By John Naughton.
There is, alas, no such thing as a free lunch. The trouble with digital technology, though, is that for a long time it encouraged us to believe that this law of nature had been suspended.
Take email as an example. In the old days, if you wanted to send a friend a postcard saying: “Just thinking of you”, you had to find a postcard and a pen, write the message, find a stamp and walk to a postbox. Two days later – if you were lucky – your card reached its destination. But with email you just type the message, press “send” and in an instant it is delivered to your friend’s inbox, sometimes at the other end of the world. No stamp, no expense, no hassle.
It is the same with using the cloud to store our digital photographs, browse the web, download podcasts, watch YouTube Lolcats, look up Wikipedia and check our Facebook newsfeeds. All free.
Well, up to a point. Most of us eventually tumbled to the realisation that if the service is free, we are the product. Or, rather, our personal data and the digital trails we leave on the web are the product. The data is sliced, diced and sold to advertisers in a vast, hidden – and totally unregulated – system of high-speed, computerised auctions that ensure each user can be exposed to ads that precisely match their interests, demographics and gender identity.
Still, consider the benefits for advertisers. Once upon a time, advertising was like carpet bombing. You paid a lot of money to put ads in newspapers and magazines or on television and billboards, but it was all hit and miss: you could never be sure what worked. As a US department store magnate, John Wanamaker, once said: “Half the money I spend on advertising is wasted; the trouble is, I don’t know which half.”
But when Google and then Facebook arrived, all this apparently changed. The technology deployed by these outfits could ensure that only people likely to be receptive to particular messages would be shown those messages. Wanamaker’s heirs could be sure that their advertising dollars were hitting the spot. And on this foundation, Google and Facebook (and, for a while, Yahoo) made money like it was going out of fashion. It was, as the cliche puts it, a win‑win situation.
And so the advertisers’ money, diverted from print and TV, cascaded into the coffers of Google and co. In 2012, Procter & Gamble announced that it would make $1bn in savings by targeting consumers through digital and social media. It has got to the point where, according to last week’s Financial Times, 2017 will be the year when advertisers spend more online than they do on TV.
Trebles all round, then? Not quite. It turns out that the advertising industry is beginning to smell a rat in this hi-tech nirvana. In a speech to the annual conference of the Internet Advertising Bureau in January, the Procter & Gamble boss, Marc Pritchard, said this: “We have seen an exponential increase in, well… crap. Craft or crap? Technology enables both and all too often the outcome has been more crappy advertising accompanied by even crappier viewing experiences… is it any wonder ad blockers are growing 40%?”
But the exponential growth in crap is not the biggest problem, he said. Much more worrying was the return of the Wanamaker problem: how many people are actually seeing these ads? Perhaps what he had in mind was an advertising industry investigation that suggested around a third of online ads may be “seen” not by humans but by bots. Pritchard regards the hidden machinery of surveillance capitalism as “murky at best and fraudulent at worst. We need to clean it up and invest the time and money we save into better advertising to drive growth.”
So here’s version 2.0 of the Wanamaker problem: the US industry is throwing astonishing amounts of money at online advertising and yet the growth rate of the industry is anaemic and nobody knows how effective online advertising really is. “Some might say,” said Pritchard, “we’re squandering this wonderful gift of technology.”
They might. But eventually people will ask: what’s the rate of return of online advertising? Who’s benefiting from this vast, opaque, unregulated, unmonitored and ultimately user-hostile online auction system? Part of the answer may be glimpsed in the share prices of Google and Facebook. But mostly it’s to be found in the profits of the data-brokers, cookie monsters, trackers and other corporate creatures that lurk in the shadows cast by the internet giants. And they’re not talking.