
How Digital Advertising Markets Really Work - bingden
https://prospect.org/article/how-digital-advertising-markets-really-work
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reilly3000
I’ve worked around the ad ecosystem for a long time as a media buying agency,
then an ad network, then a publisher. I think this article is spot on. Few
understand the iron grasp Google has on the ecosystem. Soon they are changing
the model to allow for fair competition, but thus far Google AdX has had a
massive advantage by having the first and last price in every bid request.
They get to see what other ad networks are paying for each request. They get
to optimize their profits using data from users, publishers, ad exchanges, and
advertisers, mostly because of the absolute monopoly Google DFP/Ad Manager has
in the ad server market. If I were a regulator that would be my first stop.

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cameronbrown
If AdX was more open, how do you think the market would change?

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reilly3000
For starters that would revive the 3rd party ad server ecosystem, since
currently the only way to access full AdX demand is to run DFP. It would put
AdX on the same footing as others, meaning buying through Google wouldn't give
buyers a price advantage. It would allow for privacy-centric ad networks on
vetted, premium publishers to emerge. Maybe even header bidding could die,
meaning front-end performance would increase 10X on many publisher sites (many
header bidding stacks make 300-800 ajax calls in the first few seconds of page
load!) which would eliminate the need for AMP. It would mean Google would have
less influence over which publishers get to monetize their content. I could go
on...

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buboard
> Consumers can pay for ad-free video subscription services like Spotify
> Premium or Hulu—why can’t they in search or social networking? Why are these
> markets stuck?

The article has very pragmatic observatiosn but this is not one of them. This
won't work, people won't pay with money for what they can easily pay with
their targetting data. Private data is worthless in any other context than
advertising, there is no opportunity cost.

I also think it didn't touch on advertisers themselves, who bear a big
responsibility for this situation. Agencies like IAB have done less than
nothing to fix this situation, they ve made things worse. We need more ethical
ad platforms, but we also need more ethical advertisers.

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huac
The richest people are the ones who advertisers _really_ want to reach (in the
article, the hypothetical beer ad sells at $2 CPM vs the hypothetical private
jet ad at a $2000 CPM). At the same time, the richest people are the ones who
can afford to pay whatever subscription fee FB or Google would charge. I don't
think that there is a lack of demand, it's just that the people who make up
that demand create an adverse selection problem, the users who would opt out
are the ones who make your platform valuable.

I don't think that antitrust regulation solves this particular adverse
selection problem. It's certainly difficult to compete against the established
giants, for many reasons, but this theoretical opting out is definitely not
some consumer benefit that we can expect.

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Deimorz
It's not really the same thing you're talking about at all, but I think
there's also an interesting conflict of this type between where the largest
sites are getting their user growth from now, and the users that are most
valuable as advertising targets to them.

The larger sites (Facebook, Twitter, etc.) are pretty close to saturation in
North America and a lot of other English-speaking countries. There just aren't
many people left here that don't know what Facebook is and might still be
convinced they should start using it regularly. Almost all of the growth comes
from other parts of the world, but the users from those locations are worth
_far_ less in terms of advertising revenue.

If you look at Facebook's Q2 2019 presentation [1], their average revenue per
user from US & Canada is now $33.27, Europe $10.70, Asia-Pacific $3.04, and
Rest of World $2.13. One US/Canada user is worth more to them than 15 from
"Rest of World".

However, 74% of their Monthly Active Users are from Asia-Pacific/Rest-of-World
now, and that only corresponds to 28% of their revenue.

I don't really have a particular point I'm trying to make, I just think it's
interesting. These companies worry a lot about showing continued user growth
(or at least not shrinking), but the growth sources now don't have anywhere
near the same value as the old ones.

