Forward-Looking Information
This Annual Report of NYIAX, Inc. on Form 10-K contains forward-looking statements, particularly those identified with the words, “anticipates,” “believes,” “expects,” “plans,” “intends,” “objectives,” and similar expressions. These statements reflect management’s best judgment based on factors known at the time of such statements. The reader may find discussions containing such forward-looking statements in the material set forth under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” generally, and specifically therein under the captions “Going Concern, Liquidity and Capital Resources” as well as elsewhere in this Annual Report on Form 10-K. Actual events or results may differ materially from those discussed herein. The forward-looking statements specified in the following information have been compiled by our management on the basis of assumptions made by management and considered by management to be reasonable. Our future operating results, however, are impossible to predict and no representation, guaranty, or warranty is to be inferred from those forward-looking statements. The assumptions used for purposes of the forward-looking statements specified in the following information represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. No assurance can be given that any of the assumptions relating to the forward-looking statements specified in the following information are accurate, and we assume no obligation to update any such forward-looking statements.
Except as otherwise indicated herein or as the context otherwise requires, references in this Annual Report on Form 10-K to “NYIAX,” the “Company,” “we,” “us” and “our” refer to NYIAX, Inc.
ITEM 1. BUSINESS
Our Company
NYIAX is a financial platform technology company founded in 2012 by Carolina Abenante, Mark Grinbaum and Graham Mosley, who formulated the genesis of NYIAX’s business model to bring forth a new era of financial platform technology and financial rigor to the advertising industry. NYIAX’s platform utilizes the Nasdaq financial framework (“NFF”). NYIAX utilizes Smart Contracts and blockchain technology as its core ledger, which enables contract formation, compliance and reconciliation. NYIAX’s utilization of financial technology brings automation of many manual and outdated processes to the advertising industry. Our mission is to connect buyers and sellers, enabling trusted, secure, and efficient transactions.
NYIAX’s business model is focused on the creation of a marketplace where advertising inventory, campaigns and audience can easily be listed and sold through utilization of highly efficient financial buying and selling technology. A media buyer (“Media Buyer”) is typically an advertiser, advertising agency or intermediary that buys on behalf of an advertiser. A media seller (“Media Seller”) is typically a publisher of content, such as websites, magazines, billboards, network TV, mobile or desktop applications or other content, or a Supply or Sell Side Platform1 (SSP, which refers to a technology platform enabling web publishers and digital out-of-home media owners to manage their advertising inventory, fill it with ads, and receive revenue). NYIAX has developed a technology platform which provides Media Buyers and Media Sellers a marketplace where advertising or audience campaigns are listed, bought and sold.
Advertising Industry
Due to the growth of the advertising industry, an extraordinarily complex technology (“ad-tech”) ecosystem was developed and designed to monetize every available, perishable ad2 impression and unit of audience data. However, the ad-tech ecosystem has yet to address direct advertising, guaranteed advertising and agency or advertiser discounted advertising, which for the most part is sold by Media Sellers directly to Media Buyers through non-automated methods. These physical contracts are negotiated, signed, and sent between parties by outdated communication channels such as fax, email, and mail. This is a cumbersome and non-automated process, which is ripe with tracking and reconciliation issues, as well as a loss of data on the contract terms and transactions.
A media buyer (“Media Buyer”) is typically an advertiser, advertising agency or intermediary that buys on behalf of an advertiser. A media seller (“Media Seller”) is typically a publisher of content, such as websites, magazines, billboards, connected television, network TV, mobile or desktop applications, other content or any proxy for a content.
The advertising industry has grown significantly in the past twenty years.3 According to eMarketer (a frequently quoted research company which claims to source information from 3,000 sources), the total global advertising spend for 2022 is estimated to be over $783 billion, which is an approximately 6.1% increase over the 2021 spending.4 In April 2021, eMarketer forecasted that U.S. digital ad spending will increase by 25.5% in 2021, representing the fastest growth rate since 2018. As the ad market and wider economy continue to recover from the pandemic, it is estimated that total media ad spending will rebound by 18.0% in 2021 after a flat 2020.5 The United States is anticipated to remain the world’s largest advertising market, with U.S. digital ad revenue spending estimated in 2021 to be at $191.09 billion, compared to $152.25 billion in 2020.6
Advertising Market Challenges
Overview
Each party in the digital ecosystem has its share of challenges. Media Sellers (i.e., publishers, or content providers) are faced with the challenge of creating content and maintaining a relationship with their audience. The primary revenue stream for publishers is the sale of advertising space based on their content, which is normally sold on an individual view (i.e. when an ad is actually seen by the user), or impression basis (i.e. a single display of online content to a user’s web-enabled device). Media Buyers (i.e., advertisers, or advertising agencies and their marketing clients) understand that they need to design media plans that reach and engage their target customers in the most cost-effective and efficient manner. Media Buyers achieve this through a combination of reach-based brand messaging and targeted metrics-focused advertising.
