People hate ads. But the fact is ads are an important source of revenue for the majority of websites that we have today. Without ads, most of the internet will be protected behind a paywall. So without a doubt, regardless of how you feel about them, ads are a crucial part of the Internet. It is within this context that the book argues that there is a crisis brewing in the digital ads ecosystem, akin with the financial crisis of 2008 both in the cause and the impact.
The basic premise of the book is this: the opacity of digital advertising and its questionable effectiveness causes a bubble to grow. A bubble is where the value of some services or goods are rising but it was not supported by the true value of the services or goods. Digital advertising has been rising in value as more organizations pour their marketing budget to digital, but the book argues that the true values of digital ads are actually lower than what the market perceives, hence, a bubble.
Opacity
In digital advertising, advertising spots are being sold on a real-time basis using bidding mechanisms that are run by machines. Companies like Facebook and Google use machine learning algorithms to choose the best ads to be shown to users who are visiting websites or using apps. These spots are commoditized, meaning that their characteristics are standardized so that they can be sold and resold easily (similar like stocks are traded in the financial market). This means an ad spot can exchange hands several times before getting bought by an advertiser. Every time it was sold, the price went up because that was how the “middlemen” made money. It was estimated that for every spot that advertisers pay, only 40%-50% of the ad dollars go to the actual web/app which publishes the ads, the rest are absorbed by these various ad networks or ad exchanges. Increase in price usually means increase in value. But in this case, arguably, the value of the ads spots are the same through out the exchanges, i.e. the increase in price does not make the ads spot any more effective than before.
In my own work, I also experience this opacity characteristic of digital ads. There is a category of solution called Mobile Measurement Partners (MMP). In theory, MMP is a neutral party that an advertiser can hire to measure the performance of ad networks that the advertiser uses. However, Google and Facebook are considered “self-attributing networks” (SAN). It means the SANs themselves are the ones who would measure the performance of the ads; the MMP are just there to collect the data. So this is like if schools allow the students to score their own exams. And there is nothing anyone can do because they are Google and Facebook.
The book argues other dangers of this opacity such as brand safety and the proliferation of private marketplaces. But I don’t have experience with it, so I don’t know how significant this problem actually is.
Ever-eroding value of ads.
The book argues that less and less people are paying attention to advertising on the internet. It mentions some data about how only 0.46% people click on digital ads (in industry parlance, this is called Click Through Rate / CTR). So not a lot of people pay attention to ads. The rise of ad blocking technology also does not help the situation.
Then there are also a lot of “clicks” generated because of the “fat finger” phenomenon where people accidently click on ads when using touch-based devices. Even worse, clicks frauds are also rampant in digital advertising. An example that comes to my mind: streaming services which stream pirated content will add fake ad triggers in their play button. So when a user clicks “play” to watch a movie, it will trigger a redirect to an advertiser site. The advertiser will think the click comes from an ad, even though in reality the user did not see any ads.
What’s more, even though digital ads can technically track how many users click the ads, and how many will end up making purchases in the advertisers’ web or app, it is not clear what is the true uplift this ads actually create. Here is a personal experience: I planned to have a staycation last month. I searched for hotels several times in hotel booking apps. Not long after, I got a lot of ads about hotel deals on my Instagram feeds (because advertisers can share anonymously user activities in their app to Facebook). After I saw these ads, I did book a hotel. The question is, would I still have booked the hotel even if I didn’t see the ads?(Yes, I would have). By the way, in this case, Facebook would most likely claim my purchase to be because of their ads, see my explanation about SAN above.
All of the above beg the question: what is the “true” performance of digital ads in raising awareness and generating sales? And is it really better in measuring ad performance compared to traditional media? I think these are tough questions that the industry needs to answer.
Overall, I think the book made very valid points on the problems of opacity and ads’ true effectiveness in the digital advertising industry. Although I am not so sure whether the comparison to 2008 financial crisis is warranted. Certainly, there are problems that need to be solved by the industry (the book offers some solutions as well). At the same time, I did buy several things that I otherwise would not be aware of if not for Instagram ads. So digital advertising clearly work in some situations; we just don’t know which situations.
