So much happened last week in the world of internet, thought I should bring it out in the open (pun intended), a very pertinent question. Globally we are still debating whether OpenAI will truly be open or it will be controlled, once again by a few large corporations. True decentralisation is still a “research paper”. Legacy systems are running a reasonably well oiled machine, still. Innovations and the potential economic benefits decentralisation can bring to the society is still not outweighing the disruptions that it brings along. Or are we missing something?
Open Networks fundamentally allow participants to engage with each other in a platform agnostic manner through a common protocol. UPI is a very good example. It uses payments identifier (UPI ID) linked to our mobile number as the protocol to enable peer-to-peer transactions. It unbundled custodianship of money and enabled interoperability across enterprises by giving the power to the consumer to own the ID. In India, there is a debate now as to why ONDC is still not taking off as fast as the UPI disruption, despite having a “digital for public goods” protocol that is already in place.
Commerce is very different from Payments. For two reasons. Discovery and Delivery. ONDC will need to move up the ladder from being a peer to peer protocol to a multiparty protocol. A brief history of internet and the way digital advertising has grown over the past decade will throw some light on this. It was Search advertising that acted as a catalyst for the growth of digital advertising. Back in 2008, close to 95% of Google’s revenues came from Search and nearly after two decades later Search still contributes 70% of its revenues. Around the same time, Search only contributed 20% of Amazon’s revenues, but today it is around the same 70%. Commerce or on a wider canvas Performance Marketing, is all about Discovery. Search enables Discovery. Buyer need to discover the Seller. And the Seller need to discover the Buyer.
Centralised platforms like the walled gardens enable this discovery. In fact advertising monies are now slowly getting classified into Pure Play Digital (Search, Social, Retail and Display), Premium Inventory, Publishing, Audio, Out of Home and Cinema. And when you classify spends across like these, it is interesting to see that Pure Play Digital continue to grow faster as they help in the discovery process. It is estimated that nearly 70% of global spends will be through Pure Play Digital across Search, Social and Retail. When Amazon partnered with Meta and Snap on data, they effectively closed the loop on Discovery plus Delivery between their enterprises. On a related note, privacy regulations are also driving revenues more towards the walled gardens as each and every one of them have built their own proprietary privacy enhancing technologies. It is estimated that the open internet share of advertising will slide down to 20% in the next couple of years, as more and more walled gardens strike data sharing deals between each other.
Open Network Protocols are difficult to build. More so it is difficult to populate. Unless and until other participants beyond the buyer and the seller viz., discovery and delivery join the network, it is going to be difficult to scale up. It is advertising that funded the internet in the form of Search Advertising. What is the equivalent of that in an Open Network? Advertising was defined as a non-personal form of communication conducted through paid media under clear sponsorship. Can advertisers join the Open Network too, by sponsoring the discovery process? Not as an intermediate, but as a clear sponsor promoting the discovery.
ONDC is just an example of some of the challenges we have towards building a truly Open Network. FinTech got disrupted by the UPI and opened new doors. As digital advertising grows to become 100% in the next 3-5 years, performance marketing is going to be the central theme in advertising. And that means FinTech will need to integrate with MarTech. At that time, what is the UPI equivalent Open Network solution that MarTech can bring to the table? Will we have Open Network Advertising that enables protocols like ONDC to grow rapidly?
There are more questions than answers. But one thing is for sure. Failure to crack this will only result in the near closure of the OpenWeb with complete dominance from the walled gardens and by then it will be too late to debate whether OpenAI is going to be truly Open or not. It is Advertising that runs and funds the internet. For Open Networks to thrive, we need to crack Open Network Advertising.