Click, Connect, Convert: Unravelling the Mechanics of Computational Advertising

by Dr. Sangeetha Rajesh, Assistant Professor - Data Science and Technology, K J Somaiya Institute of Management

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According to Forbes article on programmatic advertising, AI-enabled ad spending is anticipated to reach $1.3 trillion in the next decade. Within the thriving digital marketing realm, effectively engaging with the target audience amid the enormous data becomes challenging for advertisers. With the constantly evolving consumer behaviour, advertisers are pursuing innovative ways to connect with their target audience. Computational Advertising (CA), a marketing industry game changer, uses emerging technologies such as machine learning, big data analytics and Gen-AI tools to automate advertising tasks. These data-driven decision-making techniques rethink, redesign and restructure the traditional advertising paradigm. This article will take us through the enhancements Artificial Intelligence has brought to advertising arena. 

Personalized Ads using AI Technologies

Consumers demand fast and personalised interactions every time they interact with the company. Deloitte’s 2022 consumer review reveals that one in five customers are willing to pay a 20% premium for personalised products or services, and 22% of the consumers are ready to share some data in return for more customised products and services. In the dynamic realm of advertising, AI is heralding a new era of personalised consumer engagement. Recent research from Salesforce reveals that 61% of customers say they are treated like a number rather than as an individual. Brands can engage in meaningful dialogues, fostering consumer experiences and brand loyalty by enhancing consumer interactions using AI technologies such as Natural Language Processing (NLP), Computer Vision and Large Language Models. NLP helps to extract insights from online reviews, social media discussions, and consumer feedback to create hyper-personalized ads. It also aids in message processing, customer service, and brand perception by tracking sentiment and recognizing trends. Using chatbots, brands may engage with customers in real-time, provide product recommendations, answer questions, and streamline transactions. By leveraging AI-powered tools, advertisers can deliver highly personalised, targeted campaigns that resonate with potential consumers.  

Content Creation using Gen-AI 

According to the IBM Institute of Business Value report, 76% of CMOs state that Gen-AI will change the way marketing works and failure to adopt Gen-AI will significantly affect the ability to stay competitive. Advertisers embrace Gen-AI for personalised ad content creation, generating texts, images, audio or videos based on consumer behaviour. Repetitive tasks like developing content for various marketing channels and modifying images or videos to fit platform criteria may be improved using AI-powered solutions like ChatGPT. Gen AI also helps to optimize the ads by automating the A/B testing to test the effectiveness of content blends to achieve desired results. AI algorithms can generate novel and creative ad content that captures users’ attention, sparks curiosity, and fosters brand engagement in innovative ways.

Dynamic Targeting 

Dynamic targeting is a technique that involves customizing and providing ad creatives to individual users or a user segment based on their real-time data.   Powerful machine learning algorithms analyze user data such as browsing history, passion points, demographic information, current location, and device type and create analytical/predictive models. The consumers are efficiently segmented based on these models, and tailored advertisements are delivered at the right time through the right channel. Collaborative filtering, content-based filtering, and reinforcement learning are employed to optimize ad targeting and improve campaign performance.

Dynamic Creative Optimization

According to Forbes article,  brands that use automation to create multiple ad variations can drastically cut production time, allowing them to deliver in-the-moment ad content in the right context. Dynamic Creative Optimization (DCO) enables advertisers to customize ad creative elements dynamically based on user context and preferences. By leveraging real-time data insights, DCO algorithms generate personalized ad variations to maximize relevance and engagement. This approach enhances the user experience and improves ad performance metrics, click-through and conversion rates. This iterative optimization process allows advertisers to identify the most effective ad elements, messaging strategies, and creative variations for achieving their advertising goals.

Real Time Bidding 

A crucial and powerful process in computational advertising is Real Time Bidding (RTB). It enables advertisers to bid for ad impressions across digital ad exchanges in real-time. When a user visits a webpage or app, an auction is conducted within milliseconds to determine which ad to be displayed on the user device based on factors such as bid price, ad relevance, and user parameters like demographics, location information and browsing history. RTB ecosystem is a combination of technologies working to optimize bidding strategies and maximize ad placement efficiency and conversions. 

Metaverse in Advertising 

According to Deloitte’s insights, brands that fail to develop a strategy for joining the Metaverse may lose the opportunity to become a leader in the space. Metaverse allows advertisers to create immersive virtual environments that blur the line between physical and digital experiences through virtual and augmented reality. As the virtual world becomes more sophisticated than prior, advertisers are exploring innovative ways to use the Metaverse for brand promotion, product placement, and interactive marketing campaigns. They can engage consumers in virtual events and immersive storytelling by creating virtual environments that reflect their brand identity and values. 

Challenges in Computational Advertising

  • Privacy and Security: AI-enabled advertising relies intensely on consumer data to provide personalized ads effectively. Advertisers must adhere to regulations and ensure transparent data usage to build and maintain consumer trust. Blockchain technology can be implemented to guarantee consumer privacy and authority over data. According to Deloitte’s insights, brands addressing increased regulations are adopting blockchain at significantly higher rates than their peers,  
  • Algorithmic Bias: Computational advertising techniques may inadvertently propagate biases if not monitored and controlled efficiently. Advertisers must mitigate algorithmic bias and ensure fairness in targeting decisions to avoid consequences.
  • Ad Fraud: Advertisers must implement ad fraud detection methods and collaborate with ad platforms to reduce fraudulent activities.  
  • Ad blocking: Consumers are flooded with frustrating and disruptive ads on all platforms. Millennials criticize ads for being irrelevant, ineffective, and misleading despite the cutting-edge ad targeting approaches. Marketers must develop innovative strategies to retain consumers by delivering pertinent, non-intrusive advertisements.
  • Resource constraints and talent gap: Implementing and managing AI-enabled advertising requires specialized skills and resources. Advertisers must enhance their internal expertise or partner with external agencies to fill the talent gap and resources. 

Conclusion

The future of computational advertising holds immense promise for advertisers seeking to connect with consumers in impactful ways. By harnessing the power of AI and predictive analytics, advertisers can unlock new opportunities for hyper-personalization, cross-channel integration, and data-driven decision-making. However, success in the future of computational advertising will require a commitment to ethical data practices, transparency, and consumer privacy. Navigating the technology’s ethical, legal and societal ramifications is crucial to ensure that AI-driven advertising is responsible and advantageous for stakeholders. Advertisers must remain agile, adaptive, and innovative as technology evolves to stay ahead of the curve and capitalize on emerging opportunities in the ever-changing advertising landscape.