Simanaitis Says

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THE ONLINE AD BUBBLE

HAVE YOU BOUGHT anything because of online advertising? I don’t believe I have. Ever.

You know the kind of ad I have in mind: those ubiquitous online comeons that are algorithmically generated based on one’s previous Internet searches: I look up the spelling of Majorca, for instance, and before long, ads pop up for Mediterranean real estate, California Cabernet Franc, and Shepherd dog breeds. 

Science magazine, published weekly by the American Association for the Advancement of Science, had an interesting article in its January 15, 2021, issue: “Deflating the Opaque Online Ad Bubble” by Steve Tadelis, a review of Tim Hwang’s book Subprime Attention Crisis: Advertising and the Time Bomb at the Heart of the Internet.

Subprime Attention Crisis: Advertising and the Time Bomb at the Heart of the Internet, by Tim Hwang, FSG Originals, 2020.

Here are tidbits gleaned from Tadelis’s review, Hwang’s book, and my usual Internet sleuthing. (And God knows what ads the sleuthing will generate….)

Algorithmic Advertising. Tadelis writes, “Many folks do not realize that the ads they see on their screens are sold through automated real-time auctions that resemble algorithmic trading in financial markets. Buyers bid for attention, and sellers offer eyeballs through which the attention is supplied. The market for online ads managed to grow to its current size because the underlying technology created standard ways in which attention is measured and sold. Attention has been ‘commoditized’ in order for it to be easily traded.”

Image from newamerica.org.

Ineffective But…. Though such ads seem less than effective to me, they’re astoundingly big business: Tadelis offers a comparison: “General Motors and Ford, the two largest U.S. automakers, are together worth about US$100 billion. The combined value of Google and Facebook is about $2 trillion—20 times higher. What makes these companies worth so much? Ads. ”

Tadelis continues, “… Tim Hwang suggests that the digital advertising industry may be on the brink of a global collapse. And if it is not, he argues, then we should push it off the cliff…. The ad-tech industry, he cautions, exhibits strong parallels to the mortgage-backed financial markets that caused the 2008 global financial crisis.”

Opacity and Overvaluation. Apparently I’m not the only one ignoring ads. Tadelis cites, “A recent study showed that television ads are significantly less influential than the industry claims, and another revealed that ad exchanges promise targeting that they cannot deliver, successfully predicting a viewer’s gender only about half the time—just as good as a random guess.”

“Still,” he writes, “marketing expenses continue to grow across the board. Why? Because many of us place more weight on unfounded convictions than on scientific evidence. And, as the past year (or four) have shown, falsehood-driven behaviors are widespread.” 

These days, a little politicizing enlightens many discussions.

Will a Bursting Ad Bubble Destroy Commerce? Tadelis counters a familiar argument: “Ad industry insiders will insist that without robust spending on brand advertising and digital ads, a company’s brand will deteriorate. Tell that to Costco, a company that spends practically nothing on advertising.”

Image by Elaine Thompson/AP from businessinsider.com.

Tadelis offers a concluding assessment: “… I am confident that we would still be able to enjoy most of what the Internet has to offer (with fewer ads).”

Not looking for Mediterranean real estate, a California Cabernet Franc, or a Shepherd dog, I find his assessment easy to accept. How about you?

© Dennis Simanaitis, SimanaitisSays.com, 2021

3 comments on “THE ONLINE AD BUBBLE

  1. Mark W
    February 12, 2021

    A few months ago, I bought a laptop backpack thing from ad on Jalopnik. I’m guessing it was at least partially based on my prior searches since I am, um, “interested” in productivity stuff. Love being productive. The backpack arrived (and it only cost $18.00! As advertised) and it’s great! It’s from china of course and made of synthetic (“vegan”) leather but it beat out my previous backpack in pockets, pouches, and straps. That was one of the first things I’d bought from an internet ad, but I was tickled by it. Productivity (and comfort) for only$18.00 😉

  2. Sabresoftware
    February 13, 2021

    Getting rid of online ads can be a double edged sword, as many sites will opt to go for the subscription model and this can add up quickly.

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