The Business Of

Eyeballs | Alphabet | The Trade Desk

Morning All!

TGIF! The weekend is so close! But before we get there, we’ve got one final newsletter to round off The Business Of Alphabet. Let’s have a quick recap of some of the fun, surprising things we’ve learnt about the tech giant this week…

• Search Rules - Search (at ~$250bn revenue) is the biggest advertising market at present. Followed by social media (~$170bn) and TV (~$140bn)!

• Law Firms Love a Keyword - Google Search makes a whopping ~$200 every time someone searches ‘motorcycle injury lawyer’ and clicks a sponsored link!

• Apple’s Payday - in order to get Google Search as the default search engine on iPhones and Macs, Alphabet pay Apple an extraordinary ~$19bn a year!

Okay so, we’ve spent the week really diving into Alphabet’s business model and seeing what’s needed to operate this advertising giant. But today, we’re going to actually look at another player in the digital advertising industry. It’s the fast-growing, US company - The Trade Desk!

Now, the reason we’re looking at The Trade Desk is because it’ll really help us take a step back from Alphabet. And allow us to understand what other options advertisers (e.g. Nike, Huel, etc) have other than Alphabet. Because guess what - The Trade Desk is a competitor to Google’s Display Network! Let’s crack on!

Google Display Network - The Cupid Of Advertising!

Okay so, to kick us off, let’s first remind ourselves of how Google Display Network works. And then we’ll move onto how The Trade Desk is different.

In the image below, we can see a Daily Mail web page. And what do we see on this web page? We see a display ad slot. And what do we see in this display ad slot? We see an ad by Singapore Airlines. So, how do Google Display Network get involved here?

Well, as we saw on Tuesday, Google Display Network is an advertising platform run by Google. The platform is made up of millions of websites (>100 million) that want to sell the ‘space’ on their web pages to generate ad revenue. These websites want Google to act as a middleman and send them advertisers.

And that is basically what happens - Google helps connect advertisers (e.g. Singapore Airlines) and publishers (e.g. Daily Mail). The graphic below shows us the problems that Google Display Network solves for both advertiser and website.

Okay, so hopefully that’s clear. But now, let’s move onto the second part and answer the question - how is The Trade Desk different to Google Display Network?

How Can You Advertise In Spotify, Disney+, and Tesco From The Same Place?!

Well, to answer this question - let’s use an example. Let’s say we’re Nike’s marketing team. A new Air Jordan trainer is launching next week, and we want to get people more aware of this by advertising the product! What’s one thing we can do? Well, we can go to Google Display Network!

We can give Alphabet a bunch of money. Tell them the kind of audience we want to target. And then Alphabet will place our ad in their various digital channels. Potential customers of our Jordan shoe will then see a sponsored link of the upcoming shoe on Google Search. They’ll see YouTube ads of our shoe. And they’ll see display ads on the thousands of other websites that partner with Google Display Network! So, there’s clearly a lot of exposure by choosing Google!

However, there is one issue here. And the issue is that - by choosing Google Display Network - Nike are only advertising to potential customers who are online! But what about when people aren’t on Google Search, or YouTube, or on other websites? What about when people are taking a jog on the street? Or commuting to work? Or watching TV at the end of their day?

Is there a way to advertise to people in these scenarios? Well, the answer is yes! And The Trade Desk is one major platform where Nike can do this!

So, what does The Trade Desk (TTD) actually do? Well, TTD is what we call a demand side platform - also known as a DSP. And TTD will buy ad slots, not only online, but all over the place! So, if Nike went to The Trade Desk and gave them some money - Nike would be able to advertise in a popular podcast on Spotify. They could advertise during an ad break in a popular TV show on Disney+. They could advertise on the digital boards in Tesco! They could also advertise on Google! Plus a whole lot more!

The graphic below kind of gives us an illustration of the differences here. Google Display Network is great for advertisers and companies who want to reach a huge number of people who are online. But a DSP like The Trade Desk is brilliant for advertisers who want to reach people across many different platforms! This video by The Trade Desk is a brilliant explanation of how this works!

A Little Introduction To Walled Gardens!

Okay, let’s wrap up. And so far, this all sounds great, right? The Trade Desk allows advertisers like Nike to reach audiences through so many different platforms - all from one place (TTD). So, what’s the issue for The Trade Desk? Why aren’t they as big as Google?

Well, one of the issues is audience size. As we’ve seen this week - Alphabet’s services are just gigantic. I mean, they own the two most popular websites in the world - Google and YouTube! And so, for advertisers like Nike, you may decide to give some of your marketing budget to The Trade Desk. But there’s no way Nike would miss out on the audiences of Google and YouTube.

Facebook is a long way behind in third!

But hold on a second. Why does Nike have to miss out on Google and YouTube’s audiences if they went through The Trade Desk? Didn’t we say earlier that Nike could advertise on Google Search by going through The Trade Desk?

Well, yes we did. But what we haven’t mentioned yet, is that Nike wouldn’t be able to advertise on YouTube if they went through The Trade Desk! And the reason for that is because YouTube is behind a walled garden. Now, what this walled garden basically means is that the only way advertisers can advertise on YouTube is by going through Alphabet’s own demand side platform (DSP)! And by the way, this is the same for Facebook and Amazon! They are all walled gardens!

We’ll talk more about walled gardens later in The Business Of Eyeballs series. But what this basically means is that if Nike chose to give some of their advertising dollars to The Trade Desk - The Trade Desk could not showcase Nike’s ads to the audiences on Facebook, Instagram, YouTube, or Amazon! Which is a huge problem, right?! These are some of the most popular websites in the world. And sites pretty much everyone on Earth accesses!

Now, we’ll leave it there for today. I just wanted to give us a short intro to walled gardens. Because next time, when we dive into The Business Of Meta, we’ll get into this idea of walled gardens in more detail!

1st Mar 2024

Nigel Jacob CFA