Why we care about adtech: The complete guide
The boom for marketing technology has not left behind advertising technology, or adtech, but the digital acceleration wrought by the COVID pandemic has sped things up more. In fact, between the third quarter of 2020 and the third quarter of 2021, there was a 125% increase in M&A activity for adtech platforms, including several high-profile deals in 2021 like Mediaocean’s acquisition of Flashtalking for $500 million and AdTheorent’s $1 billion SPAC deal to go public.
Advertisers are willing to invest in adtech for its ability to attract a target audience and generate strong insights. But, there is another reason marketers are taking a fresh look at these technologies.
The pending loss of third-party cookies means contextual advertising will become more important than in the past and adtech is essential to marketers who are looking for ways to access customers through contextual data.
Adtech also gives marketers incredible reach since it connects them to all media. These technologies are especially powerful as most media transforms to digital or digital-first.
This guide is meant to give marketers a comprehensive overview of not only what adtech is, but how it is evolving and shaping the future of marketing. We’ll cover:
- What is adtech?
- The components of adtech.
- How is adtech changing the marketing landscape?
- The challenges of adtech.
- What is the future of adtech?
- Ways to learn more about adtech.
Estimated reading time: 14 minutes
What is adtech?
Advertising technology describes the software and the tools used by advertisers to deliver targeted digital ads to consumers. Adtech aims to create data-driven marketing strategies tailored to match the target audience’s preferences. It streamlines the increasingly complex processes of buying and selling digital advertisements and enables brands to make the best use of their budget, maximizing their ROI.
Adtech includes various tools and technologies that help advertisers, agencies, and brands achieve greater efficiency, targeted reach, and real-time analysis and optimization. It can help marketers improve omnichannel engagement by targeting customers across many channels. What’s more, adtech may encompass programmatic technologies that use automation to enhance the media buying process.
Ultimately, adtech is a set of technologies and platforms brands and agencies can use to optimize their advertising operations. Successful campaigns use it to glean actionable data and send audiences the most relevant ads.
The components of adtech
Advertising technology is relatively straightforward, but there are a few key components that show why it’s a great asset for brands.
Adtech uses programmatic ad buying to increase the efficiency and reach of digital advertising. At its core, programmatic ad buying is software-driven technology that seeks to automate all or parts of the ad buying process that were previously done manually. This has two benefits:
- Ad buying efficiency: Programmatic advertising improves the speed and scale of the ad buying process. This speed cannot be achieved manually.
- Ad targeting relevancy: Programmatic advertising allows advertisers to embed large amounts of data from multiple sources. This leads to users seeing more relevant ads based on their psychographic, demographic, and behavioral patterns. As users see more relevant ads, click-through rates improve, leading to a better ROI.
Programmatic ad-buying makes it easier to target your ideal audience since you’re essentially buying ad space that reaches a focused demographic instead of purchasing a prime time TV spot and hoping your target market is watching. Programmatic ad-buying also gives companies a unique and real-time insight into the reach of their advertisements. So, in turn, it ensures efficient spending and improves branding.
Finally, programmatic branding is often cheaper than traditional alternatives and is a good ground for experimentation. For example, you could use YouTube ads to test their effectiveness and use the results to help you decide which ads to air on TV.
Unfortunately, programmatic advertising is still susceptible to a fair share of fraud. Ad fraud typically refers to the following:
- The presence of non-human traffic, which can range from simple to sophisticated bots to even entirely botnet servers.
- Zero percent viewability caused by invisible ads, arbitrage, domain spoofing, site bundling, click farms, etc.
- Intentionally misrepresented ads.
The open nature of programmatic advertising may, unfortunately, allow bad-faith actors to defile and actively cheat the system. Since anyone can offer or buy an ad, it runs the risk of fraud, which these bad-faith actors get away with since ad fraud laws are yet murky in many countries.
Demand and supply-side platforms
Adtech comprises two primary platforms: demand and supply-side. While demand-side platforms (DSPs) are used by digital advertising buyers to manage programmatic ad buying, supply-side platforms (SSPs) are used by publishers to sell digital ads in online auctions.
Demand-side platforms. DSPs automate the ad-buying process by deciding how much to bid on an ad impression in real-time. This decision is made the instant an ad impression is available on a publisher’s website or app, depending on the advertiser’s requirements. DSPs often use the outcomes of ad clicks, such as ROI and cost per acquisition, to ensure ad campaigns are optimized.
They reduce the need for constant back and forth communication between advertisers and publishers, increasing the efficiency of the ad buying process. DSPs analyze the best ad impressions as well as the price at which they should be bought through real-time bidding (RTB). This entire process takes just a few milliseconds.
If you are confused about the differences between DSPs and Google’s AdWords, here are a few key differentiators:
- The extent of their reach: DSPs can reach over 15 billion impressions a day, a number that AdWords does not come close to.
