What the Tech is currency?

Between volatility in the crypto markets and the highest U.S. inflation rate in decades, currencies are really having a moment.

There is a third category of currency that is specific to the digital advertising industry, though, and understanding it might be as hard as trying to decipher the blockchain.

The confusion about the term “currency” in the third realm stems from its overlap with the term “measurement.” The two terms are easily conflated, and advertising executives often use them interchangeably, even though it’s technically a misnomer. The differences between currency and measurement are subtle but important, especially if you’re trying to cultivate a sophisticated understanding of digital advertising.

To understand the distinction between the two, we’ve assembled this handy FAQ.

Let’s start with measurement.

Measurement is the easier concept to understand and provides a foundation for understanding currency, which is more esoteric.

Measurement is the means by which a marketer and/or publisher measures the performance of an advertising campaign. There are myriad ways to measure campaign performance, such as by impressions (as measured by costs per mille, or CPMs), by performance (measuring click-through rate and email sign-ups, for example), or by conversions (cost-per-conversion metrics).

For a more thorough breakdown of measurement, you can consult this previous What the Tech? entry on the various metrics marketers use to evaluate their campaigns.

What, then, is currency?

Currency is a bit more abstract.

All forms of currency — be they fiat, crypto, or digital advertising — are based on trust. Their value derives from all parties in a transaction assigning the same value to the currency being transacted. 

For example: The United States dollar is a legitimate currency because we all believe in its value. We trust in its value because we know it can be exchanged for goods and services virtually anywhere in the world. And we trust this will be the case because the dollar is backed by the United States government. Same for the British pound or the euro — these currencies are insured and substantiated by some of the most powerful governments in the world, thus affording them value. (A lack of institutional trust explains why cryptocurrencies are so unstable.)

Currency, in the advertising sense, is the value marketers assign to different forms of measurement.

So all forms of measurement are currency?

No. All forms of measurement can be used as currency, but not all of them are.

Whether a form of measurement has currency is a matter of perception. Advertising metrics, on their own, have no value, and therefore no currency. But if a marketer believes a metric is particularly valuable, then it holds currency and can be used to transact in the digital ad marketplace. 

Can you use an example?

Of course.

For many years, impressions were the primary form of currency in the digital advertising business. Marketers wanted to know how many people saw their ads and publishers priced their advertising inventory based on how many impressions they could generate for a brand. Impressions were the currency with which business was conducted.

As the industry has matured, however, marketers and publishers have realized that impressions are a crude metric that don’t reveal much about how well a campaign performs. Which is to say that impressions have less currency in the digital advertising market than they did before.

Instead, marketers and publishers have gravitated toward more sophisticated forms of measurement, such as cost-per-conversion metrics, measuring how a campaign impacted actual sales and determining return on ad spend. 

These metrics are now the currency used to broker advertising deals. They hold more currency among marketers.

So there are different kinds of currency?

Yes.

Each advertising campaign has a unique set of goals and thus uses a currency that’s in accordance with the desired outcome. If a brand wants to build brand awareness and generate lots of impressions, CPM might be the currency for the campaign. If the brand wants to move people further down the purchase funnel and get them to finally buy that pair of shoes they’ve been considering, they’ll use performance metrics as currency.

At times, there are currencies that are accepted industry-wide. Nielsen is a perfect example. For decades, Nielsen was the industry leader for measuring the success of TV programs and the corresponding value of their advertising space. It was the currency for the TV advertising market.

Why not have a single currency?

That would seem like the easy thing to do. Alas, the digital media industry has yet to agree on a currency for measuring the success of campaigns. This situation is exacerbated by the looming obsolescence of third-party tracking cookies, which marketers have relied on for years for measuring the performance of their ad campaigns. Third-party tracking cookies are instrumental for multi-touch attribution an important metric for evaluating ad campaigns. (Multi-touch attribution takes into account all of the ads a customer sees on their path to purchase, as opposed to last-touch attribution, which only evaluates a single ad. Multi-touch is a more comprehensive measurement, and thus holds more currency with marketers.)

Many marketers have embraced Unified ID 2.0 as a viable upgrade to third-party cookies and hope to make it the industry standard for buying, selling, and measuring digital advertising.

But to continue with the fiat currency analogy, the relative values of different currencies are constantly in flux. Sometimes the dollar is strong compared to the euro, and other times the opposite is true.

The same goes for the advertising currency — sometimes a form of measurement is up and has lots of currency, and sometimes it’s down and has little.