Can Blockchain Recoup Billions in Online Ad Dollars? Signs Point to Maybe, Someday
11.14.2018

Advertisers may be some of the world’s best storytellers, but they can’t seem to agree on their collective story when it comes to blockchain.

The problems in the industry are clear. Advertisers will lose an estimated $19 billion to fraud this year, the equivalent of $52 million every day, thanks to armies of bots all over the world that crawl web pages and generate fake clicks. From the consumer’s perspective, advertising has felt not only more intrusive in terms of user experience, but also more invasive in terms of data privacy, leading to incremental legal action such as GDPR in the EU and the Consumer Privacy Act in California.

Recent technological advancements designed to improve this landscape, such as programmatic advertising (the automated, real-time buying and selling of ad inventory via an online exchange such as Google AdWords), have only corresponded with a greater increase in reports of fraud, overinflated viewership metrics, and opaque payment flows. In fact, the current supply chain of digital ads is so ridden with middlemen—exchanges like Google AdWords, demand-side and supply-side platforms (DSPs and SSPs) that provide real-time transaction management for buyers and sellers of digital ad inventory, and third-party verification partners paid to settle disputes—that publishers often see fewer than 30 cents of every dollar that a given advertiser spends.

Charles Manning, CEO of Kochava

Could blockchain be used as a potential solution? New blockchain-powered ad startups like Adbank, Lucidity and Kochava’s XCHNG claim that the technology can accomplish what incumbent platforms promised but never delivered: eliminating incentives for fraud by providing full data and payment transparency to brands and publishers, while empowering consumers to understand the value of and control their personal data.

Blockchain offers a single, shared record of transactions between advertisers and publishers that are autonomously validated using an agreed-upon consensus algorithm—which could potentially put the squeeze on several existing middlemen, especially third-party verification platforms. In addition, the problematic drawbacks of low speed and high latency in blockchain are gradually going away, thanks to techniques like sharding and sidechaining. XCHNG can now handle 180,000 transactions per second per smart-contract insertion order, which it says translates to millions of digital ads served per second, while Lucidity, which recently ran a pilot campaign with Toyota, claims to be able to scale to millions of transactions per second, on par with today’s biggest ad exchanges.

But blockchain alone is arguably insufficient for saving the advertising industry from itself. After all, a blockchain is fundamentally just a database, which can be corrupted with bad data and rendered unreliable (“garbage in, garbage out”). In fact, with new crypto scams popping up every week, blockchain is far from a panacea for tackling fraud writ large, let alone in advertising.

Furthermore, the same advertising middlemen that blockchain would supposedly make obsolete want to yield the technology to protect and grow their own margins—potentially leading to a lackluster “ad-tech 2.0” that only preserves the fragmented complexity of current practices.

This tension took center stage at Adweek’s recent Elevate: Blockchain summit, held in October at the Boston Consulting Group’s New York offices. Speakers and attendees from across media, including marketers, advertisers, startup founders, consultants, and journalists, gathered to exchange often-contradictory perspectives on how blockchain could improve their business (or not).

Angelo Dodaro, cofounder and chief marketing officer of Adbank, was, unsurprisingly, one of a handful of speakers at the event who doubled down on blockchain’s disruptive effects: “Blockchain is the definitive middleman-killer,” he said. “The current middlemen have a pretty vested interest in not seeing this technology take off.”

But the majority of other speakers treaded carefully around the rhetoric of “killing” middlemen—opting instead to discuss the importance of consensus and interoperability among existing players in the ecosystem.

This more conservative attitude was underscored by the fact that BCG was a primary host and cosponsor of the event. In recent years, the consulting firm has built an entire practice around “helping large companies … create a business model around [blockchain] that’s somehow higher margin,” in the words of Neil Shepherd, principal at the firm’s San Francisco office. In other words, BCG’s corporate clients have a vested interest in making sure blockchain has only an incremental, rather than disruptive, effect on their work.

In the case of supply-chain improvements in advertising (i.e. streamlining the flow of user data and payments between advertisers and publishers), Shepherd claimed that blockchain-powered applications would “require 60 to 80 percent of the market to be wired up before they actually become useful.” Similarly, Chad Andrews, global solutions leader, advertising and blockchain at IBM, argued that effective consensus algorithms for verifying data and payments for ads “will take years to build and be trusted. This isn’t a problem you just solve with an app.”

Angelo Dodaro, cofounder of Adbank

Other speakers emphasized the importance of making blockchain applications not just user-friendly, but also meaningfully integrable into existing practices and measures of success.

“The blockchain-backed element shouldn’t bypass reality,” Charles Manning, founder and CEO of Kochava, said at the Adweek event. “You still need to ask [blockchain startups]: What’s the targetability? Do you have case studies? How do we know there’s a chain of custody prior to someone posting campaign results on Ethereum? If it’s just another place for us to post data, does that really move the needle for us?”

The primary takeaway from the event, then, was less about the promise of blockchain, and more about deeply ingrained problems in media and advertising that might not be solved by blockchain at all.

For instance, just a day before the Adweek event, blockchain journalism startup Civil raised only $1.45 million out of the minimum target of $8 million required for its highly-anticipated token sale. It’s hard enough getting readers to subscribe to publications that traditional way; turns out, the additional step of buying cryptocurrency to do so is a further deterrent. Aside from the clunky user onboarding process (which, by some reports, required 44 steps to buy Civil tokens), the sale’s flop reinforced how blockchain is just one—and by no means the best or most authoritative—solution for journalists seeking to raise funds directly from supporters, or for readers seeking more intimate involvement in the journalistic process. Consider how seven of the 10 most-funded journalism projects of all time on Kickstarter took place in the last year, or how legacy public radio stations continue to redefine membership models in tandem with technological change.

The bottom line is that any standalone database technology, of which blockchain is just one example, ultimately serves the incentives of its users. If already-existing technology serves those incentives effectively, users don’t have any motivation to switch to something else. If users do switch to blockchain but problematic incentives remain, little to no meaningful transformation will actually take place.

The very practice of bringing existing problems to the table in evaluating blockchain’s efficacy might be pointless. “If we really do things differently, and change the behavioral mechanisms of how things work today—how we make our money, how journalists build their brands, who owns what data—it may create new problems, but it won’t necessarily be the problems that we have today,” said Jarrod Dicker, founder and CEO of Po.et, a blockchain company building a decentralized protocol suite for ownership and monetization of intellectual property. “A lot of people are saying that blockchain is a solution looking for a problem. And I’m like, ‘Yes, that’s exactly right.’”