A Return to Contextual Advertising?

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Digital advertising and marketing have long been positioned as “the future” of advertising. But with the rapid changes in media and information technology of the past two decades, the future has arrived. Google recently promoted the idea that “we’re now in an era where digital marketing is just marketing.” But as the industry advances and as new protective regulations around personal data privacy are introduced, it’s also possible that some of the change could involve relying more on previously established methods. Specifically, it is possible that we are on the verge of a return to contextual advertising as the dominant form of online ads.

Contextual advertising was, for some time, the dominant form of online advertising. Google’s AdSense (and its competitors) would scan the content on a website or in a search, and return ads based on that information. The practice is often positioned in contrast with behavioral targeting, which ignores the content on the website and instead determines ad placement based on signals sent from cookies that are tracking the user (e.g. previous site visit behavior, social media data or a digital profile often created without the user’s knowledge). As more data about individuals is gathered by a few massive social media platforms, behavioral targeting has increased in prominence – and a vast range of programmatic advertising tools and platforms have helped grow the industry, increasing these companies’ revenues by millions. A 2017 study found that 86 percent of programmatic advertising in Europe was based on behavioral data.

However, the age of behavioral targeting may be coming to an end. Legislation, such as the General Data Protection Regulation (GDPR) in Europe and the California Consumer Privacy Act (CCPA), may elevate the potential costs of mistakes in behavioral targeting to unacceptable levels for many advertisers. In June 2018, Digiday reported that “the vagueness around how strictly GDPR law will be enforced, and the lurking threat of being fined anything up to €20 million ($24 million) for GDPR breaches, means some businesses aren’t willing to take the risk.” Alternatively, contextual advertising complies with the legislation and avoids those fines, as it’s not based on stored user data. Technological changes to comply with the legislation, such as Google’s Chrome browser-blocking third-party cookies, suggest advertisers may be better served moving their investment away from behavioral ads. Contextual ads are also seen as safer for brands than behaviorally-targeted ads, minimizing the chance that major brands’ information will appear next to objectionable content. 

Another issue raised recently is that behavioral targeting may not provide the benefits to publishers that its backers have promised. Academic studies of millions of transactions across multiple outlets owned by a single publisher found that behavioral targeting only increased publisher revenues by four percent, “an average increase of $0.00008 per advertisement.” All of this is unfolding while “Internet users continue to express widespread fear and loathing of the ad tech industry’s bandwidth- and data-sucking practices by running into the arms of ad blockers.” 

A return to ads that respond to what a person is currently reading or watching – rather than what they did online three weeks ago – makes logical sense for audiences, publishers and advertisers alike. How might the situation look for these winners – and for those on the other side of the equation?

Contextual Winners

The first group that would be positively impacted by a return to contextual advertising is consumers themselves. As behavioral targeting has become more prominent, it has also disturbed consumers, 40 percent of whom think “following them around the web has become too aggressive. It’s viewed as a breach of privacy.” Studies have found that when consumers are aware that their behaviors are being tracked to inform ads, they click less. Transitioning to a content-based advertising strategy will minimize consumer complaints and, for advertisers, may have the additional benefit of mitigating the impact of ad blockers and “do not track” technology.

Publishers might find this to be a positive development as well. Although many in the behavioral advertising industry believe that their ad exchanges are the only solution for the decline in news advertising revenues, as mentioned above, there was only a four percent increase in revenue attributed to behavioral ads as opposed to other types of digital ads. Additionally, with contextual advertising, publishers are likely to receive more revenue due to the structure of the agreements with advertisers and tech providers. Following the establishment of GDPR, The New York Times ceased all behaviorally-targeted ads in Europe and shifted to a direct-sales model. According to Jean-Christophe Demarta, Senior Vice President of Global Advertising, “Digital advertising revenue has increased significantly since last May and that has continued into early 2019.” While this particular level of success may not be attainable for all publishers, a return to direct-sales ads and their margins would likely be welcome at most organizations. 

Advertisers are also positioned to benefit from this market transition. One major concern with behavioral targeting is its likelihood of serving branded messages in brand unsafe environments, particularly via major social media platforms, such as Facebook and YouTube. As one analysis explains, “Contextual targeting prevents the appearance of ads that would be out of place in the moment, even if those ads may be relevant to reader interests or historical behavior.” Additionally, according to the 2019 Edelman Trust Barometer, 29 percent of global consumers say that trusting a brand they buy is becoming more important because of “the increasing sophistication with which brands can target or track me.” If advertisers are viewed as not tracking their buyers, they will earn more audience trust. Since 67 percent of those same consumers say that “unless I come to trust the company behind the product, I will soon stop buying it,” that trust is vital

These positive potential outcomes do come with one caveat: There will likely be an adjustment period for advertisers, agencies and publishers as they transition to creating advertisements that are better suited to contextual targeting. Publishers may want to consider expanding their content marketing practices, which will take some time and investment. But the impacts on advertising revenue – and revenue shares – have the potential to be substantial.

Who Might Suffer?

Platforms and behaviorally-focused ad tech platforms (many of which are owned by major digital platforms) may be challenged by this transition. Currently, Facebook and Google gather behavioral data from their billions of users – in the form of trillions of online interactions – and monetize that information to hone targeted advertisements. They are so successful at this that they earn 60 percent of every dollar spent in online advertising. 

Given their size, both platforms could afford to transition to contextual advertising, which was where Google earned much of the revenue to fund its meteoric growth. The ad tech companies have been estimated to take up a “tech tax” that accounts for at least 55 percent of all programmatic spend. Again, these companies could afford to retool to better serve consumers, advertisers and publishers. A privacy-focused, contextual targeting-based competitor to Google, DuckDuckGo, has been profitable since 2014 and earns more than $25 million annually. When Gabriel Weinberg, the company’s CEO, testified before the U.S. Senate Judiciary Committee, he said, “Americans would be happier if Congress banned or at least made it easier for consumers to block corporate data collection,” adding that privacy is so popular it would also prove “good for business.” DuckDuckGo’s revenues are a fraction of Google’s, but continue to grow year-over-year as consumers prioritize privacy. 

If this contextual ad future comes to pass, it will likely be due to a combination of legislation and consumer demand, reacting to the people who buy advertised products and the legislators who represent their interests. Overall, if advertisers and publishers are willing to invest in making the necessary changes, this should lead to a brighter future for advertisers, consumers and publishers alike. Any potential negative outcomes are likely to accrue to digital platforms and advertising technology organizations, who have enriched themselves on behavioral advertising. As public opinion of these organizations continues to decline, publishers in particular will have a chance to solidify their trusted position and ensure a sustainable future. 

Rebecca Frank is VP, Research & Insights, at News Media Alliance.