What will automation, artificial intelligence (AI), and robotics mean to businesses, and to society more broadly? It depends who you ask. Predictions range from a golden era of greater wealth through to dystopian predictions of mass unemployment and rogue machines taking over. Paul Wallbank takes a look through the prism of advertising.

One industry has given us a glimpse of our machine-dominated future, and it’s not going well. The advertising industry isn’t seeing 1980s Sci-Fi movie Terminators just yet, but new technology is causing a crisis of confidence. Their story offers lessons for directors and executives in other industries.

The problems stem from the rise of “programmatic adverting” — digital advertising bought and sold electronically rather than in the traditional method of being booked and placed manually.

Programmatic advertising promised to eliminate the long standing uncertainty about what actually works, something best articulated by 19th century US retail store magnate John Wanamaker’s statement:

“Half my advertising is wasted, I just don’t know which half.”

The stakes are certainly high , what with advertising being a $500 billion a year industry. Last year, programmatic was estimated to be worth $30 billion and growing at 20 percent per year, according to industry magazine AdWeek.

Beyond the web to streaming video

Programmatic advertising has largely been focused on websites. Both Google and Facebook grew wealthy from an early version of it. But the technology is now being applied to print and television. Broadcasters are seeing “addressable TV”, which targets consumers through streaming services and smart devices, as the answer to the industry’s at best static revenues.

Unfortunately the promises of programmatic advertising haven’t been delivered. Facebook and Google’s domination of the online ad spend has left the traditional ad agencies and adtech startups to fight over the remaining 20 percent of the market.

A key problem with programmatic adverting is the plethora of middlemen. In one study the peak industry body, the Interactive Advertising Bureau, identified ten different value layers in the ecosystem. This complexity creates a range of opportunities for various industry players to engage in dubious and often illegal behaviour, and that has put the industry offside with its own customers.

The IAB study claimed that programmatic middlemen took 55 percent of advertisers’ dollars. Other surveys have put that figure closer to 80 percent, which means that four out of every five dollars spent on online advertising are wasted.

And in come the lawyers…

Ridesharing service Uber, itself no stranger to allegations of misbehaviour, sued programmatic platform Fetch, owned by Japanese advertising giant Dentsu. Uber alleges fraud and negligence, with “tens of millions” of dollars paid for non-viewable advertisements, and for space bought on fictitious websites.

Publishers too are turning to the lawyers. In the UK, the Guardian is suing the Rubicon Project, one of the leading ad trading platforms, alleging the service siphoned undisclosed fees from programmatic advertising buys across its site.

The Guardian claims Rubicon obtained “secret commissions” from advertisers without the paper’s knowledge, and the publisher was kept in the dark with “misleading and inaccurate” monthly reports of buyer activity.

The traditional ad agencies themselves were also quick to set up their own programmatic divisions which many clients are now finding are no less trustworthy.

On a panel at the Advertising Week conference in New York earlier this year, Dentsu Aegis Network owned Carat agency suggested all the big agencies had been engaging in arbitrage behind their clients’ backs and they still had a long way to go to “clean up” their acts.

Outright fraud

A large part of the industry is engaging in outright fraud by coupling excessive commissions with agency arbitrage. Ad exchanges, supposedly matching advertisers and publishers, are selling ads running on faked domains. The platforms pocket the cash, and the advertiser’s message doesn’t get shown on the sites promised.

Ad fraud has affected all the major publishers. A Financial Times investigation into its own advertising inventory earlier this year uncovered 15 different ad exchanges offering video ads on FT.com, despite the publication not having that type of the inventory available.

During its investigations the FT found there were actually more fake ads being offered by scammers than the publication actually had available.

In mid November this year, Danish research company Adform discovered the Hyphbot network, which was placing up to $1.2 million a day in fake ads in a swindle that was affecting almost all the major global publishers, including The Economist, the BBC and, in Australia, both Fairfax and News Corporation.

None of this had gone un-noticed by the major advertisers. The industry received a loud wake-up call at the beginning of the year when Procter & Gamble’s chief marketing officer Marc Pritchard demanded “a transparent, clean and productive media supply chain”. He gave agencies a 12-month deadline to deliver it. P&G is the world’s biggest advertiser with an annual ad spend of over $7 billion.

At the industry’s DMEXCO Conference in September, Pritchard expressed his company’s disappointment with the advertising industry, despite saying his agencies were 60 percent of the way to meeting his demands.

“Despite spending an astounding $600 billion a year in marketing, our collective industries still aren’t growing enough, holding stubbornly onto low, same-digit growth. You might say never has so many done so much for so little,” Pritchard said.

“The reality is in 2017 the bloom came off the rose for digital media. The reason is, is the substantial waste in what has become in a murky, non-transparent and even fraudulent media supply chain. Only 25 percent of our spend was making it to the consumer. It was time for digital media to grow up.”

Procter & Gamble itself was one of the more prominent advertisers to try and build its own programmatic service, threatening to bypass traditional media holding companies. That’s proved difficult, however, even for the largest players. P&G has now moved back to trusting agencies.

It’s never a good idea to irritate the customers

Widespread user irritation has added to the digital advertising industry’s woes. One problem is inappropriate ads for things like weight loss programs. Another is irrelevant and intrusive promotions based on last week’s web searches.

The advertising being delivered by many of the poorly designed or managed adtech platforms was only encouraging consumers to block ads, making it still harder for both publishers and brands.

For business in general, the issues facing the advertising industry are part of a greater problem. As automation becomes further embedded in industry, more functions are being driven by computer and managed by middlemen vendors. More core business functions risk becoming subject to fraud, hidden commissions and overspending on suppliers.

The Internet of Things is literally embedding literally into the logistics industry. Supply chains are becoming more automated, so the opportunities are ripe for a programmatic advertising debacle across many sectors. And as computers make purchasing and delivery decisions, the possibilities for mischief and profiteering increase.

So while we worry about Terminators and Chinese cyberhackers, the sad truth is we’re looking at something more mundane. As long as there’s greed and perverse incentives, industries are going to see perverse results.

Advertising’s lessons for us all

Like many things in technology, programmatic advertising isn’t as simple as it first appeared. There’s some lessons for company directors and managers in other industries.

  • Don’t trust “black box” service providers. A vendor who says “trust me” probably can’t be trusted.
  • Keep things simple. The more straightforward and transparent vendor relationships are, the easier it is to manage them.
  • Reduce the number of middle men. The more tickets being clipped, the more value lost.
  • Understand the technology. Relying on agencies and vendors to do the right thing doesn’t always work out.
  • Keep a close eye on the data and business results. If something seems amiss, it probably is.
  • Make sure technology is living up to its promises and delivering results for the business.

Despite the challenges, automation will increase. It’s essential that managers and company directors make sure the algorithms and robots are working for them, not against them.