[1]:
[https://s21.q4cdn.com/399680738/files/doc_financials/2019/Q2...](https://s21.q4cdn.com/399680738/files/doc_financials/2019/Q2/Q2-2019-Earnings-
Presentation-07.24.2019.pdf)

~~~
buboard
continued growth is good for their stock. It will of course reach a tipping
point where the sheer amount of users will start yielding net negative revenue
at which point there will be a reckoning

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lapnitnelav
If you look at the acquisitions of Google in the 00's, it's pretty obvious :
in 03 they buy AdSense, 05 Analytics and Android, then in 08 Doubleclick,
having their hands every part of the supply chain.

Facebook then came along and followed the playbook with the social buttons.

Brilliant move, regardless of how we feel about that.

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AndrewKemendo
It's the advertising market, not the companies, that are the root problem.

Go ahead and get rid of Google and Facebook and the rest overnight and all
you'll do is find a new vector for advertising spring up virtually overnight.

Every ad tech company is responding to market incentives. Breaking companies
up or killing them with regulation etc... won't make a dent in the long run.

Outlawing advertising as a business however will end the surveillance economy
swiftly.

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rahimnathwani
I don't understand the conclusion: "But if we understand that user identity
and user data are drivers of ad pricing, and that the terms that Google and
Facebook are able to extract from independent publishers drive the health of
the wider news ecosystem, it is impossible to continue to make this argument
today."

Earlier, the article explains pretty well how tracking increases the CPMs that
publishers can achieve. In the author's example, cross-site tracking increases
CPMs by 200%.

This seems like a benefit to the "health of the wider news ecosystem". If the
author believes Google/Facebook increase the pie for publisher, why then say
that they "extract from independent publishers"?

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Breza
This is a really important topic that I wish the author had addressed. The
publisher often doesn't make more money from the $200 CPM ad than it does the
$2 CPM ad. Most of the difference goes to the ad network.

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cm2012
Also - pretty much all ad networks are rounding errors compared to Google and
FB, which make up 85% of all new ad spend. The last 15% is mostly Amazon,
LinkedIn, Twitter, Pinterest.

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skinnymuch
Yahoo/AOL have to still be in top 5 right? I’d think Microsoft (even outside
of LinkedIn) and Snapchat should have decent percentages of the leftover too.
At least the former.

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cm2012
Yahoo/AOL have terrible targeting and no bot protection, so generate very
little revenue.

~~~
skinnymuch
What do you mean? They generate billions in revenue. Are you saying they
aren’t ahead of every company you mentioned except Amazon? Microsoft as a
whole would be ahead too, but you only mentioned LinkedIn. Verizon Media is
certainly ahead of those.

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vladojsem
Maybe the regulators can say to Google or Facebook that they can't collect
those user data, or they limit the collection somehow. I can't imagine how
else you can stop this duopoly. The problem with the whole ecosystem is that
every system they have feed the other one, ie. Chrome gathers the search data
to be used for Ads etc.

~~~
streetcat1
This might be solved with AI. Basically you will have a personal AI that will
shadow browse with you in the beginning to understand your tastes. After some
time, the AI will do the browsing for you, and if needed can take adversarial
routes to confuse the ad networks.

Meantime, the AI can update a private site with content that interest you.

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suyash
One of the best articles I've read on the internet so far. Eye opening.

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streetcat1
The core issue here is that companies uses AI against humans. Humans can fight
back only by using AI against AI.

An client side AI is the only way to make tracking useless.

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stiglitz
“That 22-year-old communications major has had to make way for data
scientists, mathematicians, and computer programmers who, behind the scenes,
use statistics, calculus, and linear algebra to optimize advertising
campaigns, by micro-targeting users and constantly tweaking algorithms.”

Click the source link, and it’s an article about how companies are wasting
money on data scientists when they only need data analysts, contradictory to
the point made by primary article. This was an intriguing article, but I could
not continue reading after noticing this.

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buboard
You should read the rest - it's a good article. You are right about that point
, and more broadly i m not convinced that advertisers can justify their
spending and their bids well. Advertising seems to be a constant for
businesses - they will spend those money to marketing regardless. And ads are
effective to a degree - but i have yet to see a rigorous study of the
correlation between amount spent or bids to ROI. Judging from the iffy nature
of advertising statistics and google's "invalid traffic" alchemies, i believe
google is also selling large amounts of bullshit along with their basic ad
product. It's bizzare that an industry that is so valuable seems to be
operating in a rather thick haze.

