What blockchain technology can do for online advertising

Blockchain technology is all the rage now. With its history as the technology underlying bitcoins, its potential for verifying banking and peer-to-peer transactions, and making supply chain transactions transparent, blockchain technology is heralded as a so-called next Internet-type innovation.

For the online advertising industry, there is real potential for the technology to help make it more effective and efficient. Currently, online advertising is fraught with fraud, which does not bode well for its growth. Many big budget advertisers, such as Procter & Gamble, have cut their online ad spending because of this problem. Blockchain can reverse this.

To understand the problem plaguing online advertising, it’s necessary to understand how the industry currently works:  Advertisers usually make their internet ad buys in one of three ways:

1. They buy the ad space directly from the web publishers, who have their sales team selling the inventory.

2. They buy the inventory through an ad network.

3. They buy it through ad exchanges using real-time bidding.

In the ad exchanges, publishers put up inventory with details on the visitors who might be targeted on their sites. The advertiser then bids for them and the winner gets to display their ads. Unfortunately, advertisers often lack confidence as to whether their display ads are shown to the right target or whether they are even shown at all. This is because there are fraudsters who enter the exchange claiming to represent publishers and sell their inventory, who instead sell spurious inventory and pocket the ad dollars. This lack of transparency and verification reduces the legitimacy of the marketplace.

How can blockchain technology help to make the online ad marketplace more legitimate?

Blockchain is basically an electronic ledger where a network of participants can enter any transaction that happens between any two of them. It is open and available to all, so it provides transparency.

So, an advertiser can see where the inventory which he bids on actually originated from and whether it is legitimate. Each transaction is verified by several other participants in the network and related to previous transactions, creating a chain, and once a transaction is entered and chained it cannot be deleted or changed. Hence the transactions are immutable and cannot be fraudulently tampered with.

What’s more, the database of transactions is distributed and networked, so there is no single centralized database that can be maliciously attacked. Transactions reside in different distributed databases and are chained, so such dangers are minimal. So, if the players in the marketplace agree to clean it up and adopt blockchain technology, then each transaction can be transparent, advertisers can see who the legitimate suppliers of inventory are, fraudsters can be eliminated and the technology can facilitate supply chain transparency.

This means advertisers can see exactly where their ad dollars are spent, which players made commission and what percentage of the budget went to the publishers housing the display ads.  If blockchain can also be used at the customers’ level to control their identity and allow permission-based targeting, then advertisers can benefit by cutting down waste and making targeting very efficient.

Of course, there are a few caveats. The process of chaining and verification takes time, roughly 1,000 times longer than the speed of real-time bidding transactions (which is in milliseconds). So, unless the technology improves in terms of the process speed, it cannot be adopted to ad exchanges using real-time bidding. It could still be used for aggregate level transactions and for transactions that provide guaranteed inventories, but the major problems in online advertising do not originate there. Thus, it might take a while before a large-scale implementation of blockchain technology.

The larger concern with which we’ll need to grapple going forward is the issue of cooperation. With transparency comes the danger of disintermediation. If the advertisers and publishers see the costs of intermediation then there will be pressure to squeeze out costs from the process, and this may not benefit all intermediaries. Thus, concerns of self-preservation may prevent all players from cooperating on this technology adoption immediately.

Fortunately, such concerns can’t stop technological innovations from gaining ground over time. In one way or another, we’re bound to see blockchain technology making an impact in online advertising marketplace soon--what remains to be determined is how effective the industry will allow it to be.