The Growth of Today’s Digital Advertising Ecosystem

Over the past two decades, the digital advertising industry has grown significantly thanks to the introduction of digital tracking tools and the adoption of expansive data collection practices by online platforms. These practices have enabled advertisers to more precisely segment their audiences based on a range of characteristics such as age, education, gender, and ethnicity. In addition, these tools have permitted segmentation based on more nuanced inferences such as personality type, user likes and shares, and predicted behaviors.¹ Based on these insights, advertisers are able to deliver tailored ads to users online,² often at a much lower cost than through traditional advertising methods. As a result, many advertisers have begun moving away from more traditional forms of advertising, such as print and television.

The targeted advertising business model that is widely used today was pioneered by Google in the late 1990’s.³ In 2008, Sheryl Sandberg left Google and joined Facebook as its Chief Operating Officer. One of her major first steps was to introduce these digital advertising practices at the company, ushering in a new era for the online advertising ecosystem. Subsequently, the targeted advertising business model rapidly spread across the internet industry. As a result, more and more companies are placing less emphasis on generating revenue in their early days. Rather, they focus on rapidly growing their user bases, collecting vast amounts of data on their users, and then using this data to enable and support ad targeting and delivery. As a result of this model, these internet platforms have been able to significantly monetize and profit off of their users’ data.⁴

Today, the online advertising ecosystem consists of a number of actors. These include ad publishers, ad networks, ad exchanges, and numerous outlets that enable advertisers to gain reach and traction.

Internet platforms such as Facebook and Twitter are particularly important within the online advertising ecosystem, as they operate “single-site” advertising platforms; in other words, these platforms serve only one specific website. These single-site platforms have revolutionized the ways that ads are targeted and delivered to users, as they have created several centralized locations where advertisers can engage with and target a plethora of individuals.⁵ These platforms also operate ad networks that place ads on third-party sites. Other companies, such as Amazon, are also increasingly gaining traction and prominence in the digital advertising industry. Although the company still has a small percentage of the U.S. and global digital advertising industry market share, it is considered a potential future contender with the larger platforms.⁶

Telecommunications companies also play a role in the online advertising industry. These companies are responsible for providing users with access to the internet, and seek to provide advertisers with an alternative to the “walled garden” advertising options provided by companies such as Google and Facebook.⁷ Over the past few years, telecommunications companies around the world have made significant investments in the digital advertising space. For example, in 2018, AT&T acquired AppNexus, a programmatic advertising marketplace⁸ billed as the world’s largest independent digital ad exchange, and a major competitor to Google and Facebook’s ad operations.⁹ In addition, in 2015 and 2017 respectively, Verizon acquired the ad-tech stacks of AOL and Yahoo!. The company subsequently established the Oath Ad Platform. However, in 2019 the Oath ad platform was shuttered as part of a strategic business review.¹⁰