Oivind Hovland illustration for The Connected Business May 2014
© Øivind Hovland

It is enough to make anyone’s head spin. Rocket Fuel boasts that its artificial intelligence delivers real-time advertising results. Millennial Media vaunts its cross-screen targeting capabilities. Criteo pitches its ad personalisation technologies. Rubicon Project touts that it has engineered one of the largest real-time, big data solutions for advertising.

The companies are among hundreds – if not thousands – that have emerged in recent years selling marketing technologies sometimes designed by actual rocket scientists.

They launched and solicited billions of dollars in funding on the bet that they could strike it big by streamlining the process for creating, buying and selling ads across a proliferation of digital devices – and then instantly measure the effectiveness of marketing campaigns.

The flurry of marketing technology start-ups was meant to transform the art of advertising into an organised science. But the opposite occurred.

“It is confusing for a lot of people,” says Quentin George, a digital advertising veteran who left a big ad company to start Unbound, a consultancy to help marketers sort through the new ad technology landscape.

“They don’t know what they don’t know. Even if you paraded 10 companies in front of them, they have no framework for knowing which company is better than the other.”

Marketers report being more perplexed than ever before amid the proliferation of media and new technologies, along with growing uncertainty about whether or not digital marketing delivers business results.

Only a third of marketers believe that their companies are highly proficient in digital marketing, according to a recent survey by Adobe, the software company. Marketers express uneasiness about personalisation and targeting technologies, advertising across a mix of media, social media and mobile marketing – and ultimately, how to measure it all.

Yet two-thirds of marketers said that companies would not succeed unless they had a digital marketing strategy, the survey found.

“The issue of fragmentation is the big problem for all of these guys. The underlying value of each ad goes down. You can’t even tread water then,” says Rett Wallace, chief executive of Triton Research, which analyses new tech firms. “Marketers’ budgets don’t go up because the fragmentation does.”

The broader uncertainty becomes more vexing as marketers devote a larger share of their advertising budgets to digital media. Global digital ad spending is expected to surge 15 per cent this year to $138bn, representing about a quarter of total ad spending, according to research firm eMarketer. By 2018, digital is expected to capture about one-third of advertising budgets worldwide.

AOL, the internet company, is putting more emphasis on its ad tech business. The group has pointed to a so-called “technology tax” as adding to the broader turmoil and threatening to hold back the shift of ad dollars from traditional media, such as magazines and television, to digital outlets.

For every dollar spent on digital ads, as much as 75 cents is estimated to be spent on technology rather than the advertising space. The ratio is reversed when marketers buy TV ads.

Exacerbating the confusion is the growing threat of advertising fraud in the digital marketing business. Botnets, malicious software and other schemes are proliferating as scammers exploit the fast growing market. In one recent incident, part of a Mercedes-Benz online advertising campaign was viewed more often by automated computer programmes than by human beings, according to documents seen by the Financial Times. The ads were inadvertently placed on to fraudulent websites by Rocket Fuel

More than a third of web traffic may be fraudulent, according to a recent report by the Internet Advertising Bureau (IAB), an industry trade group. That fraud costs internet and advertising companies as much as $10bn a year in the US alone, according to industry estimates.

About a third of advertising agencies believe that the portion of fraudulent traffic on the web is higher than what the IAB reported, according to Strata, a company that provides data about ad buying.

Joy Baer, president at Strata, notes: “Ad agencies revealed an interesting dichotomy within the advertising industry; agencies are displaying high levels of confidence and are increasing their ad spend, while questioning the accuracy of reported web traffic numbers and the inflated [ad rates] they may command.”

She adds: “Another interesting paradox was the optimism many agencies felt while considering rising ad costs a major concern.”

That turmoil is forcing the world’s largest advertising companies to race to build next-generation systems that will help marketers sort through the thousands of emerging technologies.

Indeed, when Publicis and Omnicom pitched their now failed $35bn merger last year, executives outlined how a new advertising leviathan would lead the way in today’s media and marketing world, which is increasingly dominated by technology.

John Wren, chief executive of Omnicom, said: “Publicis and Omnicom have the combination of both Mad Men and Math Men who are going to be required to win in the future.” He was referencing the popular TV drama Mad Men that depicts the New York advertising industry in the 1960s.

The merger – which would have created the largest advertising company in the world by revenues – fell apart. But as it did so, both companies underscored their commitment to investing in technologies and systems that would help clients sort out the digital future.

“We were in great shape coming into this, and we will remain in great shape,” Mr Wren said in a recent interview. “The key to remember is that it is really about the insights and not just about the data.”

Some technology companies, such as AOL, are attempting to ease marketers’ fears by building a one-stop shop for buying ads using these new technologies across TV, the web, mobile and social media. To help marketers better understand the performance of their ads across the various media, AOL recently paid $101m for Convertro, an ad measurement company.

Convertro specialises in measuring the performance of marketing campaigns, from the moment a person first sees an ad until a product is bought. The tool aims to help marketers analyse the full scope of their digital advertising rather than the last ad a person clicks on before they buy.

Tim Armstrong, chief executive of AOL, said in a recent interview: “The industry now is on a last-click basis for measuring advertising. Over time, that will prove rudimentary. Convertro is an important and strategic piece of technology for our advertising stack.”

Some industry executives say that among the flock of ad tech start-ups, advertising groups and big internet companies trying to persuade marketers to use their services, few are looking out for a brand’s best interest.

“People will make claims about what their product can do or how a product does what it does that are inconsistent with the way it actually operates,” says Mr George at Unbound.

“For a lot of marketers, it is really difficult when you have 255 companies each telling you how they can do anything.”

Mr George, who previously was chief digital and innovation officer at Interpublic’s Mediabrands, started his new business to help advertisers and media companies decide which ad technology to choose.

“The reason we are having this conversation is because digital marketing works,” he says. “That is where the consumers are. If you do it right, there is tremendous upside.”

Additional reporting by Robert Cookson

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