Ad Tech Could Be the Next Internet Bubble | WIRED
►https://www.wired.com/story/ad-tech-could-be-the-next-internet-bubble
We live in an age of manipulation. An extensive network of commercial surveillance tracks our every move and a fair number of our thoughts. That data is fed into sophisticated artificial intelligence and used by advertisers to hit us with just the right sales pitch, at just the right time, to get us to buy a toothbrush or sign up for a meal kit or donate to a campaign. The technique is called behavioral advertising, and it raises the frightening prospect that we’ve been made the subjects of a highly personalized form of mind control.
Or maybe that fear is precisely backwards. The real trouble with digital advertising, argues former Google employee Tim Hwang—and the more immediate danger to our way of life—is that it doesn’t work.
Hwang’s new book, Subprime Attention Crisis, lays out the case that the new ad business is built on a fiction. Microtargeting is far less accurate, and far less persuasive, than it’s made out to be, he says, and yet it remains the foundation of the modern internet: the source of wealth for some of the world’s biggest, most important companies, and the mechanism by which almost every “free” website or app makes money. If that shaky foundation ever were to crumble, there’s no telling how much of the wider economy would go down with it.
Hwang draws an extended analogy between the pre-2007 housing bubble and today’s market for digital advertising. In the years leading up to the Great Recession, American lenders went wild, issuing mortgages to people who (in retrospect) were unlikely to pay them off. Those loans—the infamous “subprime” mortgages—were then packaged into complex financial instruments that hid the shakiness of the underlying assets. Investment banks and other financial institutions bought into those securities without quite knowing what was in them. When the housing market sagged, it triggered a panic that tanked the global economy.
Just as housing played an outsized role in pre-crash financial markets, so does advertising in the digital economy. Google earns more than 80 percent of its revenue from advertising; Facebook, around 99 percent. Advertising also makes up a fast-growing share of Amazon’s revenue. The global market for digital advertising was $325 billion last year and is projected to grow to $525 billion by 2024. All that wealth is used to fund myriad other ventures—including cutting-edge research into AI and clean energy—that might wither away if the advertising spigot were turned off.
If the financial market of the aughts was dangerously opaque, so, too, is modern internet advertising. In the early days of online ads, a brand would strike a deal with a website owner to host a paid banner. The onscreen space for that image, known as the ad inventory, would be sold by the publisher directly. (The magazine you’re reading right now made the first such transaction, back in 1994.) Today, the process has grown far more complicated, and humans are barely involved. “As they do in modern-day capital markets, machines dominate the modern-day ecosystem of advertising on the web,” Hwang writes. Now, whenever you load a website, scroll on social media, or hit Enter on a Google search, hundreds or thousands of companies compete in a cascade of auctions to show you their ad. The process, known as “programmatic” advertising, occurs in milliseconds, tens of billions of times each day. Only automated software can manage it.
It’s fair to wonder why, if programmatic advertising is such a bum deal, so many brands continue to pour money into it. The reasons are manifold and overlapping. To begin, most of the people responsible for ad spending have no idea where their ads are actually running, let alone how they’re performing, and certainly have not brushed up on the latest research papers. That’s especially true for the small and medium-size businesses that make up the bulk of Google and Facebook advertising customers. I spoke recently with the owner of a successful online audio equipment store who had recently learned, thanks to a chance encounter with an expert, that 90 percent of his programmatic ad budget was being wasted on fraudulent clicks. Most other merchants simply never find out what happens after they send an ad out into the world.
So if Hwang is right that digital advertising is a bubble, then the pop would have to come from advertisers abandoning the platforms en masse, leading to a loss of investor confidence and a panicked stock sell-off. After months of watching Google and Facebook stock prices soar, even amid a pandemic-induced economic downturn and a high-profile Facebook advertiser boycott, it’s hard to imagine such a thing. But then, that’s probably what they said about tulips.
This is not something to be cheered. However much targeted advertising may have skewed the internet—prioritizing attention-grabbiness over quality, as Hwang suggests—that doesn’t mean we ought to let the system collapse on its own. We might hope instead for what Hwang calls a “controlled demolition” of the business model, in which it unravels gradually enough for us to manage the consequences.
It’s a strange thing, the internet economy. The product that generates all the money doesn’t work very well, and when it does work, people tend to hate it. The question is which problem should be solved.
