Ad networks wake up to regulation

04 December 2009

On 15 September 2008, Lehman Brothers filed for Chapter 11 bankruptcy protection. It marked the beginning of the current recession and the start of a very difficult period for advertising.

WPP’s Sir Martin Sorrell worryingly points out that advertising budgets are often the first thing to be cut and the last to recover. WPP’s recent half year results – a 47% slump in profits against the same period in 2008 and a worrying 8% dip in first half revenues, greater than the predicted 4% drop – show that he was right to be concerned. One year on from Lehman Brothers implosion, and on the back of the disappointing WPP results, Sir Martin has predicted a way out of the gloom: “new markets, new media and consumer insight.”

One quarter of WPP’s revenues are now digitally based; for Aegis the percentage rises to 31%, and few would argue that digital promises the biggest growth in the marketing arena. According to the IAB the European online advertising market in 2008 was worth €12.9bn with a like-for-like growth rate of 20% compared to 2007. In the US, online advertising grew 10.6% in 2008 and was worth €16.6bn ($23.4bn).

Whilst the IAB has not produced hard data for 2009 as yet, ZenithOptimedia’s latest forecast (from July 2009) predicted that global spending on online advertising will rise by 10.1% in 2009, despite a predicted drop of 8.5% in overall ad spend. By 2011 the agency believes online advertising is likely to account for 15.1% ($72bn) of total global ad spend, compared with 10.5% in 2008.

However, the star performance of the digital channel in a contracting market has brought with it a closer scrutiny on the inner workings of the industry, from both the regulator and increasingly the consumer. In a recent New York Times article David Vladeck, the new head of the Federal Trade Commission’s Bureau of Consumer Protection in the US proclaimed “the era of self-policing may not be entirely over, but the industry is in for drastic changes” – a direct reference to the use a perceived ‘misuse’ of consumer data to target advertising.

In the UK the Office of Fair Trading (OFT) is launching an investigation into online pricing and advertising, including price comparison websites, and the use of personal data in website advertising in order to possibly create an industry code of practice. So will digital’s as yet relatively unfettered growth be tempered as the world climbs out of recession?

“As digital media has become an increasingly relevant vehicle for reaching audiences, it is only natural that governments carefully evaluate online data collection and usage practices in the context of consumer rights,” says Brian Fitzpatrick, managing director UK media at online ad network 24/7 Real Media.

“There is certainly a head of steam in the US with Congress getting interested, but what is required is a lot of lobbying at the European level and beyond,” says Carl White, chief executive of online ad network Valueclick Europe.

“Self-policing may not be over, but the industry is in for drastic changes”

With regulators shining a bright torch on the use of data, especially at the network level where the accumulation of different data sets has more power, it will begin to put independent advertising networks under greater pressure. Large online players such as Advertising.com, under the AOL banner, derive much of their value from the reach of the network coupled with the greater ‘data net’ that it can cast due to its scale. With regulators focusing on the use of consumer data, those networks which have a smaller data pool may find themselves under pressure and eventually targets for acquisition.

“The more we restrict our ability to bring together data to find audiences the more it damages the little guys,” says Troy Young, chief marketing officer at video audience network VideoEgg.

As if to prove the point, Unanimis, one of those independent ad networks, has just been acquired by Orange, which is using the acquisition to develop “strong footholds in two of Europe’s three main digital advertising markets, France and the UK,” according to Orange Advertising executive vice-president, Paul Francois Fournier.

As the value of data at the network level rises a new market will also develop, a data trading environment. Two companies, Blue Kai and eXelate are already operating in this area, creating an exchange based model that is already being used for ad inventory, but applying the model to the data market. Using these new services advertisers will be able to turbo-boost their existing digital advertising through additional behavioural data that can be fed into the targeting of the campaign.

As this new market appears, and regulators get more involved, consumers are also becoming increasingly aware of the value of their data. This could see more public revolution, as was seen against Phorm, which now seems doomed in its current ISP level data collection format.

“Phorm’s data collection spooked a lot of people and really turned public opinion against behavioural targeting,” says Stephan Pretorius, president at digital marketing consultancy Acceleration. “They pushed the concept too far.”

Greg Brooks, London