2018 Will See The Rise Of Machine Learning
Advertising Agency Models
First off, we saw the advertising agency model come under scrutiny in 2017. With revenue and profits down, increased competition from established consultancies, and ongoing transparency concerns, the door was open for the arrival of specialist consultants. These well-funded players are now gunning for a slice of the global advertising pie, and hiring senior talent from the digital media sector. As they do, they are winning high-level strategy and planning contracts that could leave agencies with creative, lower-level planning and campaign activation.
Supply-Side Margins
Secondly, on the supply-side, we are also seeing significant margin pressure, which could likely result in consolidation or business model shifts. The rapid reduction or elimination of buy-side fees is affecting overall profit margins on the supply-side, while the improved detection and eradication of fraudulent impressions also comes at a cost. I think we could see the emergence of more platform-as-a-service (PaaS) models where a flat CPM (cost per thousand) is charged to the publisher. PaaS offers full transparency and a predictable revenue stream for supply-side players. Lean businesses that maintain a sustainable take rate and build trust with their customers should go far in 2018.
Infrastructure, An Advantage
As we enter 2018, technology providers with efficient integrations, low latency, localised data centres and the ability to increase inventory volumes cost-effectively will create competitive advantages.
Machine learning should gain prominence in 2018 as a means to gain competitive leverage. At PubMatic, we analyse billions of pieces of data from inventory on our platform, plus process bid stream data from hundreds of DSPs; our ability to interpret and select the most relevant and highest paying ad requires an immense amount of processing power and advanced algorithms.
Fraud
Discussions around fraud which dominated the airwaves in 2017 will not decrease this year. The industry has done a tremendous job of responding to this threat but, we still have a long way to go. This year should see a cleaner and more transparent digital advertising economy with those players truly committed to a fraud-free environment benefitting from incremental ad dollars. As trust is regained, brand spend should increasingly flow into programmatic.
This industry is not for the faint-of-heart, with persistent radical change and opportunity arising each year. We are largely headed in the right direction with the challenges forcing participants to be transparent, to continue to invest in innovation and form strong client relationships.
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