Christof Baron: “Blockchain has a speed problem”

Christof, for years you were head of the media agency Mindshare and now you are in charge of media for Sanofi’s Consumer Healthcare division. What significance and perspectives do you think blockchain has in the advertising business?

There are a number of conceivable applications for blockchain in the media business. Take programmatic advertising, for example, in which millions of transactions are implemented per second via a data management platform. The price and publisher are selected at lightning speed to reach a certain person, or rather a profile, and then the advertising is delivered immediately. Several components are involved in this process including data providers, publishers, trading desks and ad servers. All in all, it is a complex technical infrastructure that processes highly complex transactions in real time. When a user loads a page, the advertising relevant to them must appear on the screen in no time at all. However, the immense number of transactions required for real-time bidding, for example, in which many servers exchange information and make decisions within milliseconds, cannot be managed at the required speed using blockchain.

Why not?

Because blockchain makes the data set even longer. Additional information is tacked on with each step of the transaction. The amount of data exchanged during the bidding process dramatically slows down the process. Consequentially, the user would have to wait for seconds until the ads would appear on the page, as was the case at the beginning of the Internet when bandwidths were still extremely low. Therefore, blockchain has a speed problem when it comes to real-time use within the context of programmatic advertising. Depending on the technology used, up to fifteen transactions are handled per second, while bitcoin technology can only be used for up to seven. It is therefore not just a question of speed, but of volume. The results would be miles away from the IAB standards, according to which the response times in real-time bidding should be less than 100 milliseconds. Blockchain technology just doesn’t perform well enough for this application. I am very skeptical as to whether it will play a relevant role in this area in the coming years, given the current state of technical development.

In which area of the media business will blockchain become relevant?

Following ad delivery, blockchain can be used to check the transactions that have taken place, provided the respective information is passed on with each transaction step. It is possible to check what has been delivered, how many impressions reached their target – who has received which amount of money along the value chain is still a common point of contention – what ultimately reaches the publisher and, if applicable, who has used the advertising in which way. This makes blockchain a very valuable verification and control tool.

How will this change the media business?

The technology provides full transparency regarding purchasing and delivery. This has always been the domain of media agencies and they will likely not readily embrace such transparency. In addition to this, each user can theoretically be equipped with a data set using blockchain. In other words, each person would no longer be identified simply using a technical ID or a cookie, but it would be possible to determine exactly whether a click was executed by a person or a bot. It would also be possible to find out how the individual uses the advertising. This would lead to an entirely new level of transparency and quality.

Is this not subject to extensive legal restrictions with regard to privacy?

If the user provides explicit consent in the form of opt-in, it is absolutely okay. They will also need to access the technology, a token or a special browser. This requires a deliberate choice.

Getting back to the impact on media agencies, if blockchain supports ad purchasing and transactions, why would agencies be required as intermediaries?

Personally, I believe we still need agencies or technical service providers who, figuratively speaking, take on an agency function to oversee the process. An alternative, of course, would be for advertisers to set up and manage the processes in-house. However, this would require huge investments in personnel and technology. The cost factor will be important for many and, in the worst case, capacity utilization will not really pay off. It is also a basic question of whether an in-house solution is actually better positioned, because it is less flexible to respond to the high dynamics of technological innovation in the market.

What does this mean for big advertisers? Are they more likely to be able to afford this kind of in-house solution?

The effort is not necessarily worthwhile even for global players. Procter & Gamble, for example, after investing several years in its own programmatic solution, decided to work with outside technology partners like The Trade Desk. For me, it therefore really boils down to what is just theory and what is actually practical. From a purely technological point of view, agencies would no longer be necessary, because the processes can be driven solely by technical service providers. Then the technical service provider is the agency, but with an entirely different service profile.

What would characterize these service providers?

New players are entering the market, who trade in Internet advertising like on the stock exchange. The scary thing for me personally is that these dealers don’t know much about advertising. It is comparable to mining bitcoins in that a server farm with tremendous computing power is used to make money. The stock exchanges for Internet advertising trade in impressions, profiles and KPIs. And this is where I see the future responsibility of agencies. They do not have to provide the technology themselves or actively control the processes, but they should master and manage the emerging ecosystem. You need people who understand and serve the advertising business, in which a banner, a video has an effect, beyond a KPI like viewable impressions. Ultimately, not everything can be completely automated. We need people to examine and evaluate the processes by performing analyses and interpreting the results. Smaller companies in particular would incur enormous costs if they had to set up and finance such an apparatus. An agency socializes such costs and this aspect is often given little consideration.

The bottom line

According to Christof Baron, blockchain is not a huge revolution in the media business. However, it is worthwhile for the advertising market to be familiar with the technology. After all, one thing is clear: blockchain will dramatically increase the transparency factor. This will impact media agencies, in particular, and force them to rethink their business models.