The AppNexus Innovation Summit in San Francisco last week attracted a compelling concentration of smart minds from the most innovative firms in the display advertising ecosystem. An early highlight came from Aaron Easterly, General Manager for Advertising Strategy and Monetization at Microsoft. According to Aaron, the top four sources of value creation in the online advertising industry are differentiated solutions to the following problems:
- The matching problem
- The segmentation problem
- The bidding problem
- The data aggregation problem (this manifests itself in the context of several different classes of digital media solutions – one that I’ve touched on in the past is attribution analysis)
I agree with Aaron. While there are obviously other sources of value creation for firms operating in the display advertising ecosystem, differentiated solutions to these four problems are increasingly important sources of competitive advantage. And building on Aaron’s point, the value created in solving these four problems increases with the amount of data analyzed and the speed of that analysis.
Aaron’s points were also supported by the presentation that Adam Gross, CMO of The Jordan Edmiston Group, gave that same day on “Creating Value in the New Age of Online Advertising”. Adam discussed the “continuing market shift to selling audience versus sites” and presented analysis projecting a 36% CAGR for firms selling data-driven audiences versus 4% CAGR for those selling site-specific ad inventory:
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[Note that I am using previously published slides from a presentation at the IAB Annual Leadership Meeting in February (available here) because they are nearly identical to those used by Adam at the AppNexus event.]
Adam also illustrated the value creation potential of the audience-driven approach to targeting by pointing out how the enterprise value of a representative “old school” ad network, Burst Media, paled in comparison to the much higher enterprise value of a newer “audience-driven” ad network, interCLICK:
Adam went on to explicitly advise display ad networks to “differentiate with data + tools”. And that advice aligned nicely with the widespread consensus among Summit attendees – who represented many of the industry’s most innovative and successful firms. Demand for rapid analysis of very large data sets began as a ripple in the industry and has grown into a tidal wave – a wave that threatens to drown any firm that fails to leverage their strategic data assets to create competitive advantage.