- Targeting options: The targeting ability of DSPs is more advanced than AdWords due to real-time bidding.
- Data freshness and granularity: Advertisers can check the performance of their campaigns better through DSPs.
- Pricing: The pricing mechanism is different. AdWords functions on a CPC model.
- Accessibility: While DSPs are difficult to use for most companies because of the high monthly minimums, AdWords is relatively easier because of the ease of use and the CPC (cost per click) model.
Supply-side platforms. Supply-side platforms (SSP), or yield-optimizing platforms, are mainly used by digital publishers to manage the sale of their advertising supply while maximizing prices. SSPs are similar to their demand-side counterparts, but instead, they are designed for publishers to sell ad impressions at the highest CPM (cost-per-thousand impressions).
SSPs operate by opening up publishers’ inventories to bidding from advertisers on ad exchanges and ad networks. The core principle is to drive up prices of ad impressions by inviting a large number of bidders. This ultimately yields higher CPMs.
By automating the process of selling ads, SSPs increase the functional efficiency of the process in two ways. Firstly, they cut out the need for traditional back-and-forth negotiations between publishers and advertisers, making the process faster and cheaper. And secondly, they allow publishers to use a large amount of data that isn’t available in the manual buying process.
While many SSPs have amassed publishers whose inventories they manage and sell (effectively acting as an ad exchange), they are not the same as ad exchanges. For example, SSPs often connect to multiple ad exchanges, ad networks, and DSPs. They also grant publishers the ability to set price floors on some bids or make some inventory exclusive to specific buyers.
How is adtech changing the marketing landscape?
Some argue that advertising, and adtech by extension, refer to purchasing media for exposure to potential customers. On the other hand, marketing implies the communication of products and services with identifiable prospects and consumers. In other words, adtech is for media buys, and martech is for customer personalization.
But consumers don’t distinguish between adtech and martech. Most users interact with brands across multiple touchpoints and prefer to receive a seamless, coherent brand message across all platforms. It, therefore, makes sense for advertising and marketing teams to join forces. For example, businesses could use CRM data to promote brand awareness campaigns or personalize websites using adtech data management platforms or DMPs.
The unique insight into customer data provided by martech stacks can be used in adtech through email address, physical address, IP address, or UDID to reach customers at the right time. The issue is that this data is often separated from the adtech stack due to department silos — a remnant of non-digital media. But, with increasing privacy concerns, marketers will have to develop more people-centric solutions to get buy-in.
People-centric marketing combines adtech and marketing technology and can reach potential customers by integrating their individual preferences and past behavior into advertisements. This strategy seeks to optimize sales and increases the chances of eliciting a positive response from customers.
This data-driven approach aims to foster brand loyalty among existing customers while also appealing to new ones. However, this is possible only if the marketing strategy adopted by the brand focuses on utilizing data to reach their customers rather than opting for more traditional approaches.
Improving addressability and eliminating silos
Addressable advertising refers to the advertising that links individual consumers with brands across multiple online channels, social media, OTT, etc. This is a direct outcome of the personalization of ad content – since consumers are used to ads being specifically targeted at them, anything that falls short of this metric will be rendered ineffective.
Advertisers could provide their ad agencies or in-house DSPs with more accurate measures of their inventory and programs. In combination with programmatic ad-buying, the outcome would be genuinely addressable impressions that could eventually generate revenue and sales.
Adtech can create people-centric marketing platforms by utilizing individual and household data about demographics, purchase history, digital engagement, and other attributes like consumption of media. This can link the brand’s existing customer data, third-party data, and ad platform user data to create a people-centric strategy for advertising. The retargeting and engagement potential of such a combination can transform campaigns.
The challenges of adtech
Despite being the next big thing in marketing and having shown incredible ROI, one of the main reasons brands have chosen to stay distant from adtech in the past is monopolization. Google and Facebook retain their positions as the dominant forces in the adtech sector.
Both Google and Facebook have taken a massive lead in adtech by amassing vast amounts of data. And while the cost of advertising on Facebook fell during the pandemic, it has begun rapidly rising again. Facebook also faced criticism due to allegedly misrepresenting data to make their ad spots seem more lucrative to brands.
But no company can match Google in their acquisition of user data. It controls a large number of ad platforms and marketplaces for ad transactions, including YouTube. And Meta isn’t far behind.
The result is that many advertisers are compelled to make deals with Google and other large advertisers due to the lack of viable alternatives.
The death of the third-party cookie
For many decades now, marketers have relied on third-party cookies to track and store consumer data online. In 2019, Apple’s Intelligent Tracking Prevention (ITP) and Firefox’s Enhanced Tracking Protection (ETP) started blocking third-party cookies by default. In the same year, Google Chrome offered users the ability to block cookies on websites they visit. While Google’s initial plan was to deprecate cookies by 2022, they have recently updated their plans to phase out cookies by 2023.
