In its early days, the advertising industry was limited to one-way ads broadcasted to the masses via very few channels. Since the late 1990s, Internet advertising has caused significant disruptions in the advertising industry, especially with social media and search engine ad models.
Several problems have cropped up with the web2 ad model in recent years. At the same time, entrepreneurs are using blockchain, smart contracts, tokenomics, and other web3 tools to bring innovations that will benefit advertisers and users. Below is an overview of the evolution of Web advertising.
Let’s take a closer look.
Rise of Web2 Advertising
With search engines, businesses can target ads to people actively looking for specific products or services. Social media allows companies to reach specific audiences based on their interests, behaviors, and demographics, leading to (in theory) more personalized and engaging advertising.
Digital platforms provide unprecedented targeting and advanced real-time tools for tracking ad performance. The data-driven ad approach helps businesses analyze their campaigns and make better decisions.
In 2021, online advertising captured over 60% of US ad spending. Estimates placed Google’s share at 28.6%, Facebook at 23.8%, and Amazon at 11.6%. The chart below shows the dominance of the Internet advertising category, which didn’t even exist until the late 1990s.
Data and Privacy in Web2 Advertising
Superbowl ads aside, data makes the online ad world go around. For years, major platforms and websites have been collecting data from users. This golden era of data mining is coming to a close as more people are raising privacy concerns, and countries are adopting stricter privacy regulations that affect the advertising industry.
Platforms like Meta, or search engines like Google, have collected and resold data from users without their permission or any compensation whatsoever. They act as intermediaries, retaining complete control over user data. Based on this data, advertisers pay the platforms to show targeted ads to specific groups of users.
Although the ability to target is unprecedented, the model is still challenging for companies. Brands must spend thousands or millions of dollars a year producing social media content to attract followers to social media platforms. And yet, the platform controls brands’ access to those same followers. Brands then pay for ads to get targeted access to the same followers they spend money attracting to the platform in the first place.
On the audience side, users have limited or no control over their data and no insight into how platforms use their information. The data is highly centralized, stored in databases that can be (and are often) hacked. Finally, the user experience with online platform ads is generally negative.
Centralization, lack of transparency, and user autonomy all indicate a need for a decentralized and privacy-conscious approach. Now is a perfect time for companies to explore decentralized blockchain-based advertising models.
Emerging Web3 Advertising Paradigms
Web3 advertising represents a revolutionary approach to online advertising that prioritizes data privacy and decentralization. In contrast to the traditional Web1-2 models, Web3 uses blockchain technology, allowing users to store their data securely and control access to their information.
Web3 advertising companies like Permission.io are entering the marketplace. Permission, founded by serial entrepreneur and ad industry veteran Charlie Silver, runs a model where members give permission to advertisers to serve specific ads that interest them. Members receive the ASK cryptocurrency as compensation for watching the ads.
Members decide how and when their data is shared, giving them control over their personal information. In return for sharing their data, they receive rewards through tokens or other incentives. This model puts the audience in the driver’s seat, giving them data ownership and ensuring a fair exchange with advertisers.
Decentralized Ad Exchanges
Advertisers and publishers purchase and sell ad inventory via an ad exchange. On a decentralized ad exchange, stakeholders interact through smart contracts, which enable transparent and automated ad transactions.
Blockchain’s transparent, distributed ledger can also help decentralized ad exchanges reduce ad fraud that plagues the industry. The fees are also much lower on decentralized exchanges; 1 – 2% vs. 15 – 35% on traditional web2 exchanges. In February 2023, Alkimi launched the world’s first decentralized ad exchange.
Peer-to-Peer Ad Networks in Web3
A peer-to-peer advertising network in Web3 refers to a decentralized advertising ecosystem where advertisers and publishers can directly connect without intermediaries or centralized authorities. This access reduces costs and increases the efficiency of the advertising process.
Adshares.net is a peer-to-peer model. Here is a summary of how it works:
- Advertisers purchase ad space on the Adshares network by spending Adshares tokens (ADS).
- Publishers monetize their content by displaying ads on their websites or other media and earning ADS for every impression or click.
- Unlike Web2 advertising, users can earn ADS for interacting with ads, for example, by watching a video, signing up for a service, or downloading an app.
- Users can engage with ads on the Adshares platform without giving up personal data or privacy.
In the Adshares platform, people can use the metaverse, blockchain games, NFT exhibitions, and websites for advertising. The platform also employs an anti-fraud mechanism to reduce click fraud and other fraudulent activities common in online advertising.
Artificial Intelligence in Web3 Advertising
Like so many places, AI technology will change the creation, delivery, and personalization potential of web3 ads. AI-powered algorithms can analyze vast user data from decentralized platforms, enabling advertisers to understand audience behavior and create highly targeted ads.
This technology could result in more relevant and engaging ad experiences for users.
AI can also enhance ad placement and optimization, ensuring ads are displayed at the right time and on the most suitable platforms to maximize their impact.
NFTs and Tokenomics in Web3 Advertising and Marketing
Apart from visual ads, NFTs and tokens are two significant ways companies can incentivize early adopter audience engagement. NFTs and wallets enable brands to access and reward fans in new ways.
NFTs in Web3 Advertising
Advertisers and marketers are already developing dozens of ways to use NFTs, including NFT ads, referral links, and using art or collectible NFTs as rewards. NFTs are also trackable, providing analytics for marketers while preserving the individual’s privacy.
In Web3 advertising, advertisers can reward users with cryptocurrency tokens for viewing their ads or interacting with their content. These tokens represent a form of digital currency and hold real-world value. Tokens also create a more engaging advertising experience for users.
Marketers can also reward users for various actions, such as participating in surveys, providing feedback, or sharing their data. These rewards are also usually cryptocurrency tokens, which users can accumulate and use for purchasing products or services, accessing premium content, or exchanging them for other cryptocurrencies.
Social tokens are another form of on-chain digital ownership. With social tokens, creators, influencers, and brands tokenize experiences or services, assigning a value represented by tokens. The token owner then holds an asset representing an experience or service. If the token’s value increases, the holder may opt to resell it.
For example, if Lawrence creates a membership community, he could sell social tokens that grant rights to live Q&A sessions or a small group meeting after an in-person conference. He can also allow holders to resell their tokens. He could even receive a percentage of the resale through a smart contract. As Lawrence’s brand grows, his social tokens may increase in value, sparking resales within his community.
We are in the earliest stages of web3’s disruption of the advertising industry, moving toward a very different experience and landscape for advertisers and users. Have you experimented with earning crypto rewards on any new ad platform?
If so, Zenledger can help you organize those and any other crypto assets for tax time. The platform automatically aggregates transactions across exchanges and wallets, computes your capital gain or loss, and generates the tax forms you must file yearly. You can also find ways to reduce your tax burden through tax loss harvesting.
This material has been prepared for informational purposes only and should not be interpreted as professional advice. Please seek independent legal, financial, tax, or other advice specific to your particular situation.