Blockchain: the answer to programmatic advertising’s woes?

Partners at Green Square, Corporate Finance Advisors to the media and marketing sector, cast their eyes over the latest industry deals and look ahead to the next tranche of acquisitions.

Following on from our article on media’s perfect storm, we’ve been asked by a couple of clients what we think about blockchain. Is it the answer to the problems posed by programmatic advertising and the perils of automatic ad placements?

First of all, for those who don’t know what blockchain is, here’s a go at a very brief explanation. Blockchain was invented a decade ago, as a way of managing cryptocurrencies like Bitcoin. A blockchain is essentially an ever-growing series of records – blocks – linked by encryption that sit across a distributed database stored on computers all around the world, both business servers and home computers. When a transaction is made a message is sent to the network to agree (or disagree) that the transaction is legitimate before giving approval.

The advantage a blockchain has is that it’s very secure, and that records cannot be altered retrospectively without all the other records being similarly altered. And the longer the chain runs, the more secure it becomes. The blockchain organisation Ethereum allows almost anyone to contribute their computer to the network, simply by installing some software. Distribution helps to reduce tampering, fraud and cyber crime. With so many computers taking part, systems are also very hard to “take down” via traditional brute force network attacks (eg DDS – Distributed Denial of Service – attacks).

So, blockchain seems to be one of the wonders of the cyber-age, and has almost limitless practical and useful applications. Some advocates have predicted that it will transform the way we all do business – and it might well.

Certainly it’s got plenty of people in the marcomms industry very excited. Last week one of the world’s most powerful marketers, Unilever's Keith Weed, announced that he’d enlisted IBM iX, (IBM’s business strategy arm) to create a blockchain solution to simplify the Unilver digital ad supply chain and provide more transparency and, consequently, build more trust – and Weed sees trust as a key issue not just for the industry, but for consumers too.

As many observers have pointed out, the problem with digital advertising is that it’s become less transparent – and in the eyes of many clients – increasingly untrustworthy; the very opposite of what was supposed to happen. As fraud (I don’t think that’s too strong a word) and automation increased, more and more middlemen were introduced into the advertising supply chain in order to fix the problems.

Great stuff. But here’s the contrarian's view based on some inherent flaws.

The first problem is that blockchain is by its very nature a space-hungry technology. Because transactions and changes are recorded everywhere the chain exists (these places are called “nodes”), the blocks can become very unwieldy very quickly – hundreds of gigabytes big. The chains are getting bigger, faster and storage capacity is not keeping pace; in addition, you might have to waste valuable time waiting for all that built-up data to download every time you made a transaction – not what you need when seeking to serve a programmatic ad. And let’s not forget – blockchains are immutable, so they can’t get smaller, only bigger.

A related issue is one of sustainability. Blockchains use tremendous amounts of energy. According to Digiconomist’s Bitcoin Energy Consumption Index, cryptocurrency Bitcoin’s current estimated annual electricity consumption stands at 29.05TWh, which represents 0.13% of total global electricity consumption. That means Bitcoin mining is now using more electricity than 159 individual countries! This consumption isn’t just bad for the environment, it costs a lot of money. Microsoft has been exploring the possibility of underwater data centers to deal with the heat generated – watch out Mr Polar Bear.

And what of security? Enthusiasts for blockchain often say it’s 100% safe, but that’s not entirely true. Blockchain is currently mostly used for cryptocurrencies, and in the past decade or so, a fifth of all Bitcoins have been stolen, hacked or scammed – more than $2bn worth. Although the tech has thus far proven robust, that doesn’t mean that this will always be the case.

Then there’s the lack of standards and regulation in the blockchain space – and of course, a lack of standards and proper regulation is what got digital advertising into its present pickle.

Salon Media Group, an online publisher, is offering its readers a choice – allow it to display ads, or instead lend it your computer’s processing power so it can mine cryptocurrencies. Make of that what you will.

Ultimately, nobody knows what’s possible. We’re in the wild west again, just as we were 25 years ago. Babs Rangaiah, another senior Unilever marketer (and a big advocate of the use of blockchain in advertising) says: “It’s like 1992 for the internet when we had no idea what was possible and when. We had an idea of what it could do, but not how soon we’d get there. That’s where we’re at with blockchain.”

Moving into uncharted territory is always exhilarating, but presents challenges. There will be outlaws and con-men, as well as prospectors and fearless pioneers. Blockchain might be a (or even the) solution but we need to keep our eyes and ears wide open.

Andrew Moss is a partner at Green Square, corporate finance advisors to the media and marketing sector

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