In November 2017, AdEx, a blockchain-based ad exchange that wants to disrupt the existing online advertising landscape and address its various problems, announced that the first blockchain advertising auction was taking place on its network. For the purpose of the auction, AdEx partnered with Ink, a global leader in travel media, to auction two million ad spaces on the boarding passes of a major airline.
“This is a very significant leap ahead for the advertising industry, and it is just the first of many steps we’ll take reshaping the online advertising landscape,” stated AdEx in the official announcement.
AdEx is not the only prominent blockchain startup in the advertising world with the vision to address the most pressing issues faced by anyone who wants to advertise through Google or Facebook, whose duopoly takes between 60 percent and 70 percent of the ad market share in the United States. Other noteworthy players in this space include AdChain, Indahash, LeadCoin, Papyrus, and Truth, just to name a few.
Together Against the Status Quo
What unites all the above-mentioned blockchain companies is their desire to battle the status quo and bring down the current duopoly of Google and Facebook.
For a long time, advertisers have been complaining about their disadvantageous position when dealing with the two dominant advertising platforms. The average price per ad on Facebook, which dominates display advertising worldwide, increased by 35 percent in the third quarter of 2017 because of slowing supply growth and increasing competition, according to David Wehner, CFO at Facebook. An analyst at Forrester Research Michael Greene believes that publishers who avoid the middlemen can increase their CPM (Cost Per Thousand Impressions) from around $1 to up to $5.
The advertising industry is currently also highly susceptible to ad fraud, which costed advertisers $7.2 billion in 2016, up from $6.3 in 2015. And according to a recent report from Juniper Research, ad fraud could cost advertisers $19 billion by the end of 2018, representing 9 percent of all money spend on digital advertising. “Fraudsters will continue to heavily invest in domains, user accounts, and bot farms in order to appear genuine,” research author Sam Barker argued.
Improving Digital Advertising with Blockchain
Judging by the extraordinarily high demand for AdEx’s first blockchain advertising auction, advertisers are thrilled by the possibility of using blockchain technology to improve digital advertising. In fact, AdEx held a second blockchain auction just a month after the first one, this time auctioning 1,000,000 advertising spots on easyJet boarding passes.
“All participants must enter the bid declaring the total amount they are willing to pay for the advertising spaces. At the end of the auction, the one million advertising spaces will be distributed among the participants proportionally to their bid,” AdEx explained the mechanics of its auction. Just like the first auction, AdEx’s second auction was also executed on the Ethereum network via the AdEx mainnet exchange, and ADX tokens were used as collateral for every bid made.
While it may seem that AdEx is the star of the show here, that is actually not the case at all. The real star is blockchain because its distributed ledger architecture can be interacted directly without any middlemen and with absolute transparency, immutability, accuracy, and security.
“This type of open attribution platform introduces something sorely lacking in advertising today: a fully transparent and fraud-protected system that advertisers can leverage to better understand where customers are coming from,” said Sam Goldberg, a co-founder of the blockchain-powered ad attribution platform KR8OS, which is in development on the Ethereum network. “With an accurate record of data, it is foreseeable that a day will come when all marketing resembles a fine-tuned machine rather than throwing a lot at the wall and seeing what sticks.”
The Benefits of Blockchain Advertising Auctions
Ian McKee, the founder and CEO of Singapore-based Vuulr, recognizes visibility as a major benefit of blockchain advertising auctions. Because a blockchain is like a huge, cryptographically secured Excel spreadsheet where transactions between two parties can be recorded efficiently and in a verifiable, permanent way, blockchain advertising auctions benefit consumers and advertisers alike.
Blockchain allows advertisers, who have essentially been unwillingly sponsoring massive armies of bots that hijack web browsers and computers to produce empty bot clicks that saturate advertising campaigns and waste money, to see exactly who has engaged with their ads and how. This creates many different possibilities how advertisers could protect themselves against ad fraud.
For example, they could only engage with verified members of the blockchain advertising network, which is exactly what the developers of Basic Attention Token (BAT) would like to make possible with their Brave Browser. Alternatively, artificial intelligence (AI) could be deployed on the blockchain to hunt down malicious actors and prevent them from doing any harm. Because such AI would be operating on a public blockchain, instead of being deployed behind closed doors by an intermediary such as Google or Facebook, its decisions would be verifiable.
With blockchain running the show, consumer data would be better protected as smart contracts, self-executing contracts with the terms of the contract written directly into lines of code, could govern who has access to the data and who does not. McKee thinks that cookies, fingerprinting, trackers, programmatic media buying, and other approaches how to collect meaningful consumer data have slowly eroded consumers’ privacy and anonymity, and blockchain provides a way how the advertising industry could improve its relationship with consumers of ads.
Obstacles to Overcome
Of course, all of this will be possible on a large scale only if the developers of blockchain-based platforms successfully address the biggest limitation of blockchain technology today: its scalability. Because a typical blockchain design requires every node in the network to process every transaction, the transaction processing capacity of the entire system is limited to the capacity of a single node.
The Ethereum blockchain, which most blockchain advertising platforms run on, can currently process only about 15 transactions per second. For comparison, Visa can process more than 56,000 transaction messages per second.
“The Ethereum community, key developers and researchers, and others have always recognized scalability as perhaps the single most important key technical challenge that needs to be solved in order for blockchain applications to reach mass adoption,” wrote Vitalik Buterin, a co-founder of Ethereum. Buterin would like to solve the scalability problem by applying the concept of sharding, which would divide the Ethereum blockchain into many smaller universes, each representing a different account space.
Once the scalability issue is solved, nothing will stand in the way of AdEx and other blockchain advertising auctions and projects to dismantle the current duopoly of Google and Facebook, ushering in a new era of digital advertising.