Have you ever wondered how the ads you see online are selected? When you’re shopping online or watching a video on YouTube, odds are you aren’t seeing a random advertisement, but an advertisement that has been specifically chosen for you through an auction process that happened in the fraction of a second it took the webpage to load.
Many companies, including Instagram, YouTube, Google, and Facebook don’t just serve up ads that might be relevant to your interests, they hold an auction for your attention. Behind the scenes, the type and quality of the ad, your personal browsing history, and the the type of content you are currently viewing are all weighed in the balance, and ad targeting software (such as Google’s AdWords) shows that information to a large number of bots that then bid for the right to show you their ad.
The implementation may differ across platforms, but the overall idea remains the same: advertisers identify keywords associated with their prospective customer base, and tell the advertising system how much they are willing to pay to show their ad to the consumer in question. The system them evaluates the quality of the ads and the “cost per click” that the advertiser is willing to pay, and the winner is then selected and displayed. Thanks to this system, the price paid by the winner will vary from auction to auction depending on several factors such as the quality of the ad, and the level of competition for the ad space.
Advertisements on YouTube operate under a similar system, with small differences related to whether the ad is skippable or unskippable, and so forth. YouTuber CGP Grey has put together a fantastic video detailing how the ad auction process on YouTube works, which is highly recommended viewing for anyone interested in a broad overview of this topic.
With Trump’s recent repeal of Obama-era online privacy protections, it will be interesting to see if the greater amount of data that will be available to advertisers will change how the ad auctioning system works. Will advertisers become pickier about who they advertise to, since they could theoretically know more about their potential options? Will only certain advertisers be able to afford to be that picky? Only time will tell what sort of impact Trump’s actions will have on online advertising, but it is a safe bet that advertisers can expect to make big changes to their bidding style when more customer data is readily available.