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No. 104 - The Changing Landscape of Advertising: from traditional to digital

DigiWorld Economic Journal - C&S - 15/12/2016 No. 104 - The Changing Landscape of Advertising: from traditional to digital

No. 104 - 4th quarter 2016

Advertising is a central element in the business model of traditional media and Internet services. The main driver of advertising looking ahead will undoubtedly come from digital advertising. The eruption of new personal screens has changed consumer behaviour, while the power of analytical tools has imposed Internet platforms as the new industry giants. These major changes raise a number of questions such as dominant positions, the reality of audience ratings, the maturity of programmatic targeting, effects on advertisers’ confidence and ultimately on the sensitivity and reaction of consumers. This dossier provides an initial identification of such issues facing this industry.


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Dossier

The Changing Landscape of Advertising:

from traditional to digital

Edited by: David BOUNIE, Florence LE BORGNE – BACHSCHMIDT
& Soichi NAKAJIMA



Foreword
By Yves GASSOT

Introduction
By the Editors


Papers

Advertising Viewability in Online Branding Campaigns
David BOUNIE, Valérie MORRISSON & Martin QUINN

The Internet: A New Economic Paradigm for the Advertising Market
Laurent BENZONI & Sara CLIGNET

Ad-Blocking and New Business Models on the Internet
Adrien KARSENTY


Interviews


Larry GOLDSTEIN, comScore
Conducted by David BOUNIE

Tim SCHUMACHER, Eyeo GmbH
Conducted by Florence LE BORGNE - BACHSCHMIDT

Rishad TOBACCOWALA, Publicis Groupe
Conducted by Yves GASSOT


Features

Firms and Markets
• State of Online Advertising Worldwide
Soichi NAKAJIMA
• How to Catch a Unicorn? An exploration of the universe of tech companies with high market capitalization
Jean Paul SIMON

Technical Innovations
• Big Data and Programmatic Buying Adapted to the TV Universe
Florence LE BORGNE – BACHSCHMIDT

Author biographies

Service Section
 
Dossier

The Changing Landscape of Advertising:
from traditional to digital



Advertising Viewability in Online Branding Campaigns
David BOUNIE, Martin QUINN & Valérie MORRISSON
Key words: Online advertising; Ad viewability.

A significant number of online ads served by publishers are actually never seen by Internet users. This results in ineffective branding campaigns and a considerable waste of money for advertisers. In reaction, more and more advertisers use technologies to measure the viewability of advertising campaigns on publisher websites. This paper discusses how the adoption of such technologies could impact the economics of online advertising.


The Internet: A New Economic Paradigm for the Advertising Market
Laurent BENZONI & Sara CLIGNET
Key words: Internet, advertising competition, two-sided market, big data, individual data, social graph, relevant market media.

Following a review of advertising market segmentation per media, this article explains the Internet's emergence as a powerful advertising support, building on network externalities and "winner takes all" effects. The combined forces of advertising programming and "big data" are now pushing Internet advertising toward new frontiers by valuing individual data and social graphs, as the two offer a maximum coverage of potential consumers even on the smallest market niches. It is the key to conquering advertisers. For this reason, individual data and social interrelations are the Holy Grail for companies selling advertising space on the Internet. The race to collect, store and handle data is on. Because of increasing returns, only big firms can compete on the "big data" market. This explains why the worldwide market of Internet advertising is highly concentrated and why this concentration is increasing. The article finishes with how these points impact the advertising market and could impact media content dependent on advertising revenues.


Ad-Blocking and New Business Models on the Internet
Adrien KARSENTY
Key words: Ad blocking, Internet, advertising, externalities, two-sided markets, regulation

Ad-blocking raises financial issues for free online platforms  whose business model relies on advertising revenues. Nevertheless, it may also have a positive impact for Internet Service Providers (hereafter "ISPs"), Internet users (hereafter "surfers") and finally on total welfare.
In this paper, we tackle the issue of ad-blocking through a network approach since it has an impact on the volume of ads that flows through ISPs' networks. In other words, we give particular attention to network effects and externalities that are generated by ads at the moment they are downloaded with the attached free content (or service) during consumption peaks.
We compare the different equilibria the economy achieves when the traffic level of advertising is indirectly set by web users through their consumption of free content, when an ad-blocking software is (freely) available or not and when the ad-blocking activity is internalised by the ISP.
Because of the two sided nature of the market for Internet provision, the different external effects give ISPs a strong incentive to internalise the ad-blocking activity.
We find that, in the absence of regulations for advertising (laisser faire), the equilibrium achieved when the ad-blocker is integrated into an ISP is welfare-enhancing compared to a situation where there is neither ad-blocking activity nor integration by ISPs.
We finally authorise a price-cap regulation so the market can achieve a second best equilibrium that maximises the total welfare.

