The Future of Advertising Created by Ad Technology ② ~ Mr. Hitoshi Nakagawa, Director of MicroAd Future Advertising Research Institute

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■Transformation from "Broad Advertising"

──The name "Future Advertising Research Institute" is intriguing. What kind of work do you do?

Nakagawa: MicroAd began with developing blog ad slots, expanded to build Japan's largest ad network, and more recently evolved by incorporating RTB technology. Within this context, a need arose for new initiatives beyond just CPA optimization, leading to the establishment of the Future Advertising Research Institute. Personally, I'm what you might call a legacy marketer. Yet, someone like me is working to optimize branding—something intangible—from an ad technology perspective. First, we need to define branding in terms computers can recognize. We're currently experimenting to create the metrics and numerical indicators that will serve as the target variables for this purpose.

──RTB has become something of a buzzword in the industry. How do you view RTB, Mr. Nakagawa?

Nakagawa: I see two key values in RTB. One is the ability to purchase each individual ad impression. The other is the capability to serve ads to "people" rather than just "slots." While it might seem obvious, serving ads at the optimal price based on the "person" unit, rather than the "slot" unit, strikes me as the very essence of marketing.

──I see. While RTB and DSP are certainly innovative, this approach actually feels like a return to the fundamental purpose of advertising itself.

Nakagawa: I agree. The kanji for "advertising" (広告) means "broadly" and "announce." Its fundamental purpose has always been to reach people likely to buy the product. Traditionally, even though broad announcements involved some waste, they were ultimately effective. Now, however, we've reached a point where we can efficiently reach each individual without tolerating even a little waste.

──Amidst this trend, some commentators even proposed terms like "narrow-targeted advertising," which became a topic of discussion.

Nakagawa: It's a kind of wordplay, but I do feel we're moving away from "broadly informing." I think this is the result of the ideas Kotler and others pioneered advancing further. While in the US, segmentation was roughly based on gender, age, race, and region, in Japan, it has progressed to finer classifications like lifestyle. RTB enables even finer segmentation and allows us to implement these as actual strategies.

■ Expanding Digital Marketing Thinking

──If that's the case, wouldn't the continued evolution of technologies like RTB have various impacts on the entire advertising industry? What are your thoughts?

Nakagawa: There's no doubt we're moving toward delivering ads in a more appropriate state for each individual, and I don't think this is limited to internet advertising. For example, as smart TVs evolve and can identify the characteristics and reactions of viewers, even traditional TV media—a prime example of conventional advertising—could potentially show different ads tailored to each person. Anything connected to the internet has that potential. Digital signage also allows for measuring the effectiveness of each ad, such as how many target users turned to look. This enables selecting and displaying ad expressions that attract more target audiences. I believe the digital marketing concept of running campaigns while continuously improving them will become universal.

──So, as more things connect to the internet, digital marketing concepts like RTB will spread throughout the entire advertising industry.

Nakagawa: Exactly. However, even in such an environment, those with long experience in advertising naturally retain their strengths. They possess creative power and the ability to bring ideas to life. Personally, I believe these abilities are more fundamental. The internet is a tool, so the most correct approach is for those who understand the essence to utilize this tool effectively.

──Are there challenges to achieving that kind of integration?

Nakagawa: Frankly, I've always felt uneasy about the term "digital marketing." Marketing fundamentally involves determining the optimal approach to advance a business. Therefore, there should be an atmosphere where digital and non-digital are treated as equally natural. Just as there are specialists in newspapers or radio, there are specialists in digital. If we can establish a framework where media planners integrate these elements and marketing planners develop the strategy, I see no problem.

──In the digital marketing world, I feel the importance of scenarios and storytelling has been increasingly emphasized lately.

Nakagawa: This is likely because the internet has made contact point management more feasible than before. With increased touchpoints, we can now add depth to advertising or convey messages sequentially. The backdrop to this is undoubtedly the significant impact of new devices like smartphones and tablets, which are changing people's behaviors.

■ Feeling creeped out by being followed too much?

──Regarding device evolution, products like "Google Glass" are drawing attention. Do you think the emergence of such wearable devices will bring about new changes?

Nakagawa: The emergence of sensor-based functions will certainly bring various changes. It's not limited to wearables; for example, if sensors were added to refrigerators, they could potentially become marketing devices encompassing payment and distribution. DSPs, in the sense that they capture online movements, are essentially sensors that reveal how specific individuals behave. It's easier to understand if you think of this expanding into the real world.

──There's also talk about wearable devices measuring brainwaves, which could impact advertising too.

Nakagawa: For instance, we could stop showing ads when the recipient starts to dislike them. One challenge with online advertising is brand damage. That is, the risk that recipients might feel "creeped out by being chased by ads." We're conducting proof-of-concept experiments and learning about the negative effects of ads, such as how many times an ad needs to be shown before brand favorability starts to decline.

──I see. But this problem existed even before online advertising, right? Why is it now becoming a major issue specifically with online ads?

