Akshay Salaria from Tata Digital presents his views on how well digital advertising truly works and why digital spends are steadily on the rise
In 2021, India saw its advertising industry rebound from a pandemic affected in 2020. The advertising industry in 2019 was at Rs 68,475 cr which dropped to Rs 59,619 cr in 2020. But in 2021, the industry bounced back with revenues of Rs 70,715 cr. 30% of these spends in 2021 were on Digital. Share of spends on digital has been continuously increasing from 12% in 2016 to reach 30% in 2021. This has come largely at the expense of traditional media like print, radio and TV.
MEASURABLE DATA: A distinctive feature where digital media is different from other media sources is that it is measurable. This works in favour of digital most of the times and works against digital sometimes. Each impression seen by a user, each click, each signup on an app or purchase from a website can be tracked.
A second feature is the targeting capabilities that are available in digital. No other media channel comes even close to the capabilities that digital has. The list of targeting parameters is endless. I would group these targeting parameters into three parts: Demographic, Interest Based, and Behavioral. ‘Demographic’ targeting has age, gender, location etc. ‘Interest’ based targeting has to do with the customer’s personality, choices and interests. This is closer to the theoretical psychographic targeting parameters. These interests can range from topics like shoes, gardening, paintings to rocket science. Targeting parameters also include people who are currently actively researching to buy some product or service. Ad networks now can differentiate between a user who is researching on the internet to buy a car from a user who is an auto enthusiast and keeps himself/herself abreast of the latest in the auto industry. Lastly there are ‘behaviour’ based targeting parameters which include the device being used, the mobile network, the friends/connections that a person has, education levels, marital status etc.
TARGET GROUPS: Each advertiser can choose their own targeting parameters in each of the three categories to reach out their target group. Then these can be mixed and matched to create a combination to further narrow down the segment and hence reaching out to even more relevant users. For example – a brand can reach out to this target segment: men, aged 25 to 35, stays in Madhya Pradesh, interested in sport, inclination towards popular brands like Nike, reebok, has a high-end phone and is among higher income groups. And this is just one example.
There are infinite such combinations that each advertiser can make and use them to target their customers for various products and services. In which case there could be a user who would fall into the target segment for many advertisers. So, whenever you scroll down your Instagram feed or browse a website, you see ads by multiple advertisers. This is because all those advertisers felt that you were right person to reach out to, for their products and services.
If you are reading news on a website where google is deputed to show ads by the news publisher, how does google decide which ad should be shown to you? It is, in a way, a classical ‘n is to n’ problem where n advertisers wish to show ads to n users. To simplify, google must solve two problems. One: as an when a person is found eligible to show an ad, google must figure which advertisers are targeting that person. Two: then it needs to decide who among the advertisers will get the opportunity to show their ad.
AD AUCTION: In my opinion, the real reason why digital has been successful is how these companies (Facebook, Google etc.) have managed to solve the second problem. They have figured out a way to decide which advertiser among n competing advertisers can show their ad. This process is called an ‘ad auction’. What is an ad auction and how does it work? Let’s start with an analogy.
Reliance is India’s largest company by Market Capitalisation. Many people buy or sell reliance shares at different prices as per their trading preferences on the stock exchanges. There would be many sellers who wish to sell reliance shares at bidding price of X or more than X. Similarly, there would be many buyers who wish to buy reliance shares at bidding price Y or less than Y. The stock exchanges conduct auctions to match the buyer with the seller by matching X and Y wherever possible, hence completing a trade. This matching, if done efficiently is a win-win for all three parties – the buyer, the seller and the exchange. The buyer gets to buy at or lesser than the bidding price, the seller gets to sell at or higher than the bidding price and the exchange is able to satisfy its customers who would keep using the exchange for trades in the future.
Conceptually an ad auction works on a similar principle called ‘Real Time Bidding’(RTB). There is an auction for each ad impression served to each user. Firstly, all those ads from advertisers are identified in whose target segment a particular user falls. These ads then enter the ad auction. Unlike in the case of the stock market where the amount is the sole deciding factor in deciding who gets to buy the stock, this auction is more complicated. It takes multiple signals which include the bid amount, quality of the ads, performance history of the ads, performance of the advertiser’s website, the user’s location, device and many others. It is not clear which one of these has what weight in the decision-making algorithm, but certainly all of them are very important from an advertiser’s perspective.
This system is also a win-win for all three parties – the user, the advertiser and the ad network. The user sees the most relevant and contextually served ad, the advertiser reaches out to its target segment and has a fair chance to show their ad, and the because the user and the advertiser are satisfied, both of them continue to use the ad network.
WHAT ‘WORKS’? To summarize, digital marketing works because each advertiser can identify which segment of users are to be targeted for their ads and the ad network ensures that the ads are indeed actually shown to those users. And all this is accomplished by a system, at the heart of which is ‘Real Time Bidding’.
(Data source: Dentsu Digital Report 2022).