What is an advertising algorithm?

As you scale your marketing efforts as a small business, the need to expand some of your technical knowledge and remain in control of optimizing conversions grows larger. We are creating a new series of blog content to facilitate the education process on some advanced advertising lingo and know-how.

What the f*** is an advertising algorithm?

An advertising algorithm is a process that a computer uses in calculating or problem-solving to determine an outcome.

In the scope of advertising, advertising technology (“ad tech”) companies often pitch how their ‘algorithm’ will discover the people most interested in your product or service.

What does an algorithm theoretically do for my advertising budget?

It depends on the software platform but the general idea is that algorithms can produce solutions that a human can not efficiently replicate. The computer software is capable of automating an extremely manual process and actually learning what works best.

Depending on the platform, their algorithm will use inputs from many different “hints”. They will take these hints and automatically score them to determine the best time to serve your ad.

These inputs can include things such as:

  • Time of day,
  • The site that a user is on,
  • User behavior (have they interacted with your site?),
  • Frequency (how often are ads shown to a user? how often do they interact with your site or your ads),
  • The device (mobile, desktop, tablet),
  • and countless others.

When you assign a goal like a CPA (cost per acquisition) or a CPC (cost per click) to the advertising model, it can use all of those inputs to determine how much to bid on that user and how often a user needs to see an ad before they complete your goal metric.

Will Ad Tech algorithms solve all of my advertising problems?

The reality of the situation is that many “algorithms” are either not proprietary (they are ‘leasing’ technology from another larger provider) or they’re not as robust as they claim.

There’s this underlying hesitation around sprouting ad tech companies; a suspicion rooted in many of them selling “vaporware.” Vaporware is technology that – on the surface – has a lot of features and a slick user experience, but falls short in effectively performing your goals and reaching those elusive KPI promises.

You should really push all technology providers to explain the benefit that their service provides your business. Even if they sell convenience vs. exponential performance, they might be making a pitch that is worth your investment. That is to say, choose products for the right reasons. If you’re looking to save time each day, then UI/UX can be a huge factor, and maybe you’re satisfied with your current baseline ad performance. If nothing matters more than upping conversion, then those same features could end up seeming like a facade of simplicity.

You should also be voracious in your tracking of the metrics that are important to you. The best defense against being sold technology that does not benefit you is testing a small budget with them and holding them to a specific goal metric.

What platforms can I trust?

We are absolutely not trying to paint a negative picture of the ad tech industry. We’re actually extremely optimistic about the long-term outlook of such tools and capabilities.

That said, we recommend approaching all of them with caution. The players that are easiest to trust are also the biggest. Google, Facebook, Instagram, Pinterest, Snapchat, etc all provide robust technology to serve your advertising. When it comes to things like email marketing, cross-platform ad management, and larger bidding platforms, the features and promises get more grey and less predictable.

What does this mean to me?

In a technology environment dotted with snake oil salesmen, we recommend a cautious approach. Don’t believe everything a salesperson tells you. Ask a lot of questions and make sure that you are educated on the benefits of the platform and how they specifically relate to you. We’ve seen it time and time again where a “can this tool do X?” question receives a “yes” before the sale, and then the tune quickly changes once they have your money. Make them demonstrate everything. And always ensure that you track the proper success metrics to verify that the new technology is driving the results you expect.

We at Red Herd believe it’s essential to educate our clients on what we are doing to grow their business. That means always being available to answer questions about what’s going on “behind the wall.” We’re also constantly learning about what’s out there, and are happy to facilitate a connection between your company and a third-party solution.

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