The ad tech dollar is disappearing. For each dollar that advertisers spend on digital advertising, only a fraction of that ends up in the hands of publishers.
Why? Because the ad supply chain is extremely “verticalized” and convoluted. So many intermediaries separate advertisers from content publishers that most money ends up in the pockets of middlemen. Just as a pound of ginger grown at low cost by a farmer in medieval Asia cost Europeans about 5,000 days wages due to intermediary costs, so too do advertisers pay rates that are far different from what publishers actually receive to run ads.
High Fees and Hidden Fees in Ad Tech: The Guardian’s Experience
This is a lesson learned with difficulty by The Guardian, the British newspaper and digital publisher. The Guardian is suing the Rubicon Project over disputes related to ad tech, claiming that it missed out on substantial revenue from advertisers because of the way the Rubicon Project’s ad tech platform operates.
The Rubicon Project is a company that specializes in ad tech and promises to use digital tools “to automate buying and selling for the global online advertising industry.” The Guardian contracted with the Rubicon Project to connect advertisers looking for ad space to The Guardian’s digital assets where advertisers could run their ads.
The Guardian’s suit alleges that the Rubicon Project’s automated advertising platform imposed “secret commissions” on the publisher, on top of the fixed fees that the company expected to pay in exchange for directing advertisers to The Guardian’s ad space. More generally, The Guardian claims that the Rubicon Project inflated its profits by failing to provide visibility into the amount that advertisers were willing to pay for ad space. Because the publisher had no means of knowing what advertisers would spend for the ad space it wanted to sell, its profits suffered, according to the lawsuit.
The Siloed Ad Tech Supply Chain
Digital advertising companies like the Rubicon Project are only some of the numerous intermediaries that introduce cost inefficiency to the ad tech supply chain.
As a diagram from App Nexus illustrates, vendors — who run ad servers, verify ads, provide ad exchange management services, manage ad data and more — all impose fees that incrementally eat away at the sums spent by advertisers as they travel down the supply chain.
The result is that, for every dollar spent by advertisers, only about 40 cents end up in the pockets of publishers who provide ad space.
The Blockchain Solution to Ad Tech’s Problems
Through blockchain technology, a better ad tech world is becoming possible.
The blockchain is a special type of database in which data is stored and managed in a decentralized fashion. As a result, no centralized party has control over the data and, because transactions are visible to all nodes on the blockchain, attempts to cheat or hide data are easy to detect and prevent.
For ad tech, blockchain’s most significant feature is its ability to ensure trust between advertisers and publishers without requiring the assistance of third parties. Traditionally, ad companies like the Rubicon Project have served to ensure that contracts between advertisers and publishers are enforced. This was important because conventional technology offered no good way to enforce contractual agreements automatically.
Using “smart” contracts that are executed on the blockchain, however, ad agreements can be automatically enforced without third-party intervention. In a smart contract, the terms that buyers and sellers negotiate are enforced by software. If either party fails to fulfill its commitment, the contract is automatically canceled. In addition, because the contract terms are recorded on the blockchain, which is publicly visible, it is impossible for one party to hide or misrepresent data related to the transaction.
The MAD Network’s Approach to Ad Tech
The MAD Network is one example of a blockchain-based solution to ad tech’s intermediary problem.
Developed by MadHive, MAD Network provides a decentralized ad server that advertisers and publishers can use to buy and sell ad space directly from each other, with transactions recorded on the blockchain. The MAD Network cuts out all of the intermediaries who introduce fees and delays to the ad tech supply chain.
In addition, the MAD Network allows publishers to sell anonymized data about user behavior on their platforms. Advertisers can purchase this data and use it to better understand the groups they want to advertise to. This feature adds visibility to the ad buying process and provides a better way for advertisers to predict and measure ad performance. It helps to make ad tech less secretive and more transparent, while also offering an additional revenue opportunity for publishers.
The MAD Network will be powered by MAD Tokens, a cryptocurrency that advertisers and publishers will use to buy and sell ad space. MAD Tokens are set to become available for purchase through a token sale in the final quarter of 2017.
On the MAD Network, the ad tech dollars will no longer disappear. The amount that advertisers spend to place an ad will be virtually the same as the sum that publishers receive to publish an ad. In addition, contracts will be enforced automatically, eliminating concerns about trust.
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