The guest Editors

David BOUNIE is a Professor in the Department of Economics and Social Sciences at Telecom ParisTech. His research is interested in how the Internet and the digital revolution are transforming media and advertising industries. David is a Member of the Scientific Committee of the Center for the Study of Advertising Media (Centre d'Etude des Supports de Publicité) since 2012, where he contributes to audit and control media research. He is mostly involved in activities related to TV, Internet and mobile audiences, and specific topics such as advertising viewability and invalid traffic. He collaborates with colleagues in Economics, Statistics and Computer sciences from universities, public institutions and private research companies. He has published his works in several national and international leading journals.
http://ses-perso.telecom-paristech.fr/bounie/
david.bounie@telecom-paristech.fr

Florence LE BORGNE - BACHSCHMIDT, Director of Studies, joined IDATE in July 1998. She is now head of TV & Digital Content Practice. Florence’s prime area of focus is the digitalization process in the TV and video industry (terrestrial, cable, satellite and IPTV, mobile TV, digital cinema, video and TV on the web) dealing with both the economic and strategic aspects of those sectors, at a macro and microeconomic level. More generally, her work involves analysis of media groups’ strategies. She works for private companies (broadcasters, telecom operators, manufacturers), French and foreign regulatory authorities and public bodies (CSA, CNC, Centre d’Analyse Stratégique, HADOPI, OFCOM), ministries (Industry, Culture), the European Commission and French regional authorities. Florence is also a lecturer at the University of Montpellier I since 2010 where she teaches audiovisual economy. Before coming to IDATE, Florence Le Borgne worked as Head of Research in the Nord-Pas-de-Calais Regional Development Agency's Economic Observation department, where she devoted herself primarily to issues relating to the Information Society, the development of telework and the mastery of key technologies. Ms. Le Borgne is a graduate of the Lille school of management EDHEC (Ecole des Hautes Etudes Commerciales).
f.leborgne@idate.org

Soichi NAKAJIMA joined IDATE as a senior consultant in January 2009. His main area of endeavour is the Internet services market, both fixed and mobile, covering a wide range of topics such as VoIP, social networks, net neutrality, advertising and the use of personal data to name but few. In particular he specialises in the “Telco and OTT” perspective, including the analysis of strategies employed by the various players, scenario building and forecasts. Before coming to IDATE, Soichi worked for NTT DoCoMo, Japan’s largest mobile network operator by subscriber numbers, where he played a leading role in the strategic planning of the roll-out of Japan’s first 3G M2M data-only tariffs. Soichi holds a Bachelors degree in mathematics, from the University of Nottingham in the UK.
s.nakajima@idate.org


The interviewees

Larry GOLDSTEIN is Vice President, Research Audit Services for comScore, where he leads the company’s work with industry accreditation/certification bodies in the U.S. and international markets. Under his leadership, comScore has been certified by ABC for census measurement, Content Verification and Viewability for the vCE advertising measurement service. In the US, he has led comScore’s efforts to expand MRC accreditations including MMX and Validated Campaign Essentials™, encompassing viewability, brand safety and demographic audiences for advertising. Since comScore’s merger with Rentrak he has been heavily involved in the MRC audits for the company’s television services. Larry is a major contributor to ABC and MRC technical working groups, driving the development and improvement of industry standards. From mid-2006 through 2011, Larry was Chief Media & Research Officer for Media Management, Inc., the largest media audit firm in North America, where he built out the company’s research and consulting services practices as well as digital media auditing functions. He is a longtime agency veteran where he held positions in media planning and R&D for 23 years, leading the media research team and developing planning and buying systems for PHD USA and Advanswers Media/Programming, both Omnicom companies. His experience on the agency side includes work for major marketers in consumer packaged goods, QSR, healthcare, automotive, distilled spirits, financial services, entertainment, telco and tech sectors.

