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___Signature Redacted__ Signature Redacted The State of Digital Marketing - Technology and Business Landscape By Xiaoming Zhang M.S., Beihang University B.S., Changchun University of Science and Technology Submitted to the Systems Design and Management Program in Partial Fulfillment of the Requirements for the Degree of Master of Science in Engineering and Management at the Massachusetts Institute of Technology Feburary 2016 @2016 Xiaoming Zhang All Rights Reserved The author hereby grants to MIT permission to reproduce and to distribute publicly paper and electronic copies of this thesis document in whole or in part in any medium not known or hereafter created. Signature of Author: _____Signature redacted__ Xiaoming Zhang System Design and Management Program Certified by: Signature redacted Juanjuan Zhang, Thesis Supervisor Epoch Foundation Professor of Internationa M aggment and Pr sor of4Varketing Accepted by: Signature redacted _ atrlcT Hale, Director System Design and Management Program MASSACH MS INSTITUTE OF TECHNOLOGY OCT 2 6 2016 1 LIBRARIES ARCHIVES 77 Massachusetts Avenue Cambridge, MA 02139 MITLibraries http://Iibraries.mit.edu/ask DISCLAIMER NOTICE Due to the condition of the original material, there are unavoidable flaws in this reproduction. We have made every effort possible to provide you with the best copy available. Thank you. The images contained in this document are of the best quality available. ABSTRACT Digital marketing has grown rapidly over the last two decades into a multi-billion dollar industry with thousands of companies operating in the space. Its' digital advertisement model has provided crucial economic backbone to support the proliferation of free digital content around the world. However, the industry is now facing significant challenges and controversy around Ad Blocking. The rapidly rising adoption of Ad Blocking is threatening the fundamentals in the digital advertisement model, and could have a profound impact on digital marketing and Internet content consumption. In this thesis, we research online resources to describe the latest technology and business landscape for the digital marketing industry, including the main digital marketing platforms, and system decomposition for its key subsystem Ad Tech industry. We then introduce the Ad Blocking controversy. We use stakeholder value network analysis to analyze how various market responses to Ad Blocking satisfy the system stakeholder values, hoping to shed lights on possible directions for solving the challenge systematically. Thesis Supervisor: Juanjuan Zhang Title: Epoch Foundation Professor of International Management Professor of Marketing MIT Sloan School of Management 2 ACKNOWLEDGMENTS First, I would like to thank Pat Hale and the MIT System Design and Management program for giving me the opportunity to study in this world class academic environment. It has been a great journey and eye and mind opening experience, which I will benefit for years to come. Many thanks to Prof. Juanjuan for your guidance, support, advice and patience. Your guidance and heart-warming encouragement have really helped me in finishing this thesis work and other academic & entrepreneurship activities that I have consulted with you. To my cohort, SDM 15. You all are an awesome group of classmates and friends that I will remember and truly miss after the graduation. To my wife Shengxi Tian, thank you. I know it is not an easy decision to support me to stop working and pursue this academic program, and I thank you for your love and support. To my children, Yuhang and Wanying, thank you for your encouragement and trust in me finishing the program. I hope this sets an example for you to go after what you want in life when you grow up. To my parents, family and friends, I hope I am able to return more back to the world to make you all proud. 3 Glossary of Acronyms SMS Short Message Service (mobile text message) CRM Customer Relationship Management CAG R Compound Annual Growth Rate CPC Cost Per Click CPM Cost Per Thousands Impressions CPA Cost Per User Acquisition SEM Search Engine Marketing SEO Search Engine Optimization DMP Data Management Platform DSP Demand Side Platform SSP Supply Side Platform SVN analysis Stakeholder Value Network analysis 4 Is of F igures Figure 1 Digital m arketing evolved with digital age4 ................................. ............................ 17 Figure 2 IAB/PwC Internet ad revenue growth 2005-2014.................................................... 18 Figure 3 Chiefmartec.com 2015 Marketing Technology Landscape Supergraphic 8 ....... ...... 19 Figure 4 Share of global ad spend by medium (ZenithOptimedia) 9 . ............. 21 Figure 5 Contribution to global growth in ad spend by medium 2014-2017 (ZenithOptimedia) 9 ....................................................................................................................................................... 2 1 Figure 6 Forecast: US Interactive Marketing Spend 2011 to 2016.......................................... 22 Figure 7 Exam ples of Display Ad .............................................................................................. 24 Figure 8 Exam ple of Google search results ............................................................................... 27 Figure 9 Product Listing Ads in a Google search result for product searches ......................... 28 Figure 10 U. S Search Engine M arket Share 2015................................................................... 29 Figure 11 IAB M obile Global Ad Revenue Report ................................................................... 32 Figure 12 Level 1 stakeholders in the digital marketing system............................................... 37 Figure 13 Display advertising technology landscape from displayadtech.com....................... 40 Figure 14 Digital marketing system components and roles ................................................... 42 Figure 15 M edia agencies buying from ad inventory .............................................................. 44 Figure 16 Ads serving through ad servers................................................................................. 46 5 Figure 17 Creative optim ization enhances the ads ................................................................ 47 Figure 18 DMP and Data Suppliers providing data to various ad tech components................ 50 Figure 19 DSP and SSP in ad buying and selling process .......................................................... 51 Figure 20 the state of Ad blocking in 2015 .............................................................................. 56 Figure 21 Ad Blocker Market Share & Emerging Blockers by SourcePoint and comScore3 8 ....... 58 Figure 22 Comparisons of content viewing experience between with ads blocking on and off. 63 Figure 23 Example website asking ad blocker users to answer surveys ................................. 65 Figure 24 Digital marketing system without Ad Blocker .......................................................... 70 Figure 25 Stakeholder value loops for digital ad marketing system without Ad Blocker ........ 72 Figure 26 Digital ad marketing system with Ad Blocker .......................................................... 74 Figure 27 Value loop - User accepting user friendly ads........................................................ 77 Figure 28 Value loop - User providing payments or other value to Publisher ......................... 79 Figure 29 Value loop - Ad Blocker white-list ads from Ad Marketer ........................................ 81 Figure 30 Option to disable "white-listed" ads in Adblock Plus .............................................. 82 Figure 31 Value loop - Ad UnBlocker force ads delivery for Ad Marketer .............................. 83 6 Table of Contents ABSTRACT........................................................................................................................................ 2 ACKNOW LEDGM ENTS..................................................................................................................... 3 Glossary of Acronym s ..................................................................................................................... 4 List of Figures.................................................................................................................................. 5 Chapter 1. Introduction ............................................................................................................... 11 1.1 M otivation ........................................................................................................................... 11 1.2 Objectives............................................................................................................................ 12 1.3 Approach and M ethodology ............................................................................................ 12 1.4 Thesis Organization............................................................................................................. 13 Chapter 2. Overview of Digital M arketing................................................................................. 15 2.1 W hat is digital m arketing? .............................................................................................. 15 2.2 The history of digital marketing 3,4,5,6 ................................................................................. 1 5 2.3 Characteristics of Digital M arketing................................................................................
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