How the US Online Advertising Market Can Grow by 1,000% in the Next 10 Years

By Murthy Nukala , written on June 4, 2012

From The News Desk

In 1993, Exchange Traded Funds (ETFs) were introduced as a brand new asset class to Wall Street. After an initial slow-growth period of being used primarily by institutional investors, ETFs became a mainstream investment tool and experienced tremendous growth. There are now close to 1,500 ETFs listed in the US with close to $1.2 trillion in assets. That's over 1,000 percent growth within the last decade.

There’s a lot the online advertising industry can learn by studying the underlying principles behind ETFs to experience similar growth.

Exchange Traded Funds 101

ETFs allow investors to easily buy or sell a basket of assets based on a specific investment hypothesis. For example, if an investor believes the price of oil is going up, she could scan, sort, and buy many individual stocks, bonds, and commodities that move with the price of oil. Or alternatively, she could just buy one ETF that mirrors the performance of a basket of securities that all move with the price of oil.

ETFs have experienced phenomenal growth in the last decade because they provide investors with tremendous accuracy, scale and efficiency.

Of ETFs and online advertising

The online advertising industry is currently in a similar state that Wall Street was in before ETFs. Each channel in the online ad world -- paid search, mobile, display, etc. -- is analogous to different asset classes on Wall Street -- stocks, bonds, commodities, etc. Each ad unit within these channels is akin to a different security within an asset class, whereas the ad networks and aggregators can be loosely thought of as the mutual funds of their online channels.

Digital marketers are, for the most part, being forced to do what investors did before ETFs existed -- researching, buying, and managing the performance of each ad unit in each channel across their digital marketing spend.

But just like researching and buying individual securities across multiple asset classes doesn't scale on Wall Street, managing individual online ad units across multiple online channels doesn't scale either.

Online advertising needs an ETF equivalent.

Lessons from paid search

To find the best online advertising equivalent of an ETF, one simply needs to "follow the money" and look at the de facto channel for the digital marketer: paid search.

In paid search, the equivalent of an individual stock is a keyword. As search marketers research, buy, and manage the performance of each individual keyword, their workload grows with the number of keywords in their campaign. Because different people who are actually looking for the same thing use different keywords in their search queries, it’s not uncommon for a search marketer to acquire and manage dozens, if not hundreds of keywords for a single product. For large brands, this translates into having to manage literally hundreds of thousands of keywords — a very expensive, time consuming and ultimately sub-scale task.

As a result, savvy search marketers are now organizing their campaigns around their consumers’ underlying intent instead of keywords, and simplifying their campaigns by 1,000 times. This literally means a single intent has the reach and scale of 1,000 keywords.

Here’s how it works. Let's say I sell Nike men's basketball shoes. Instead of manually creating a list of a thousand keywords, grouping them, and writing relevant ads for each of these ad groups, I can manage just one intent -- "Nike men's basketball shoes." This model allows advertisers to reach more customers who are actively searching for their products or services, and deliver dramatically more relevant ads on a much larger scale.

In other words, intent in paid search is the functional equivalent of an ETF on Wall Street.

The future of intent

Paid search is not the only online channel that is rich with intent. For example, browsing for Thai restaurants in San Francisco via a Yelp app on my iPhone is the equivalent of searching for "Thai restaurants in San Francisco" on Google. Likewise, visiting a website with in-depth reviews or product comparisons on Nike men’s basketball shoes probably indicates an intent to purchase.

How would the intent model work beyond paid search? Let's say I want to reach consumers who are looking for "Nike men's basketball shoes." In an intent-enabled world, I would target consumers who have the expressed or implied intent of "Nike men's basketball shoes." I would assign multiple creative for this ad buy, and my ad buy would then be served out to consumers who are in the market for "Nike men's basketball shoes" across mobile, paid search, display and social.

Having intents unify buying and selling of digital advertising across channels may seem far-fetched today. However, if intents are radically simplifying the paid search world, it makes sense that they can and should be extended.

1,000 percent growth in a decade, seriously

Intents could allow online advertising to grow 1,000 percent in the next decade for two reasons.

First, within a given channel like paid search, intents make the media buying process a lot easier. Whenever friction is reduced in a marketplace, the market grows. Second, intents would unify how marketers buy advertising across multiple digital channels, especially across intent-rich channels like paid search and mobile. Fewer channels to worry about reduces friction in the marketplace. Again, the market grows.

ETFs significantly reduced friction in the financial markets to become a $1 trillion asset class. Intents can now do the same in online advertising.

[Infographic by Adchemy]