A year-long pilot that uses blockchain to improve online advertising efficiency has yielded promising initial results, according to IBM CMO Michelle Peluso.

The project has already reduced pennies on the dollar of waste in the area of ad reconciliation and brought greater transparency to the complex gauntlet of intermediaries brand advertisers have to deal with, Peluso told VentureBeat in an interview this week. And there’s more to come, she said.

Peluso’s remarks are the first time the company has commented publicly about results of the pilot.

Reconciliation refers to the process advertisers use to ensure contracted agreements are actually delivered. Peluso estimated the average savings at 2 to 3 percentage points, though the company is still collecting results from its multiple brand partners.

The problem

On the one hand, online ads are highly effective because they’re more personalized than other forms of advertising. The sector has exploded, and this year online ads will for the first time account for more than half of the total advertising market.

But that growth has been accompanied by significant problems.

Just 20 years ago, Peluso explains, about 85 cents of every dollar spent by an advertiser made it to the publisher. The reason it wasn’t 100% is because an advertiser would pay modest fees to a creative agency, and perhaps a media placement firm. Today, at most only 40 cents of every dollar is getting through to the publisher, Peluso says. (The Association of National Advertisers cites similar numbers.)

This is largely because of the increasing number of intermediaries taking a cut along the way. A typical campaign now involves fees paid to an agency trading desk, an ad exchange, a demand side platform, a supply side platform, and various other networks. And that doesn’t include losses from things like click fraud or account for brand damage caused by an ad inadvertently appearing alongside objectionable content, not to mention obstacles like adblockers. “It’s gotten really cumbersome and less understandable,” Peluso said.

These challenges have spurred advertisers like Unilever, the world’s fourth-largest spender on ads, to take action. Keith Weed, who was marketing chief at Unilever until May, called the advertising ecosystem “a swamp.”

In an effort to turn the tide, Unilever has become the anchor brand in the IBM blockchain pilot consortium, which includes Kellogg, Pfizer, Kimberly-Clark, AT&T, and IBM’s own Watson. A full report on the pilot’s goals can be found here.

The results are enough to convince the group to move into full production in October, according to Babs Rangaiah, executive partner in global marketing at IBM’s digital agency iX, and a leader of the blockchain project. Rangaiah, incidentally, is also a former Unilever employee.

The consortium will expand to include several more partners, he said, with the goal of making the product an “industry-wide solution” and “better on a number of fronts.”

How it works

Blockchain creates “this trusted verified chain from my dollar to the end user, which promises to root out several inefficiencies in the market,” Peluso said.

First, blockchain can improve the speed of reconciliation and billing. Second, it can cut out the scores of intermediaries that have popped up to offer measurement, verification, and source attribution services — while taking a cut, of course. With one immutable source of truth, the need for these players will go away. Third, blockchain can help with issues like safety and fraud, documenting where the ads actually appeared, Peluso said.

IBM announced the launch of its blockchain pilot a year ago.

In the past, ad reconciliation was simple because you had a single trusted measurement source, like Nielsen. Now you might have 10 measurement sources. “There are some companies out there that literally have 10 people doing nothing but solving discrepancies all day because of all the difficulties,” said Rangaiah.

Advertisers are excited

IBM and its partners, including the major brands and agencies participating in the project, “are feeling excited” by the initial results, said Peluso. And the group has only just laid the foundation, with much more to come.

Peluso’s goal is to reclaim 15 to 20 pennies on the dollar within the next five years. “That would free up an extraordinary amount of capital,” she said. The global online advertising market is worth $ 333 billion this year, according to eMarketer. So savings of the kind Peluso is talking about would equal about $ 65 billion this year.

Over that same time frame, she wants the project to achieve clarity on the scope of fraud and brand safety issues advertisers face: “Because right now, honestly, for all of us, it’s a little bit shooting in the dark,” she said.

The project has so far successfully automated campaign transparency and reconciliation, both new capabilities, Rangaiah said. But included in the next improvements, he said, will be applications that various partners want built on top of the blockchain foundation. These include seamless payment systems, better identity-level targeting, and impression-level data capabilities.

One particularly interesting application IBM is planning will help players along the blockchain target users more efficiently by leveraging encrypted first-party data across the chain. “With the blind trust within blockchain,” Rangaiah said, “you’d be able to use first-party data for both publisher and marketer in a way that currently you aren’t able to because it’s encrypted and you can only see your own data that you are technically ‘allowed’ to see.”

IBM charges an upfront fee to cover the small cost involved in providing the blockchain technology layer, but it plans to make money from applications built on top.

By the end of 2020, IBM hopes to have a solution that is “really industry-wide,” Rangaih said, and that incorporates many of the applications mentioned above. Partners are giving IBM feedback on those applications now, he said.

Another key player in the IBM consortium is software company Mediaocean, an important intermediary that does everything from planning to insertion orders, invoicing, media buying, and purchase orders — touching more than $ 140 billion in annual ad spending. The company already has the data from 5,000 publishers integrated into its system, saving IBM from having to build out the advertiser ecosystem itself. Mediaocean simply puts its software on top of IBM’s blockchain product, called Hyperledger.

IBM acknowledges Mediaocean’s role with the project’s name: “The IBM Mediaocean Blockchain for Media,” though Rangaih concedes “I think we need a nice catchy name.”

Despite the project’s early successes, winning wider acceptance for blockchain technology is a formidable challenge, both Peluso and Rangaih acknowledge. “To really make blockchain work, you have to convince everybody to be on the blockchain, and there’s plenty of people who have a vested interest in not doing that,” Peluso said.