Netflix will be an advertising juggernaut

Remember a few weeks ago when Netflix stock tanked and they announced an advertising model? Let's take a moment and go back to those sweet, simpler times when my portfolio was only slightly red and not deep, blood-red as it is today.

When Netflix announced they’d be launching an advertising model, there was a lot of conversation about who they’d introduce it to.

Some guessed that it would be a new tier of service Netflix bumps your deadbeat sister to when they discover she’s using your password. Others suggested it would be a way of subsidizing subscription costs for international markets like India.

All of that is very interesting. But my mind went straight to how they’d introduce it.

What would a company like Netflix be able to do in the world of advertising?

As a primer, it’s important to note that advertising in streaming is very much not new.

Hulu and HBO Max, among others, have been doing ads for a while.

But this is Netflix. This is the company that knew I’d want to watch a bunch of British people making cakes when I struggle to make myself cereal in the morning. Surely they’ll be able to do something bigger and better than Hulu (no offense, kind of).

Well, I think they will succeed in their ad model. There are a ton of advantages that Netflix has over traditional cable that they can take advantage of, and clearly, Netflix is not shy of taking cues from Silicon Valley when it comes to A/B testing to optimize conversion. Here are just a few ways I think ads will play out on the OG streaming platform.

1. Psychographic targeting.

• Netflix made headlines in recent years saying that algorithms were driving new movie/show creation and selection. Clearly, Netflix has some pretty robust analytics running in order to fingerprint its viewers if they’re able to confidently deploy millions of dollars to creating content based solely on that algorithm’s findings. 
• My guess is that in some way, this algorithm ties back to viewer psychographics, or how a person thinks. It’s the next step beyond demographics and in many ways is far more useful to advertisers. It tells you that even though I am a suburban, 34-year-old dad, I actually think and act (and watch tv) like a 19-year-old girl and have many of the same buying habits.

1. Storyboard advertising aka re-targeting. 

• When you used to watch cable TV, there weren’t a lot of smarts behind what ads were shown to you. Ad buyers had no clue how many times you saw the same ad so there wasn’t the same ability to create a story over time for users.
• That all changed with Youtube and other digital streaming platforms. With cookies, advertisers would be able to identify who you are and what you have seen. This allowed advertisers to be really clever and show you different messaging depending on what stage of their marketing funnel you were in.
• A lot of the same tactics that were previously used in display advertising across the web can now be used on Netflix. Imagine you are on hour 1 of watching Netflix. They can show you advertisement #1 for a new mattress. Because they can associate that ad viewing with your specific username, in 3 days they can show you advertisement #2 for that mattress. Then they can wait to show you advertisement #3 when you log on to Netflix on a device that has purchasing power (phone, tablet, laptop) and give you a direct link to buy.
• This type of ad model is only really possible when someone is spending a ton of time on one platform as people do with Netflix, Instagram or Facebook (or as people do on the internet broadly, but the Apple cookie debacle has really hurt targeted display advertising as a consistent ad model).
• Despite the existence of re-targeting and the obvious potential of it for advertisers, Hulu and HBOMax still do standard tv style ad-buys. My bet is that Netflix will be the one to innovate here.

1. Product Placement on steroids.

• Product placement is nothing new. Seeing your favorite character drink a Coke over a Pepsi is an obvious branding win for Coke and they’re willing to pay a ton for it. What would be novel is if Netflix productizes this and gives an official ad portal for product placement in their shows and movies. Maybe your small DTC brand can’t get into the new Ryan Reynolds movie, but maybe it will be featured in the new Space Force episode?

1. Geotargeting.

• Netflix knows where you live based on your IP address and your general billing information. But they also know when you log in elsewhere if you’re on vacation, etc. (That’s also how they figured out you’re sharing your password with your deadbeat sister.). 
• There could be a use case built around local advertising given your geographic data. This isn’t new, per se, since our telecoms have been selling our geo data for years, but with many of the same privacy updates that we’ve mentioned above, geo-tracking became a lot harder. If you log into Netflix on a TV at your Airbnb, the odds of you setting up a VPN first to block your IP address is slim to none. That means Netflix knows exactly where you are, and can start laying on the localized ads again.

Ultimately, this list is just scratching the surface. But for anyone who has thought about advertising on television, but wants the digital tracking and targeting of FB or Google ads, Netflix’s announcement could be huge.

Especially given their fading stock, this move could signal the rebirth of Netflix into the next trillion-dollar company.

Or… this could completely tank Netflix’s already fading reputation and turn it into an advertising bottom feeder.

No matter how you shake it, a company with hundreds of millions of daily active users with a lot of first-party data is going to shake things up in the ad world.

What do you think?