Rapid change remains the only constant in digital advertising. IHS attended dmexco (digital marketing exposition and conference), the world’s largest trade fair and conference for digital advertising, which took place 10-11 September in Cologne, Germany. IHS participated in two panel sessions and we held countless analyst briefings over the two-day period to get updated on the latest trends, business models, mergers and acquisitions, successes and challenges. Here is a summary of the key themes that shaped dmexco, and which will shape digital advertising in the next 12 months:
- Programmatic buying: The automation of advertising workflows and transactions was atop the dmexco agenda with the majority of conference sessions and exhibitors offering their take on advertising technology trends. The difference between dmexco 2013 and 2014 is that the high-level debates on programmatic have shifted from whether or not publishers and advertisers should be investing in programmatic at all, to a more in-depth and nuanced discussion about the right approach to programmatic. The real debate now lies in the role of programmatic in the foundation layer of marketing: the planning stage. It is here that programmatic has the potential to disrupt old media buying models and fundamentally change the advertising industry.
- Innovation outpaces ad tech consolidation: Despite significant consolidation in the last couple of years (AOL's acquisition of Adap.tv, Facebook's acquisition of Liverail, RTL’s acquisition of SpotXchange, Criteo’s acquisition of Adquantic and Tedemis, Rocketfuel’s acquisition of x+1, Appnexus’s acquisition of Alenty to name a few), the rate of innovation in the ad technology space is faster than that of consolidation. In 2014, there were more ad tech companies present at the show than ever before and their stands were noticeably bigger. This is a sign that they are increasingly relevant to the industry and publishers are beginning to take them seriously. However, their multitude is also an indication that there is still confusion about which companies offer good software solutions and which are simply intermediaries engaging in arbitrage. The ad technology landscape remains opaque and until algorithmic auditing separates the good technology from the bad, it will be difficult to distinguish between companies. This is something that is normally solved by consolidation. However with increased consolidation the lines between demand and supply are blurring with solutions servicing both sides, making it increasingly difficult to navigate the landscape.
- Vertical adoption of programmatic buying: Market participants have abandoned the idea of programmatic as a blanket approach that all advertiser verticals should embrace. Dmexco demonstrated that programmatic buying has been extremely successful for the travel, telecoms and retail industries where the point of engagement and the point of transaction are close. Where consumers are comfortable with purchasing products and services online through e- or m-commerce, programmatic tends to do well. Conversely, we observed that when the purchase decision is far from the digital advertisement (e.g. packaged goods), programmatic is not as effective and as a result not adopted by publishers. But dmexco also showed that programmatic will move into others verticals more forcefully within the next years. As smart washing machines, smart fridges and other smart devices permeate homes, there will be new screens and new opportunities for advertising, where programmatic can prove to be an effective tool for advertisers in very specific consumer location and event contexts.
- Video advertising is stuck between potential and constraint: Online video advertising grew 38.4% in Europe in 2013 and is projected to grow 21.9% in 2014. Supported by the idea that brand advertisers are able to directly transpose their TV campaigns onto an online format, video is promising to seize the ad spend from the traditional TV advertising ecosystem. However, although the growth coming from video is one of the key drivers in online advertising, its limitations have featured as much at dmexco as its potential. There are two main obstacles for video growth:
- Firstly, in the short-term, international expansion is fairly limited due to video’s dependence on broadband penetration. As one of the panelists at the conference pointed out, it would cost 13.9% of an average Nigerian annual income to buy 500 megabytes of data and hence the potential of video advertising outside developed countries where data is relatively cheap is limited.
- Secondly, in the long-term, demographic and media consumption trends hamper the potential of video advertising. The rich are increasingly opting for services which are ad-free, with Vivaki reporting that upper-income consumers are watching 10% fewer video ads than they did last year. These two points do not suggest that the growth of video advertising will not continue. However, it is important to note these factors which can impede the longevity of online video advertising.
- Mobile continues to capture the imagination: In 2013, for the first time, mobile made up a double-digit share of all display and search advertising in Europe. From a media planning perspective, mobile is no longer an afterthought for advertisers. It has moved from the pool of experimental budgets to a key component of media strategy. The exhibitor and speaker roster at dmexco increasingly resembles that of Mobile World Congress, the annual gathering of the mobile industry held in Barcelona. Fragmenting media consumption means that advertising campaigns need to reach consumers across all devices and platforms. As a result, mobile advertising networks and technology solutions are seeing large increases in revenue from both brand and performance advertising. The challenge for mobile ad companies will be to prove that in addition to their mobile-specific offerings they can provide cross-channel advertising services as most currently are not just mobile-first, but still mobile-only. Furthermore, much of ad spend dedicated to mobile is increasingly going to below-the-line marketing rather than advertising, putting the standard mobile banner under pressure.
- The future of the media planning and buying agency: As more specialized intermediaries pervade the digital advertising space, the role of the traditional media planning and buying agency is increasingly coming under scrutiny. If an advertiser can deal directly with a DSP (demand-side platform) to optimise its digital budget, why should it go through a less tech-literate agency? However, the role of the agency was also strongly defended at dmexco, this year. There are new challenges for advertising agencies as increasingly more countries turn into primarily digital ad markets and in order to remain relevant, agencies will need to innovate. They will have to 1) become technology experts offering reliable data and programmatic trading capabilities 2) move across the media landscape into new ventures, for example content creation. This is something that Dentsu, the leading agency in Japan and the acquirer of UK agency Aegis, is pursuing with its investments in the production of movies and TV shows, the most prominent of which is the Fast and Furious franchise. By becoming a premium content creator, an agency can dictate the terms in which brands can be represented within and adjacent to content, creating its own sources of revenue.