On June 16, 2020, the Cabinet Government announced the Competition Assessment Interim Report for the Digital Advertising Market (Draft). In this report, it summarizes the current state of the digital advertising market, identified issues, and made an interim summary on the direction of responding to these issues.
In the future, the report plans on collecting opinions from both internal and external parties to make a final compilation around December this year, and use them as a base to implement concrete measures. This is an important report for improving the digital advertising market in Japan, and is a must-read for anyone involved in ad tech. However, the original text is a 90-page plus long document.
For today’s post, we’ll be summarizing the report’s main points within a 10 minute read for those who don’t have the time to go through the original document.
The issues that the government has pointed out are broadly divided into four points: transparency, data utilization, vertical integration, and fairness. Many of the challenges are believed to be caused by the fact that the market is monopolized by the major platforms.
“The Government’s Four Digital Advertising Points”
・Transparency (delivery destination, value, measurement)
・Data Utilization (targeting)
・Vertical Integration (conflict of interest, self enrichment)
・Fairness (one-sided revisions)
As a topic that also happens to relate to our own business, while the digital advertising market has undergone rapid development, there are many challenges in terms of “transparency”, with those challenges being categorized into four points.
1. Ad Fraud
2. Brand Safety
4. User Experience
I think that many people already know this, so I will omit explaining the meaning of these terms, but statements such as "ad fraud is mixed by X%", "our targeting accuracy is X%" or "viewability is about X%" have been growing in recent years, with a growing demand for "advertisement quality" that people want others to know about the high quality of their ads, even if securing that quality would cost more. How should we confront each of these issues, then?
1. Ad Fraud
All DSP operators should be transparent in order to prevent ad fraud. Specifically, the report plans to establish a digital audit for publishers and vendors, etc., to respond to ad fraud and ensure brand safety. Although there was no description of this in the report, for the audit, the JAA envisions a “JICDAQ” kind of movement that establishes an independent auditing body in Japan that sets and certifies its own independent standards. It will be the Japanese equivalent of TAG in the United States and JICWEBS in the United Kingdom, and it is expected that the quality of digital advertisement will be measured by this standard in the future.
Why is Digital Audit Needed?
Lemon Market: Market fails due to asymmetric information of market participants -> Avoidable with an established audit standard and publication of those results (introduction of peaches)
That’s a good car! (I really know the true quality of the car, but…)
It’ll probably break soon… (can’t trust the other person’s info)
It’s a good car!
Supply quality info (from the right)
Reduction in audit costs
Reduction in explanation costs
The construction of a digital audit is needed because the current digital advertising market is a lemon market, and if the market does not develop into a peach market, then the industry will not develop. Peach markets are a derivative of lemon markets, and by introducing peaches (which, when are just even a little old, the outer skins turn black and it’s easier to see that the freshness is gone) into the lemon market where the quality of the product is difficult to understand, it is easier for buyers to grasp the quality of the product, and competition can occur, ensuring transparency.
2. Brand Safety
The publication stated that there should be something devised in order to assist publishers on this issue but there was nothing concrete listed in the report as to what kind of measures could be taken.
If we were to think of it as a OOH, which is the conventional advertising method, publishers were thought to advertise in a prime location like Ginza , but in fact when they advertised on the neon streets of Kabukicho, the impression that the user gives would take a 180 degrees turn. Even in digital advertising, you need to have a strong grasp of the publisher side and I personally believe that paid advertisements or a consigned auditing body should confirm this.
There is a common opinion from the advertiser side where, even if an advertisement is delivered, if it’s not seen by the consumer, then there’s no meaning to it. So the number of impressions that are not visible should be deducted from the standard for calculating the advertisement fee. Because of this, there are calls for accurate monitoring and regular disclosure of information regarding the level of viewability.
As the digital video advertising market grows, the IAB has established a standard for "consumers watched videos." In the future, it will be important to comply with such standards or to be able to prove it with transparency.
4. User Experience
It seems that 70% of consumers feel annoyed and have a negative attitude towards targeted ads. Specifically, in areas where unrequested advertisement content is displayed, and the same content is displayed persistently, etc. Certainly, whenever you search for "Sneaker", it seems that an ad for the same product or other brands appears everywhere on the web, SNS and the Internet for 24 hours. There are opinions that say that user experience should be visualized and that advertisers should be given feedback.
As pointed out in the report, transparency is not only about quality, but also the non-transparent nature of pricing/term content (when releasing an ad out, it goes through many different stakeholders before it reaches users; where and how many places it has to reach before it reaches users is unknown) and the issue of measuring the arrival indicators by third parties.
Here, we are concerned about data ownership and utilization by major platforms (such as GAFA, an American IT company). Platforms provide convenient services that are free of charge that enrich consumers' lives, all while also accumulating personal information into data without prior knowledge and utilizing it in places that we do not know.
The report mentions that platforms do not disclose sufficient information to advertisers nor consumers, and how data has become a sort of black box. Ultimately the cause of this is due to the lack of data transparency.
In the EU, governments are working to quickly establish the infrastructure for a digital society by establishing a system for sharing GDPR and industrial data and promoting a digital tax. I wonder if Japan will also carry out a similar strategy like the EU in the future.
As a topic that overlaps with data utilization, vertical integration refers to one company that partners up with a group company or through an M&A, and handles all upstream and downstream business functions. Because of activities like this, we are especially worried about the market being monopolized.
The report pointed out that there are potential conflicts of interest between companies that provide both DSP; which should pursue the interests of advertisers, and SSP; which should pursue the interests of publishers.
Plus, in the past you could buy advertising space outside of Google and on YouTube, but since Google has bought out that competition, it has effectively blocked that. Likewise, since Facebook acquired Instagram, Facebook advertising was integrated.
The Fair Trade Commission seems to be paying close attention to the fact that major platforms are being vertically integrated and oligopolized.
In addition, the report pointed out a structure that is centered on privacy protection coupled with being more monopolized. From the consumer's point of view, protecting personal information is a good sign that the Internet can be used with a sense of peace of mind, but since platforms are also strengthening privacy protection, consumer data has become very valuable as a result→ competition on platforms increase → Japan's competing ad tech companies are no longer able to take action, encouraging a vicious cycle where only one platform wins.
The report pointed out that ad tech companies are having difficulty responding to fairness because the system and rule changes regarding platform's advertisement distribution are done without sufficient explanation in advance.
The announcement last month of Apple’s newest iOS14 can be used as an example, where it was a major update that shook mobile market shareholders. This is because the function that was changed for the purpose of strengthening privacy has a great influence on the distribution of ads and the tracking of ad performance. Details will be described in another blog, but changing the rules of the platformer threatens the business model of ad tech business operators.
In addition to seeking further measures to ensure fairness, the report made clear that the Fair Trade Commission will take appropriate measures if there was any suspicion that the antitrust law was being violated. Even in regards to publishers, there are similar problems such as platform search engine algorithms changing suddenly, and the report described that a mechanism for parameter disclosure and notification and monitoring in advance will be provided.
Finally, the report pointed out that personal information is being obtained from the perspective of consumers, and that most people are uncomfortable using data even if there is no explanation in advance and concludes that efforts for guidelines and transparency must be strengthened.
The Competition Assessment Interim Report for the Digital Advertising Market details the actual situation of the digital advertising market and extracts the issues, but doesn’t provide specific plans or solutions toward each issue. The final report will be released this winter, and the foundations for a digital society in Japan will be created thereafter.
Since public comments are being invited until 7/27, it would be nice if the businesses involved in ad tech could describe the current situation, views, and future approaches to create a better society. Your opinion may change Japan’s digital society in the future.