Editor’s note: Ad Age’s recent Digital Conference brought together thought leaders to discuss the state of advertising, and Technology Business Research Analyst concludes: ” A digital, consumer-centric world requires an updated advertising business model.”

HAMPTON, N.H. – The 2016 Ad Age Digital Conference attracted an international audience of marketers, agencies, publishers and advertising technology (ad tech) vendors. The two-day event was designed to discuss key developments and perspectives across the digital advertising industry — a market TBR estimates will reach $185 billion in 2016, supported by a combination of ad tech platforms and digital marketing services (DMS), with each segment representing a $40 billion market.

Key themes revealed a broader need for a new business model:

  • Value exchange among brands, publishers and consumers
  • Ad fraud and ad blocking, separate but equally challenging pain points
  • Branded content as a means to delivering more impactful ad experiences

Today’s digital consumer demands more from brand advertisers. Instead of being sold products, they seek more contextually relevant and authentic experiences with brands during media consumption. Since the advent of display advertising in 1994, response rates have all but flatlined. Today’s 0.01% average engagement rate (one out of 1,000 ads) for standard banner ads has largely become the new benchmark for campaign success. In addition to “banner blindness,” more and more consumers are downloading ad blockers, which eliminate the opportunity for any brands to engage. Germany-based Eyeo claims that over 300 million consumers have downloaded its Adblock and Adblock Plus tools. TBR believes these trends are a result of consumers viewing the current ad-supported model as inequitable and highlight a broader need for the industry to explore new paths for advertising and content monetization.

Technology alone will not solve brand engagement

As part of their strategy to deliver authentic brand experiences, CMOs will need to weave contextually relevant messages into content. To achieve this, they are partnering with ad tech vendors and DMS firms. As organizations seek to integrate advertising and marketing functions, they are taking a more active role in ad tech vendor selection and management. The CMO office is being supported by vendor platforms, as well as external DMS partners. Many enterprises are also lending support to bridge the needs gap between marketing and technology with additional executive firepower, in the form of a chief digital officer (CDO) or chief marketing technologist (CMT).

TBR’s 2H15 Digital Marketing Services Customer Research highlights that approximately 50% of enterprises in North America and EMEA employ a CMT. The CDO and CMT can play a huge role in vendor selection (which may ultimately be run by an external agency), including programmatic media buying and data management platforms.

Digital channels open the door for ad blockers and ad fraud

As consumers shift from linear TV programming to on-demand formats and over-the-top technology, they dictate how, where and when they engage with media, which creates challenges for broadcast TV and cable operators. While digital channels provide marketers with improved levels of targeting and measurement, a growing number of consumers are installing ad-blocking software due to an array of factors. For example, consumers may receive irrelevant ads, experience latency, incur data fees and have their privacy put at risk. Ad blocking impacts the entire ad ecosystem; TBR believes it will require a unified effort to regain consumer confidence and trust that there is value in advertising.

Ad fraud, another industry plague, bilked the industry of over $7 billion in 2015.

This challenge is largely the result of the automation delivered via programmatic media trading and open ad exchanges. By focusing efforts on relevant, interesting ad experiences for consumers, the industry can mitigate the ad blocking problem. However, demand-side and supply-side stakeholders still dispute who is ultimately at fault with regard to ad fraud. TBR believes this creates a ripe business opportunity for a specialist such as White Ops (an event sponsor) and enterprise IT security vendors (e.g., Akamai, Hewlett Packard Enterprise) that may be searching for their next growth opportunity.

Publishers as agencies and technology vendors

Branded content by itself is not new, with the first soap operas being the means for delivering advertising for Procter & Gamble (P&G) products, while a digital native such as BuzzFeed draws over 200 million unique visitors per month with brand messaging embedded into content. However, traditional publishers are also throwing their hats in the ring. The Wall Street Journal (WSJ) Custom Studios team shared the strategy behind delivering branded content in lieu of traditional ad formats by creating custom content for Netflix’s “Narcos” production on the Medellin drug syndicate in South America. TBR believes the WSJ’s “Cocaineomics” piece will serve as a blueprint for successful content marketing programs. By weaving in journalism best practices and a business lens from a publisher partner, Netflix was able to break away from standard paid ad promotions.

The end result was a platform that was able to educate, while driving interest and awareness of Netflix original content. The WSJ’s nearly 40-person team has developed over 500 pieces of content for 150 clients in the past 12 months. In addition to representing a significant revenue driver for the WSJ, TBR believes this business model will become more widely adopted as traditional ad formats are tuned out or blocked by consumers.

While ad tech vendors and agencies will continue to provide tools and expertise today, publishers with the resources to build proprietary tech stacks and in-house studios may create the advertising business model of the future. Heavyweights such as Facebook and Twitter have also launched studios with creative teams, while Google’s YouTube maintains a number of studios globally. When content and advertising are melded together, a new paradigm is created, disrupting the legacy advertising model.

Event overview

Ad Age held its 10th annual Digital Conference at Pier 39 in New York. The sold-out event featured panels led by marketing executives such as Marc Pritchard (P&G), Allie Kline (AOL) and Frank Cooper (BuzzFeed), as well as brand ambassadors such as Andy Cohen (Bravo). The Interactive Advertising Bureau maintained an active presence, promoting educational programs, particularly for those on the media-selling side of the business.

(C) TBR

Technology Business Research, Inc. is a leading independent technology market research and consulting firm specializing in the business and financial analyses of hardware, software, professional services, and telecom vendors and operators. Serving a global clientele, TBR provides timely and actionable market research and business intelligence in a format that is uniquely tailored to clients’ needs. Our analysts are available to address clientspecific issues further or information needs on an inquiry or proprietary consulting basis. TBR has been empowering corporate decision makers since 1996.

For more information, please visit www.tbri.com.