Jul 06, 2022

The Future According to Someone Who Is Creating It

A conversation with Doron Gerstel, CEO of Perion

Hold the drumroll – we’re modest around here.  But we’re thrilled to welcome you to the first edition of Cornerwatch, Perion’s new blog. And we can’t think of a better time in the meteoric  – and often messy – march of digital media to kick it off, than right now.

As the advertising world continues to change at blinding speed, there’s just so much to observe, obsess over, forensically analyze, and boldy challenge.

While the future is often unpredictable,  as we enter another cycle of economic dislocation, one reality we can be sure of is that companies will become hyper-focused on their ability to drive measurable results. Soft metrics are squishy. 

We believe the analytical certainty of digital media will continue to inure to the benefit of digital advertising platforms, whether they be search, social, or display. New formats like CTV and iCTV are capturing dollars and imaginations. The move from linear TV is unstoppable.

But this secular swing into digital is not without consequences. We are witnessing a massive eruption in privacy consciousness – as recently as June 14th a bi-partisan group of members of the House Committee on Energy and Commerce held hearings on “Protecting America’s Consumers: Bipartisan Legislation to Strengthen Data Privacy and Security.”

The end of the cookie is upon us; its fate is clear. But the absence of cookies doesn’t guarantee the presence of privacy; brands shouldn’t be misled by the proliferation of cookie-free claims out there. (In the same way that “sugar-free” doesn’t mean “calorie-free.”)

In parallel, the industry is abuzz with the question of how effective digital ads can be without cookies to collect the data that is traditionally used to inform campaigns. Can companies accurately target ads while simultaneously protecting privacy – and not sacrifice profits?

To answer this and other questions, we’re kicking off our blog with a no-holds-barred conversation with Doron Gerstel, CEO of Perion. Doron, has not only been watching these trends evolve—he’s also been making strategic moves over the past few years to put his company in a unique position to capitalize on.

Q: Describe the adtech industry at a high level

DG: The $600B grip of the triopoly on the three main channels – search, social and display – is weakening. Google, Facebook and Amazon are facing serious headwinds.

Their “Big Tech” domination is what legislators, regulators, and consumer groups are aggressively challenging.

Keep in mind that the triopoly doesn’t own it all. The $200B “Open Web” is growing 15% to 17% annually. That’s where Perion thrives. We’re built for every aspect of it.

Q: The economy is – to be blunt – a mess.  Everyone is looking to see if ad spending takes a hit.  What are you seeing?

DG: We’re not seeing a slowdown. Companies are continuing to invest in their brands.  I guess they’ve read the data that says companies who spend in a recession will gain share. What I expect will change is where and how they spend.  I expect shifts to the most measurable channels, and in parallel, new innovations in trackability. 

John Wanamaker famously said that half the advertising he spends is a waste – but he doesn’t know which half. Digital solves the Wanamaker challenge, down to a granular level never possible before. A viewer can click on a QR code that shows up in an ad delivered through connected TV. That’s a real-time move from awareness to a shopping cart. 

With an entire ecosystem of innovation, advertisers will see a downtown as opportunity.

Q: But will all adtech and martech companies benefit from a downturn?

DG:  Most ad tech companies are specialists, betting on a single aspect of the business. They might focus on supply side display, or maybe the demand side of search. That puts them at risk when budgets rapidly shift. They are paralyzed.

That’s what sets our business apart. Beginning in 2017, we made the strategic decision to be able to capitalize on changes in either the supply or the demand side.

We saw an era of media shift was occurring, so we made the necessary investments to enable us to connect both sides of the digital advertising ecosystem.

Q:  It sounds like you built a new infrastructure from scratch.

DG:  Fom an architecture point-of-view, everything is routed through our AI-powered intelligent hub. It optimizes the efficiency of client advertising, and our own operating metrics through significant economies of scale. This gives us a lovely, wide moat. 

Think of it in terms of the hub-and-spoke system that the airlines use.

Q:  Let’s move to the subject de jour. The swan song of the cookie. How are you planning for it?

DG: Europe and other regions are ahead of the U.S., but we saw it coming and have been

planning for a cookie-less solution for years.

Q:  How would you describe the current rush to cookie-free?

DG: There’s a ton of hype. Take these new user-ID solutions. They’re bogus. If a user has to opt-in to sharing their email address, then they surrender privacy even without being cookied.

Q:  So how did Perion go about solving for a cookie-free world?

DG:  We gave our tech team the extreme challenge of creating “ultimate privacy.”  Solving this puzzle without collecting any user id data will win out in the end. But ONLY if the performance is equal to or better than cookies.  I’ll get to that in a moment.

Q: How did they respond to your challenge, other than with a lot of caffeine?

DG:  They created SORT™ – short for Smart Optimization of Relevant Traits. It’s based on the radical idea that looking at user history doesn’t matter. It not only violates privacy, it could be misleading. What you searched for or clicked on yesterday doesn’t mean you will do the same tomorrow.

SORT’s thesis is that you need to understand how a group of users who behave similarly – we call them “Smart Groups” react to any individual ad unit. 

Q:  So how does SORT work if it isn’t based on using historical data?

DG: SORT has two components. The first is an engine that runs 24/7. taking signals from the activity running through our iHub from search, display and social. For example, we have access to 18 million searches a day;  you can learn a ton from the high-intent nature of search.

Our AI engine then analyzes the trends and builds the “SmartGroups” I mentioned, which generates models that determine the likelihood of people who share similar traits engaging with any given ad, by category.

Q: What is the second component of SORT?

DG: The SORT engine optimizes bids. To generate performance it’s not enough to just know which ads should reach which group.  It must  be done on a cost-effective basis. So SORT analyzes the bidding on a publisher-by-publisher basis, and determines what price is likely to win the bid.

If the price is too high, the engine will find another publisher whose audience can represent the same Smart Group.  What’s remarkable is that all this analysis is happening in milliseconds.

Put simply: we can target ads more effectively while simultaneously protecting user privacy.

Q: That sounds a lot like you’ve found the Holy Grail of ad tech. Have you?

DG:  I will leave it to others to pat us on the back.  I will say we are super-scrupulous because normally there is a tradeoff between privacy and performance. But as I told you before, we win on both, without keeping ANY user data.

We used a two-step validation model.

The first is the classic a/b test. We analyzed 125 ad campaigns that used SORT and compared the results to the same campaign, run in parallel, using cookies.

Not only were the results from the SORT campaigns twice as effective as the cookie campaign as measured by click-through rates.

The second path was to work with a third-party certification agency, Neutronian, who independently verified our results.

Q: What other trends are you watching in the future of digital advertising?

DG: There will continue to be enormous growth in CTV and iCTV.  Retail media is a tectonic change.  It’s starting now, with companies like Kroger and Dick’s Sporting Goods and of course Walmart building proprietary networks using their 1P data.

Soon, every retailer will be a media company.

I am also watching in-game advertising, advertising in streaming services – which will boom as subscriber growth puts the Netflixes of the world under continued pressure – and of course the metaverse.Looking past the hype, it can open up precedented advertising opportunities.

There’s also no doubt that DEI and ESG will continue to drive consumer behavior – and of course, advertisers follow their customers.  Which means the planetary impact of digital advertising will be elevated in significance. 

Lastly, there is no doubt in my mind that the blockchain and the tokenization of advertising is going to change our industry.

So stay tuned – it will be a thrilling ride.  At Perion, our goal is to take the roller-coaster out of the ride.