Traditionally, Media Sellers have deployed their own direct sales teams to sell their advertising inventory. This allows Media Sellers to control sales packages, pricing models, and revenue forecasting, while strengthening the direct relationship with Media Buyers. While some premiere and large Media Sellers may sell most of their advertising inventory directly to an advertiser, on average, Media Seller sales teams only sell approximately 12% of the available inventory direct to advertisers outside of programmatic channels, which leaves the balance unsold7,8.
Direct Sales Process — Most direct sales are processed at both the agency and publisher sides manually, with publisher sales teams receiving descriptions of campaign metrics and desired targeting and responding with proposals of prices and volumes of advertising inventory which may or may not meet the buyer’s criteria. A manual negotiation process through emails, phone calls, and spreadsheets then occurs before a deal is struck. This process is unstructured, prone to errors and revisions, with limited oversight, and a need for a sales team with contacts or relationships with possible partners.
High and Opaque Fees — The Programmatic “Ad Tech Tax”. PriceWaterhouseCoopers reported only $0.51 of every $1 spent by advertisers was actually spent on media9. The remaining $0.49 represented leakage to what is referred to as the “Ad Tech Tax10 ” or “Programmatic Tax”. This $0.49 was investment consumed by ad tech providers) across the supply chain.
Cookies11 and third party12 data — Due to various privacy regulations, cookies are scheduled to be phased-out in 202313. This would drive the industry back to a more one-on-one relationship between publisher, advertiser and providers of contextual information where the publisher maintains the relationship with the consumer. New approaches to replace the cookie have been proposed, which, together with regulation around data protection and privacy laws, are driving a lot of uncertainty related to targeting and measurement for the advertising industry.
First Party Data. As a result of the industry transition back to a first party data and consumer relationship, NYIAX is positioned not only to support these transactions but also to enable a new approach to auditing the ecosystem from a monetary and compliance perspective, due to the use of Blockchain technology, which provides an auditable and trusted layer of technology for each participant.
Continued fragmentation in the distribution of media. As digital transformation accelerates, this creates challenges and opportunities for the advertising-funded internet. Fragmentation impacts digital platform technologies and media distribution types. Connected TV and gaming are two recent growth examples. New platform technologies and content distributions channels will emerge. We believe it is essential to focus our product and services capabilities on consolidated workflows. We plan to remain agnostic to Media/delivery types, verification/measurement partners and focus our effort on supporting NYIAX’s marketplace capabilities in end-to-end contract management and compliance.
How NYIAX Solves the Problem
NYIAX is a marketplace where advertising inventory, campaigns and audiences can easily be listed and sold through utilization of highly transparent and efficient financial technology. The NYIAX platform provides Media Buyers and Media Sellers a marketplace where advertising or audience campaigns are listed, bought, and sold; thereafter, the contract14 flows directly into the Hyperledger Fabric Blockchain for contract management, reconciliation, and automation purposes.
Durable inventory in the advertising industry consists of targeting, terms, and descriptions of the contracts between counterparties on the platform, such as Media Type, Display, Geo/Geography, Payment Date (e.g., Q1 2021). This allows NYIAX to take any complex contract through its contract lifecycle from formation, discovery, negotiation and reconciliation. The NYIAX platform allows NYIAX to form contracts with efficiency, easily scalable and reconcilable through the power of the Nasdaq macher and framework; thereby, enabling the NYIAX platform to provide Media Buyers, Media Sellers, and intermediaries within the advertising ecosystem with the ability to manage the contract compliance for life cycle for the advertising contract.
Our Role in the Industry
NYIAX provides a solution to the advertising marketplace challenges through the creation of a trusted, transparent, efficient, and auditable marketplace and platform where Media Buyers and Media Sellers can discover, negotiate, contract formation, reconcile and bill all in one platform and with use of a dashboard, while ensuring compliance with advertising contracts. We are of the belief that NYIAX is the first to bring this level of automation, efficiency, financial rigor, and auditability to the advertising industry.
Our platform is a key component connecting the Media sellers, Media buyers and intermediaries within the advertising supply chain.
Opportunity
Total media spend in the U.S. in 2022 is expected to be approximately $320 billion15. Over the next three years for US digital advertising spend alone, that number is expected to grow to nearly $300 billion16. In their April 2021 spend report, eMarketer reported that the “flexibility and accountability helped marketers continue to justify ad spending in digital channels. The formats that held up best were those that drove revenues, and the ad sellers that beat expectations tended to be the ones with the strongest performance ad offerings17” Additionally, the eMarketer April 2021 report went on to say “Digital’s gains last year, along with the step change in how much retail spending happens online, mean ad spending in digital media is on a permanently elevated trajectory compared with our prior expectations. At the same time, TV and outdoor advertising will never reach earlier levels18.”
Further, “US digital ad spending surged with increased investments in video, connected TV (CTV), and ecommerce ads, as well as growing use of programmatic channels. The health of the digital ad market is also reflected in a pendulum shift toward ad-supported video-on-demand (AVOD) services, despite the continuing strength of subscription-based services19.