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The online advertising sector has proved resilient - and it’s only going to get stronger

Facebook has used advertising to turn its fortunes around - the question, now, is how the industry can keep pace and keep growing.

Dick Costolo.
Twitter CEO Dick Costolo is interviewed after Twitter's IPO on 7 November, 2013. Photograph: Andrew Burton/Getty Images.

This month saw Twitter hit the headlines for its hugely impressive debut on the New York Stock Exchange. After its first day of trading, shares in the site closed at $44.30, up more than 73 per cent from their initial price of $23. Last May, there was a huge frenzy around Facebook’s gargantuan floatation. Share prices initially dropped and many naysayers proclaimed that Facebook had overshot its mark, entering at $38 a share. However, from July to September 2013, its share price doubled and is currently trading around the $50 mark.

It’s not just brands going public. Acquisitions for huge sums of money are taking place regularly. Instagram had only 12 employees when it was acquired for a cool billion dollars last year. Just last week, the founder of Snapchat turned down a $3 billion offer from Facebook. Such moves have led to plenty of not-so-hushed murmurs of a tech bubble forming, especially around digital brands.

But how are brands able to command such large valuations, or, in Snapchat’s case, turn such substantial offers down. Put simply, it’s down to a transformation of business models and the potential it offers for monetisation. Snapchat, for example, is hugely popular among teenagers – a bracket it is notoriously difficult to reach. This means, if it can get its platform strategy right, it is going to be in a very strong position to command significant revenue for advertising and marketing on its platform.

Facebook has used advertising effectively to turn its fortunes around. Its most recent results revealed it had broken through the $2billion revenue barrier and exceeded forecasts from Thomsons Reuters. A major contributor to these better-than-expected results was mobile advertising. It stated that 49 percent of its ad revenue – or $882 million – came from mobile devices, up from 14 percent a year earlier. Analysts have also stated that there has been a real rush to advertise with Facebook thanks to the new ad format it rolled out earlier this year. The ability to integrate in-stream ads into the user experience has worked, thanks to it being new, cheap and able to bring better response rates.

Shortly before Twitter declared its intentions to go public clear, it made a shrewd investment, shelling out $350m for MoPub, a mobile advertising exchange. This will enable Twitter to expand its influence as well as serve different formats, such as native advertising – which aims to deliver less intrusive ads to its user base.

In short, advertising is at the heart of online’s success and, increasingly, we will start to see more interesting and useful content delivered to users. The sector is booming and the question that is being levelled at the industry is “how is it going to maintain this pace and keep growing?”.

Firstly, Facebook and Twitter are undoubtedly doing well, thanks to their advertising strategies. But it should be pointed out that, despite being vast, they are closed networks. Brands certainly need to harness the opportunity social networks present, but in order to capture optimal audience engagement, they need to ensure they are not restricting themselves solely to these walled gardens. The term “social” should not be restricted to these behemoths. The whole web is based on social communication (the emergence of sharing buttons, the resilience of email etc.) and herein lies the real opportunity.

A swathe of data is being produced and shared across the entire web every second. It’s for this reason that I believe we are actually on the verge of an incredibly significant landmark in advertising’s history – and one that we can draw parallels with the financial industry.

In 1986, the financial industry experienced its “Big Bang”, where everything changed. Almost overnight, the bowler hats and handshakes for completing a deal disappeared and were replaced with electronic, screen-based trading. It completely shook up the industry and saw London’s position as a financial capital considerably enhanced.

We are, without doubt, approaching a similar moment in the advertising industry, albeit less abrupt.

The volume of the conversation online continues to get louder, but realising this is only the first step, the elixir is not only to be present, but also prepared to intelligently and safely use the huge amount of data available from this digital behaviour. Humans don’t have the speed to extract the key nuggets of information from it all, in a timely way. As such, it’s all about understanding and reaching audiences “programmatically”.

Customers have evolved - meaning marketers must evolve with them. They expect a different approach, and have adopted a form of “banner blindness”: an ability to blank out and ignore ads for products that are either not relevant or have already been purchased, rendering the advertising useless. Marketers must move in real time with their target audience, and understand the value of big data in order to identify where potential consumers are on their journey; business intelligence is of critical importance.

This is why a programmatic approach is going to be the key to the evolution of both advertising and content online. Unlocking these insights will give organisations a “Single Customer View” and valuable understanding of consumer behaviour, allowing them to engage with customers, helping create more targeted marketing campaigns, which results in increased return on investment and business growth. The Big Bang for advertising is undoubtedly coming and it’s the brands that adapt to this change that will reap the benefits.

Rupert Staines is European Managing Director at RadiumOne