The nature of advertising is changing – and it has everything to do with sharply growing adoption rates of mobile phones, internet use and changing customer preferences that include a growing appetite for video content.
One of the key new introductions to the ad space has been programmatic advertising that is “targeted” rather than simply pushed out in bulk.
Collectively, companies that want to sell a product allocate billions of dollars each year with the intention of attracting new customers and reasserting their brand to establish brand loyalty.
In the past, this meant creating billboard ads, TV commercials, newspaper inserts and radio slots which often-meant hearing irritatingly memorable jingles.
However, the advent of the internet (and the stampede towards connectivity by billions of people around the world) is changing the name of the game in advertising.
Ad companies like engage:BDR (ASX: EN1) are specialising in matching up brands that are keen to market their products with customers that are looking for alternative products that fit their specific preferences.
Engage:BDR publishes ads which buyers want to see and therefore facilitates delivery of ads to the right users which brands will pay a significant premium for because the waste is eliminated and the campaigns perform significantly better.
In the past, ads had engagement rates of under 1%, whereas today, programmatic advertising led by targeted ads and analytics, can achieve rates of around 20-30%.
That’s a major difference which companies want to tap into to sell more products while knowing exactly how effective their campaigns actually are.
Yellow brick road in programmatic advertising
According to engage:BDR, the best way to optimise the relationship between buyers and sellers is via targeted advertising that reconciles key factors likely to impact on whether a potential customer will click on an ad.
In other words, the customer’s location, their core interests, their demographics or their budget.
Companies are increasingly allocating their marketing and advertising budgets on tailored user-specific ads, rather than blanket ads that may or may not lead to sales – regardless of whether it be text, audio or video.
Brands used to target specific sites or content to infer demographic relevancy; now, they only want to show their ads to potential customers based on their on- and offline behaviour, regardless of what sites or apps they’re visiting.
Just recently, engage:BDR revealed that its premium inventory consists of digital video, display, native, and influencer branded-integrations through IconicReach, engage:BDR’s dedicated “self-serve influencer marketplace”.
Influencers are the latest tool being used by advertisers to reach a wider audience and to create even stronger brand loyalty. The idea behind influencers is that if a YouTube celebrity, or popular blog writer, or even a high-profile Hollywood celebrity is seen using a particular product, it is likely to reach more customers on the back of their high-profile endorsement.
Engage:BDR says the largest portion of its so-called ad “inventory” is focused on digital video, which currently has demand significantly exceeding supply in the US.
The majority of what engage:BDR is focused on is “video pre-roll”, which are videos that are played before sought after content is played on YouTube or a news website such as CNN.
Engage:BDR does not count out other formats such as text, audio and even banner ads, and says it is actively utilising them in parallel to its biggest growth market: digital video.
Flurry of deals
So how does a company integrate its cutting-edge technology to streamline the programmatic process and deliver better ads?
The simple answer is by building up its own inventory and adding various kinds of ad partners into its own ecosystem. In other words, adding as many different platforms to its arsenal and appealing to as many different advertisers as possible.
Engage:BDR has integrated over 160 digital ad companies into its own ecosystem (with around 80 added this year alone) including the likes of Decibel, Instreamatic, Sonobi, IPONWEB BidSwitch, and several others in recent months.
One important element in this regard was the acquisition of AdCel, first announced in May this year.
The vast majority of the company’s “integration partners” were very difficult to obtain which chief executive officer and co-founder Ted Dhanik says emphasises that engage:BDR is proud to have been chosen as an integration partner.
Integrations significantly impact the company’s revenue and are valuable key performance indicators (KPIs) for how much revenue engage:BDR could generate.
Another key factor in driving up revenue is focusing on real-time bidding (RTB), a method of allocating ad space based on precise tracking and analysis of customer behaviour.
Engage:BDR’s integration of OpenRTB 3.0 into its technology arsenal is expected to deliver further improvements in what it can ultimately offer to its clients, specifically better security, transparency, authentication and trust in programmatic advertising.
Engage:BDR says it generated $13.1 million in revenue in 2017 which would have translated into a positive EBITDA had it not run into “capital shortages” and ASX market listing delays at the end of 2017 – considered the most crucial time for advertising spend given the convergence of Thanksgiving, Halloween and Christmas holidays – the most active retail market spending periods in any given year.
“If the company had been capitalised in September as planned, management believes it would have generated nearly $21-$23 million in top-line revenue and would have been significantly profitable from a normalised EBITDA perspective,” engage:BDR stated.
Currently, shares in engage:BDR are priced at $0.06 each, equating to a $17.13 million market cap. However, according to a postulated “what if” scenario that excluded its capitalisation issues that caused “significant damage and setbacks” last year, engage:BDR says it could have added $12 million to its books in the fourth quarter of 2017 alone.
With the company scaling up its integration of programmatic ad companies – in addition to quarter four being considered the most revenue-rich time for ad buyers and sellers – engage:BDR says it has entered an inflection point that could the company receive a significant revenue boost over the coming 12 – 24 months.
Given the sharp rise of internet-based consumption, social media and the rise of digital influencers as the most effective advertising couriers, programmatic advertising is likely to play an increasing role in the future of marketing.