display. As the rise of social advertising automation makes it easier for advertisers to serve impressions through the social DSPs, the tide is certainly shifting.
It’s only a matter of time before social advertising is as plug-and-play for advertisers as programmatic buying has made display advertising. If so, this is when the levees will break.
To summarize, display DSPs with real-time bidding are acting as a commoditizing force for display ad inventory with precipitously falling CPMs. The opposite is true for native social, where real-time bidding across channels and inventory isn’t permitted.
In social, audience value and CPMs remain steady and higher as each platform walls itself off intelligently to prevent the same commoditizing forces that have punished traditional display inventory, not to mention the whole market.
The rise of mobile gives native a leg up
The rise of mobile also gives an edge to native social platforms, as DSPs have more difficulty tracking performance accurately and retargeting on mobile. Cookies crumble on mobile.
This has given rise to people-based marketing technologies that work best in native and allow tracking across mobile and desktop touch points by connecting experiences across individual human identities, not cookies — namely, Facebook’s Atlas.
Because they maintain control over the auctions, Facebook and other native social platforms are preserving the value of their inventory and resisting the commoditization and significant quality issues facing traditional DSP-linked exchanges.
Advertisers will always want to buy ad inventory with a higher value to drive a better spend/result ratio. When it comes to high-quality ads and verifiable business results, Facebook clearly has the upper hand.
By halting its plans to bring people-based marketing to the display world, Facebook appears to be placing a bet that the quality, control and relevance of native social advertising are enough to ensure victory in the long run.