Law of Supply and Demand in Programmatic Advertising?

What do most people remember about the Law of Supply and Demand from economics 101? Roughly speaking, if demand goes up and supply stays constant or constrained, prices go up. Over the course of the last 2 decades, demand for digital ad inventory shot up, as more and more advertisers shifted budgets from traditional/offline channels to digital channels. If we use the blue line in the first chart below to track U.S. Digital Ad Spending, we see it go up from $10 billion in 2004 to $210 billion in 2022 (a 21X increase). If we look at just the last 10 years, from 2011 to 2021, the digital ad spending goes from $32 billion to $210 billion (a 7X increase).

The supply of ads in "digital" channels is supposed to be created when humans visit websites, use mobile apps, or more generally "consume media." Did the human population in the U.S. increase by 7X in the last 10 years? Of course not. The data table below shows the population changes very slowly, like 0.5% or less, year over year. So the number of humans can't explain the 6X increase in digital ad spending in the last decade. Last I checked the laws of physics didn't change and the number of hours per day remains at 24 hours per day. Perhaps, the rise in ad spending corresponds to humans consuming a lot more media. Perhaps they even consume the media in parallel -- like using both their smartphones and iPads while watching TV, all at the same time. You see how absurd this is getting (and has been for a while).

If we look at the chart, in orange, we see the CPMs continue to go down -- from the mid $30's to the $1 range in recent years. CPM prices dropped for the last 20 years. What is going on? If we go back to the simple Law of Supply and Demand, if the prices go down, despite the dramatic rise in demand, that means the supply grew even faster. Again, how is that possible if the number of humans didn't explode, the number of hours in the day didn't change, etc? Well, bot activity kicked into high gear about 10 years ago, with the rise of programmatic ad spending. The red gap between digital ad spending (blue line) and humans' usage of the internet, social, and mobile (green and yellow lines) is driven by bot activity. Bots load webpages to generate more ad impressions out of thin air. Bots install and use mobile apps continuously to generate more ad impressions.

Bots also click on the ads to give the illusion that the ads are working well. See the chart in green. These are high, low and averages. I have seen greater than 100% click rates in campaigns going back to the mid-2000's. Those were greedy bots, and unsophisticated bots. The more advanced ones now tune the click rates to be in the 1 - 5% range, so it is not so obvious it's not humans clicking.

"Digital ad fraud is so easy to do, the question is who isn't doing it?"

Have a think about the above. Consider the absurdity of numbers like "25 trillion ad opportunities per week" (quote from adtech vendor). If you want to advertise to humans, go where the humans are. If you just like seeing absurdly big numbers in Excel spreadsheets, keep on buying programmatic media, you can't be helped. When you are ready to do real digital marketing, FouAnalytics practitioners and I are ready to help.

And there's a very rational and systematic way to transition to the post-cookie and post-RTB world - https://www.dhirubhai.net/pulse/advertisers-path-forward-post-cookie-post-rtb-digital-fou

Source: https://www.macrotrends.net/countries/USA/united-states/population-growth-rate

• The current population of U.S. in 2023 is?339,996,563, a?0.5% increase?from 2022.
• The population of U.S. in 2022 was?338,289,857, a?0.38% increase?from 2021.
• The population of U.S. in 2021 was?336,997,624, a?0.31% increase?from 2020.
• The population of U.S. in 2020 was?335,942,003, a?0.49% increase?from 2019.