Google is the leading collector of user data. Users’ information is tracked any time they watch a video, browse through posts online, or even casually surf the web. Given Google’s dominance in the advertising market and control of over 63% of the browser market, their optional version of the ITP will surely spell death for third-party cookies.
Since this transition could put them under fire from antitrust laws, Google has been cautious in marketing their version of the ITP as a privacy benefit to users. Engineering VP Prabhakar Raghavan explained this shift in a blog post: “Our experience shows that people prefer ads that are personalized to their needs and interests—but only if those ads offer transparency, choice, and control.”
So, what happens in the absence of third-party cookies?
Contextual ad targeting
GDPR, CCPA, and other data privacy regulations spell the end of behavioral audience targeting, leaving many marketers searching for alternatives. Enter contextual ad targeting, an advertising method that uses the digital content audiences experience to serve up relevant ads.
Contextual advertising isn’t a new concept, but new machine learning and natural language processing (NLP) capabilities have opened up new opportunities. GumGum, a contextual advertising company, and SPARK Neuro, a neuroanalytics company, performed a study on just how effective this process can be. Using biometric sensors to monitor participants’ brain activity while viewing articles with ads related to the content, the study found that these ads generated 43% more neural engagement and 2.2 times better ad recall.
It should be noted that contextual advertising isn’t just about providing relevant ad content – marketers should consider which types of ads will perform best based on device, time, location, and other factors. Identity resolution technology can help ensure the insights gained from audiences are accurate and actionable, allowing for greater ad contextualization and personalization.
Identity resolution is not only critical to marketing success but is essential for compliance with consumer privacy laws such as CCPA and GDPR. Explore the platforms essential to identity resolution in the latest edition of this MarTech Intelligence Report.
First-party cookies have been essential to the web-browsing experience for a while now. They are codes generated and stored on a brand’s website whenever a user visits the site. First-party cookies are often essential to a user’s web browsing experience.
First-party cookies are used to remember passwords, basic information, and preferences. They are paramount to most e-commerce websites; for example, when users save an item in their cart on Amazon, they expect to see the same cart upon logging back in. However, in the absence of first-party cookies, the cart would be refreshed and empty every time they visit Amazon.
The deprecation of the cookie refers solely to the third-party cookies, leaving first-part cookies as a means of collecting user information relatively untouched. This allows marketers to continue accessing and storing user information and use it in their ads.
Consent management platforms
Consent management platforms (CMPs) will still be relevant in the marketing sphere, with a greater emphasis on user consent and privacy. It has been seen that customers who restrict the information they share with brands show better ROI for advertisers.
The demise of cookies does not mean a lack of user data collection. As Zack Meszaros, marketing privacy engineer at OneTrust PreferenceChoice, says: “It’s [the death of cookies] not equal to the death of us collecting information … some of that first- and zero-party data we get could still be shared with third parties.”
CMPs allow marketers to build proprietary data sets from information that consumers have consented to part with. Clearly, data collection will continue even if it isn’t in the third-party format.
What is the future of adtech?
The consolidation of marketing technology with adtech holds immense potential. Advertising is an extremely dynamic industry, and constantly adapting to the times is the only way for marketers to survive and thrive.
Personalized ads make all the difference and are an integral part of the customer journey. But, to ensure this messaging resonates with audiences, brands must rely on technologies that deliver actionable first-party customer data and insights. We believe adtech tools and platforms will continue to adopt greater privacy compliance and data consolidation functionalities to help brands connect with their target markets. In fact, we already see the big tech brands moving in this direction.
The data-driven, customer-centric approach of adtech is the future of advertising. It leads to more relevant ads for the users and better ROI for advertisers — a big win-win scenario for all!
Ways to learn more about adtech
The adtech landscape is in a state of constant flux. The increasing privacy concerns, coupled with advancing digital technologies, means marketers need to be aware of the assets available to keep their campaigns going strong.
Here are some helpful adtech resources to help you choose the best solution for your organization:
- Marketers look to adtech and agencies to solve the addressability problem: MarTech’s Kim Davis unpacks the addressability problem in adtech, as well as possible solutions.
- How Google’s $150 billion advertising business works: This article details Google’s adtech ecosystem, helping marketers make the best decisions for their campaigns.
- Ad technology providers for Google: Google’s curated list of adtech providers to help publishers select which are allowed to display ads in the European Economic Area and the UK. This is in keeping with GDPR.
- Facebook Ads Ecosystem: Data Privacy and Personalization: This guide from Meta shows marketers how to deliver ads on the platform in a world of changing customer preferences.
- FLoC and the future of audiences: A detailed look at the future of digital advertising. Advertisers can continue monitoring FLoC or its new replacement and experiment with it so they’re ready to make the most of it the day third-party cookies stop working.
If you have any other questions regarding adtech and the digital advertising landscape as a whole, we encourage you to explore our resource library.