This post was previously published in an earlier edition of Online Spin.
Bitcoin is what is known as a “bearer asset,” meaning that whoever holds it, owns it. In this way it is very similar to cash, and dissimilar to credit cards and checks, which require a centralized clearing house (a bank) to transfer ownership of the asset from one individual to another. This centralized system adds both time and cost to the transaction – making it less efficient than Bitcoin – as well as requiring all parties to own bank accounts.
Bitcoin is not a fad, and it is not going away. Strong evidence of this can be found everywhere, from the significant investments made by the world’s major financial institutions and venture capitalists, to the adoption of Bitcoin by people living in countries with volatile local currencies (Argentina), slowing local economies (China), and many “unbanked” inhabitants.
Bitcoin itself is interesting enough, but the real magic lies in its underlying technical architecture, known as the Blockchain. Simply put, the Blockchain is the decentralized, globally distributed legder of credits and debits (transactions) for a particular asset class. Bitcoin is just one type of asset class : a currency.
At this point, you may be wondering what any of this has to do with media. Two things, potentially: The Blockchain could help 1), improve programmatic efficiency, and 2) evolve static business models.
Programmatic media has unlocked great efficiencies in certain areas: automating the buying and selling process, speeding execution, and unlocking troves of data for targeting.
This is the front end of the transaction. The backend, however, is a different story. The process by which payments are settled between parties in these transactions – brands, agencies, and media companies – has not evolved in decades. I’s is still a laborious process requiring invoices, accounts payable and receivable, payment terms (30, 45, 60?) and many, many people. This is the case even as companies move from paper checks to electronic funds transfers, because the underlying infrastructure remains unchanged. Thus it is a manual process on all sides, with agencies taking the additional (quasi-centralized) role of cash clearinghouse and float manager.
It may sound crazy, but using a secure, decentralized and fully electronic currency like Bitcoin would dramatically reduce the costs associated with these transactions.
The challenges here are not technical (programmatic media is already digital) but structural and cultural. But because many billions of dollars move along this pathway each year, even small gains in efficiency can be very meaningful.
More interesting than adopting Bitcoin for payments settlements, though, is applying the Blockchain to the asset exchange occurring in media and advertising transactions.
Bitcoin, as I mentioned, is just one asset class, but there are others (one company, Chain, builds technology for precisely these types of Blockchain extensions), like loyalty and rewards points.
In advertising and media, the value exchange looks like this: companies that sell things (brands) reach people who buy things (consumers) through TV, print, Web, and mobile content (media).
What asset does each party bring to this exchange? The brand brings money. The media company brings content. And the consumer brings attention. Or put differently, the consumer trades her attention in order to get free content subsidized by brands. Given the rise of ad blocking, cord-cutting, and walled-off communications channels (messaging), it’s safe to describe this roundabout model as not totally effective.
It’s not hard to imagine a future in which consumers have direct (and separate) relationships with both brands and media companies. Brands could facilitate this by issuing “colored coins,” effectively brand-printed cash valid for transactions with that particular brand only (think Starbucks reward card), and media companies could facilitate micro-transactions for content, eliminating the Draconian either/or tradeoff of paywall versus no paywall.
Thriving under rapidly changing market conditions often entails a fundamental re-evaluation of the current way of doing things. This is as true in media and advertising as it is in banking.