Nakagawa: I believe it's because retargeting techniques have become widespread, making it obvious to the audience that they're being "chased." The general public has also gained a general awareness that companies use behavioral data for promotional activities.

──RTB is a prime example of technology transforming advertising mechanisms. But isn't there potential for technology to significantly alter not just mechanisms, but the very expression of advertising?

Nakagawa: Constraints from the media side are significant regarding expression, so it's not that simple. However, since expression is what greatly influences advertising effectiveness, we must challenge ourselves to maximize expression within these constraints, overcome the negatives, and break through the barriers.

──As audience targeting advances, creative will inevitably become more fragmented. If this fragmentation continues to the extreme, could we reach a future where "ads everyone knows" simply disappear?

Nakagawa: That could happen. Creating several patterns for video punchlines and swapping them out is easy. Based on online behavior, changing the copy, structure, or tone for different viewers isn't difficult.

■ RTB is the smallest PDCA cycle

──By the way, many people from the financial engineering field have entered the RTB world. Some advertising professionals are critical of this influx of people who aren't originally advertising specialists.

Nakagawa: Those coming from financial engineering build systems and optimization algorithms. However, it's the advertising side that sets the marketing objectives and decides how to use those tools. I don't think that part changes. The ultimate goal of advertising is whether the business owner makes a profit. The only issues are how to break that down into elements, whether those elements can be properly measured, and whether they can be controlled. Crucial in this process is clear KPI definition, planning that breaks things down to achieve profitability, and identifying intermediate metrics. It's essential to share where we currently stand in the process and devise ways to avoid being overly fixated on CPA alone.

──So effectively managing the PDCA cycle is crucial. It's often said that the PDCA cycle has accelerated with online advertising, but this has also fostered a tendency to prioritize speed above all else.

Nakagawa: The PDCA cycle has layers: some turn quickly and small, others turn slowly and large. The smallest, fastest layer is handled automatically by computers—exactly what RTB does in hundredths of a second. The layer just above that involves humans adjusting DSP settings based on those results. Above that is the layer for changing creatives, then the layer for changing marketing strategies, and finally the layer for changing business plans. Our focus is on covering as much of the small, fast-moving PDCA like RTB as possible with machines, expanding the layers that can be automated. The fundamental idea is to free people from the current tedious, manual tasks and channel human effort into the higher layers.

──In future advertising, how will the line be drawn between what's automated by machines and what remains human work?

Nakagawa: The scope of automation will certainly expand, but drawing that line is difficult. Take RTB alone: where human tasks end and automation begins isn't uniform; it varies significantly by company. It also depends on the design philosophy, and I believe both approaches have their pros and cons. Generally speaking, humans excel at handling diverse information that requires time for processing, while machines are better suited for quickly processing large volumes of quantifiable data. Therefore, I don't believe even planning or creative work is exclusively human territory. For simple campaigns, it's possible to separate the elements and feed them into a machine to automatically generate the composition .

──Finally, what are you keeping an eye on going forward?

Nakagawa: As everything becomes networked and bio-sensor systems like chips expand for health management, making all kinds of sensors more commonplace and constant tracking the norm, new marketing theories based on the premise of constant connectivity will likely emerge. At the Future Advertising Research Institute, we're conducting various studies and proof-of-concept experiments to integrate brand communication functions into DSPs. From a broader perspective, I believe this is about creating a common template for all advertising activities, anticipating a future where diverse sensors are connected and various communication devices become practical.

──Thank you very much.

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Digital Terminology Explained

RTB [real-time bidding]
Real-time bidding. An online advertising auction mechanism where competitive bids for ad slots occur each time an ad impression is displayed, determining which ad is delivered.
　

SEO [search engine optimization]
Search Engine Optimization. Measures such as rewriting web pages to rank higher in search engine results.
　

Behavioral Targeting Advertising
A targeting method for online advertising that analyzes a user's interests based on past page views and search history to deliver ads tailored to individual preferences.
　

Attribution
Also translated as "advertising contribution," this concept seeks to understand how each advertisement contributed to the process from ad awareness to purchase.
　

DSP [demand side platform]
A system used in online advertising transactions that sets conditions based on objectives for ad optimization and performs automated buying via RTB. It is a crucial component enabling RTB transactions.

O2O [online to offline]
A concept where online and offline purchasing activities are interconnected, or where online activities influence purchases at physical stores.

KPI [Key Performance Indicator]
A metric that quantitatively shows the degree to which a goal has been achieved (performance) in advertising campaigns, etc.
　

CPA [cost per acquisition, cost per action]
The advertising cost per instance where a user directed from online advertising completes a desired action on the advertiser's site, such as registering as a member, purchasing a product, or achieving another defined goal.

Wearable device
Information devices worn on the body like clothing or watches. Google's eyewear device "Google Glass" is a well-known example.
　

Retargeting advertising
A targeting method that identifies users who have previously visited a specific company's website and displays ads to them again.
　

PDCA Cycle
A cycle of planning ("Plan"), executing ("Do"), verifying results ("Check"), and then improving the plan ("Action").

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