Vass Bednar: Digital ads are a desperate gamble in a fantasy economy
Digital advertising brings in billions of dollars in revenue to Meta Platforms Inc.’s Facebook and Alphabet Inc.’s Google in Canada, with Amazon.com Inc. also emerging as a significant third player, according to recent research from Carleton University’s global media and internet concentration project. Advertising on Google’s search engine and YouTube brought in an estimated $6.2 billion, or $162 per Canadian, in 2021. Meta earned just under $4 billion last year across Facebook, Instagram and WhatsApp, claiming one-third of Canada’s online advertising market, and derives almost all of its revenue from such ads globally. Amazon, a more recent entrant, made an estimated $1.2 billion in revenue from advertising, or almost 10 per cent of all online advertising in Canada. Together, these three tech conglomerates accounted for around 90 per cent of the online advertising market and more than two-thirds of all ad money in Canada.
The online advertising industry is clearly profitable for massive platforms. But we should not confuse its profitability with effectiveness. Platforms earn money when an ad is viewed or listened to by a captive consumer, but that digestion doesn’t guarantee a purchase will occur. Indeed, that elusive purchase is nothing more than a reverie, and we’re all crushing the Kool-Aid in believing it’s a sure thing.
Other research demonstrates that micro-targeted digital ads simply don’t work. As former Google employee Tim Hwang said in his 2020 book Subprime Attention Crisis, ad tech could be the next internet bubble. Further, the returns on investment in digital marketing have been proven to be embarrassingly poor for the companies advertising. One study found that ad-tech middlemen are substantially enriched by the online advertising game, sucking up as much as 50 per cent of all online spending. Another study found that automated micro-targeting performed slightly worse than random guessing. Meanwhile, digital ads are often credited for purchases that would have been made anyway, making them “the most widely used shell game in business today,” writes Sinan Aral in The Hype Machine.
Nonetheless, the ability to collect information about people as they prowl the internet predicates online giants’ ability to command advertising dollars for totally random results. That’s led to a company policy knife-fight between Apple Inc. and everyone else after the tech giant forced developers to obtain explicit consent from users. This has resulted in even less accurate micro-targeting — Facebook’s recent software update practically begs people to subject themselves to being tracked. Apple’s change means online advertising now generally costs more, translating into increased costs for small businesses hoping to reach new and relevant audiences online, on top of the digital fees extorted from developers on mobile application stores. All of this expenditure and effort hinges on the promise that advertising expenditure is richly rewarding, a necessary investment for e-commerce players.
Maybe it is time we start seeing online ads for what they really are: a desperate gamble in a fantasy economy.