Tim SCHUMACHER co-founded and was the longtime CEO of the publicly traded company Sedo AG (sedo.com), which currently has revenues of 130m Euros per year and maintains approximately 350 employees. Since 2012 he has dedicated his professional career to the German start-up scene, acting both as business angel and mentor for young companies with economic potential. His current start-ups, among others, are Eyeo/Adblock Plus, Aklamio, Stuffle and Ecosia.

Rishad TOBACCOWALA is Strategy and Growth Officer, and a member of the Directoire/+ of the Publicis Groupe, the world's third largest Communication firm with 90,000 employees. Rishad works with the leaders of the Publicis Groupe agencies to help clients harness the power of marketing and business transformation to remain relevant in a changing world.


Contributors to the dossier


Professor Laurent BENZONI holds a Masters in International Finance and a PhD in Industrial Economics. He created the Economics Research Department of Telecom Paris Tech in 1986. Since 1995, he is full Professor of Economics at Sorbonne University where he directs the Master of Economics of Networks. He founded TERA Consultants in 1996, an economic consulting firm, specializing in competition, regulation, costing and development. The firm is a leader in its field and has operated over 50 countries across five continents. Pr Benzoni won the Harvard-expansion Prize, the Industrial Economics Prize (1988), he received the Medal of the Research Institute for Telecommunications (IREST), he is ranked among the world’s leading competition economists by the CGR. He has published numerous articles and books in economic competition, regulation, IT economics and media. He is Member of editorial board of academic reviews. He is member of the Board of the Forum d’Avignon and the scientific board of Competition Workshops of the French Ministry of Economy.

Sara CLIGNET has been with the TERA Consultants since 2006 when she managed the Quantifica database, a marketing database specializing in telecommunications data. She graduated in International Relations from Tufts University in the United States and holds a Masters Degree in Information Technologies from the Paris Sorbonne Université (Paris 2). Sara is an Adjunct Professor at the Sorbonne University, Paris 2. Prior to joining the TERA Group, Sara was financial communications manager at Orange and also worked in the mobile telecommunications industry on the technical support side and in the financial services industry.

Adrien KARSENTY holds a Master's Degree in Economics from the University of Paris 1 and a Master's Degree in Economics and Law from Sorbonne University. He is a PhD researcher at the Centre de Recherche en Economie et Droit (CRED) and consultant at TERA Consultants. His fields of research and consulting assignments are in the domain of industrial economics with a special interest in competition (antitrust) and regulatory issues, particularly in the telecommunications, networks, Internet and media sectors.

Valérie MORRISSON is Managing Director at CESP. During her 25 years’ experience in market research Valérie has worked for local and global clients in a wide range of sectors (such as media, telecoms, consumer goods, retail, automotive, …). Enthusiastic about the world of media and digital, she gradually specialized in advertising effectiveness as well as media and touchpoint measurement. Valérie has a wealth of experience in presenting and reporting to senior audiences. Before joining CESP, she was Deputy Managing Director at TNS France, in charge of the Brand & Communication practice. She graduated with distinction from the Institut d’Etudes Politiques de Paris, and holds a master degree in communication from CELSA.
vmorrisson@cesp.org

Martin QUINN is a Phd student in digital economics at Telecom ParisTech since 2014. His thesis analyzes how users' traces and contributions reshape the economy in a digital age. Most of his work aims to highlight the links between data, market and privacy. Alongside other industries, he especially focuses on the different obstacles the online advertising industry is facing.

Jean-Paul SIMON runs his consulting firm specialised in media/telecom law regulation and strategy. He held various positions in the telecom industry, worked as a senior scientist at the Institute for Prospective Technological Studies (IPTS), European Commission, Directorate-General JRC. He holds a Ph.D. in Philosophy and is a graduate (MBA) from the Ecole des Hautes Etudes Commerciales. He has written several books and articles on communications and public policy. He is a frequent speaker on telecommunications and media in Asia, Europe and the USA.



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