We hear about the concept of a walled garden often these days. Ever wondered what it means?
The term ‘walled garden’ first appeared in the 70s in the context of the Bell System. This telecom giant made hardware exclusive to its network customers.
The term then appeared in the context of early internet service providers (ISPs) like AT&T. They were creating walled gardens for their users and restricting access to other external services.
But let’s dive in and discover what is a walled garden in adtech.
Table of Contents:
- What is a Walled Garden on the Internet?
- Facebook Google Duopoly
- How Walled Gardens Impact Publishers?
- Walled Gardens vs AdTech Companies
- Digital Advertising Landscape
What is a Walled Garden on the Internet?
A walled garden is a closed ecosystem in which all operations go through and stay in that ecosystem. A walled garden keeps all data and technology to itself.
In adtech, a walled garden provides its customers with the audience, technology, and inventory. But it doesn’t allow them to export any data. That means that no data goes outside of that platform and can’t be used in the exchange between third parties.
This is especially relevant with the end of third-party cookies and users’ demand for greater privacy and control over their data.
Let us give you an example of the walled garden.
Example of Walled Garden #1
You are a publisher, and you are offering your content to Facebook to increase reach. In return, you are forced to give Facebook a portion of your traffic and audience data. Facebook uses this data to optimize its platform performance. Besides, it does not share customer-level data with you but only the aggregated data.
Example of Walled Garden #2
You are a publisher, and you want to start monetizing your content on Facebook. For every ad displayed, you will receive 55% of the ad revenue, with Facebook taking the rest. You also don’t control which ads will be shown and can’t put your own ads there. Meaning that you rely completely on Facebook ad sales. This is because Facebook does not integrate with other SSPs and DSPs.
Previously it was possible to buy ad slots on Facebook using other DSPs through Facebook Exchange (FBX) but Facebook shut it down in 2016. It has since remained a walled garden for both advertisers and publishers.
Walled Garden Technology
Effectively, to build a walled garden, there must be three things:
- Data Management Platform (DMP) to store data about your audience
- Demand-Side Platform (DSP) to buy ads
- Dynamic Creative Optimization (DCO) to extract data from DMP and create personalized ads
Facebook Google Duopoly
Facebook generated 69.66 billion U.S. dollars on ad revenue in 2019, while Google earned twice that.
Digital Advertising Revenue 2012-2019
In fact, these two companies are essentially capturing the whole market and leaving smaller independent companies outside.
What also sets them apart is that they do not rely on third-party data. They only use first-party audience data, which is incredibly accurate.
Facebook offers marketers a vast number of ad types, placements, and targeting options to choose from. With data to over 2.7 billion monthly active users, the social network has the biggest reach potential for both advertisers and publishers.
Monthly Active Facebook Users Worldwide
Google serves more than 5.6 billion search queries daily. Each time it builds a unique user profile to understand his browsing habits better. This is how we get such accurate personalization with Google services.
Google only offers ads to appear through its platform, Google Ads. These ads appear in Google search, YouTube, Gmail, Blogger, and 2 million other websites. Besides, Google operates as an open market for millions of publishers who want to make their inventory available for any DSP.
One of the main advantages of walled gardens like Google and Facebook is their access to deterministic data. It allows them to target users across different devices and ensure precise attribution. This is because users sign in to their accounts across different devices.
This matters because advertisers can draw conclusions about customers before they even log in to make a purchase.
What is Apple’s and Amazon’s Walled Garden?
Apart from Google and Facebook, two more walled gardens are worth mentioning: Amazon and Apple. Together these four make up “GAFA” (or “FAGA”).
Apple has sole control over its iOS ecosystem. This includes payments, video and audio streaming, and advertising on all iOS devices.
Amazon accounted for 50% of the e-commerce market share in 2020. That means Amazon has the most extensive purchasing data on its users. It makes it a sweet spot for advertisers.
E-commerce Market Share of Amazon in the US
With all that said, these four giants have all managed to achieve a competitive advantage because the adtech market is really fragmented. However, it’s not too late for publishers to fight back.
How Walled Gardens Impact Publishers?
Although Google and Facebook have a huge amount of data about consumers, they don’t produce content. Therefore, they cannot compete with publishers who have data about users’ engagement with content. And many advertisers are ready to fork out for this data.
News publishers with large audiences can build walled gardens of their own. For example, The New York Times monetizes non-member readers by showing them ads, while having a paid ad-free subscription model for its premium members.
However, building a walled garden can be a technical hassle. For this reason, publishers are joining forces and coming up with alternative solutions to walled gardens.
For example, publisher alliances OpenAP and Ozone Project are bringing together leading publishers to offer advertisers to run campaigns across different platforms and access relevant audiences.
Moreover, to fight against walled gardens, publishers embrace header bidding. This programmatic solution allows publishers to maximize their revenue by offering their inventory to multiple ad exchanges at the same time.
Recently adtech vendor Neustar introduced a new solution that provides secure cross-media synching between advertiser data and publisher inventory.
Walled Gardens vs AdTech Companies
Adtech companies are on the outside of walled gardens and make up the technology behind the online media. They include DSPs, SSPs, Ad networks, Ad exchanges, DMPs, and more.
With these companies, clients own the data collected in advertising efforts. This is the most valuable advantage independent adtech companies have over walled gardens.
They also provide transparency over measurement and reporting, which is not the case with walled gardens.
With programmatic advertising, SSPs can direct higher fill rates and eCPMs for publishers while advertisers get their ads in front of the right people. The customers also receive more personalized ads.
Finally, adtech companies offer custom support for every client, big or small. Real people are working behind the scenes trying to bring clients consistent ad revenues.
Walled gardens, on the other hand, rely on algorithms that treat all clients the same.
Digital Advertising Landscape
Although the degree of control walled gardens have today is alarming, there is still a place for both publishers and advertisers.
The trend we see now is that brands and publishers are re-evaluating their relationship with walled gardens and gaining their independence back.
They are getting smarter about how they use their first-party data. For example, Nike has purchased a predictive analytics platform, which allowed it to run personalized ads in-house. This decision let it pull off its products from Amazon.
Ultimately, in 2021 publishers will need to focus on creating a sustainable first-data strategy and fight back against walled gardens.