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A Brief History of Advertising

Advertising has become more sophisticated. What used to be a model whereby a single message was broadcast to the masses (whether through TV, print, or radio) has changed to a model of ultra-personalized messaging for individual consumers. We live in a different world, today.

Karla Cook, editor of the marketing blog at Hubspot, provides a whirlwind yet insightful synopsis of the history of digital advertising.

According to Cook, banner ads were the first foray into internet and digital advertising. The first banner ads appeared in 1994 and were used in the same way that space is used in paper publications such as magazines – for revenue-generating ads. For example, AT&T paid Hotwired $30,000 to place the first banner ad on their internet site, and the result was a click-through rate of over 40 percent. Today, consumers have grown weary of banner ads, and the average click-through rates are closer to 0.06 percent.

By 1995, advertisers were targeting specific demographics rather than grabbing space on random web pages. The ad agency WebConnect helped clients target websites frequented by their desired consumers. WebConnect also tried to avoid annoying consumers with repetitive ads, and their software limited the number of times a visitor would see the same ad.

ROI tracking tools first emerged in 1996. Companies could now track how many times an ad was viewed and clicked on across websites. This solution meant that advertisers no longer had to wait until the end of a campaign to change it; they could see the results and change strategy in real time. It was at this time that pricing models changed from flat fee to cost per impression (CPM), an ROI-based model.

The much-maligned pop-up ads emerged in 1997, designed to save on online advertising and capture the attention of users who were increasingly becoming ad-blind. ROI tools showed no significant returns using this strategy, and pop-up ads died a quick death by the early 2000s.

Paid search and pay-per-click were the next stage for advertisers in the early 2000s. Unsurprisingly, consumer search results increasingly became determined by how much companies were willing to pay, so Google introduced AdWords in 2000 to provide a search that was profitable for advertisers and did not compromise the quality and relevance of the search. AdWords used a Quality Score model, which considers an ad’s clickthrough rate when determining its placement on the search results page. If an ad had a lower bid, it would still appear above other, less relevant, paid ads.

By the mid-2000s, advertisers were targeting younger internet users who were spending their time on social networks. Facebook entered the world of advertising in 2006 with small display ads and sponsored links. The company targeted consumers with relevant ads based on their demographics and interests, the information for which is captured from Facebook profiles.

Since then, advertisers have seized opportunities to reach audiences with native advertising – paid ads that match the form and content of the host content so that the marketing message is disguised. And today, Google and Facebook dominate today’s marketing and advertising sectors. Statistics clearly show that these two behemoths have the majority claim on the $209 billion world-wide digital advertising industry. Their influence now extends from buying decisions at the local grocery store to local and national elections, which is changing societal and global norms.

To summarize the state of the advertising industry now compared to 40 years ago, consider these insights.

  • Advertising has become much more economically viable.
  • Instead of having limited channels with broad appeal, advertisers now have many channels with specific appeal.
  • Where advertisers once had limited exposure to customers, the customer is now constantly engaged with digital platforms and continually providing information and data.
  • Where advertisers once had limited data on consumers, the public’s most intimate details are now collected, centralized, analyzed, and leveraged by machine learning and artificial intelligence algorithms.
  • These algorithms mimic consumer behavior, anticipate their needs, and communicate in ways that influence consumer decisions and behaviors, often subliminally.
  • It used to be extremely difficult for advertisers to send a specific message to a precise demographic. Now, the opposite is the case.

Modern Advertising

Advertising has transformed so rapidly that educators, policymakers, and regulators have failed to keep up. This article analyzes changes in media use, how mobile has become the core driver of advertising, the role of platform technologies and data aggregation, and where investors are putting their money when it comes to the advertising industry.

“Smaller companies will continue to operate in the shadows of the industry’s two dominant players,” 

Brian Wieser, analyst for Pivotal Research, on Facebook and Google.

At one time, town criers were the bastions of marketing, spouting advertising propaganda on street corners to passersby who were typically too busy to listen. Later, newspaper, radio, and TV advertisements infiltrated daily life, but their efficacy was hindered because exposure to ads was limited, and ads were built to appeal to the widest possible audience.

Today, all that has changed. People rely on being constantly connected, and the use of digital devices means that mobile and social media-based ads bombard us constantly. Big data and deep learning tools have created advertising that is personalized to fit our interests and buying patterns. Ads are designed to trigger certain behaviors, and deceptive advertising makes it difficult for the consumer to discern real information from sponsored marketing. The risk of a public inured and oblivious to advertising’s influence is growing.

Changes in the Advertising Landscape & Consumer Media Usage

To grasp the complexity of today’s advertising industry, the visual below from Chiefmartec.com shows the almost 5,000 companies that are now part of the marketing technology landscape.

5000 startups in 6 unique marketing verticals
Source: Chiefmartec.com, 2017

The same visual from 2011 contained just 150 company names. This absurd landscape represents an explosion in easily implemented, cheap ways to target consumers in the places where they are spending an increasing amount of time – on social platforms and mobile devices.

According to eMarketer, adults in the United States spend an average of five hours and 50 minutes with digital media every day, and over one hour of that is spent watching videos just on mobile devices. Consider also that Google handles at least 2 trillion searches a year, Facebook has over 1.4 billion daily active users, and 1.5 billion logged-in users visit YouTube every month.

The graphic below from eMarketer shows average time spent per day with major media by U.S. adults.

Average time spend of adults with major media and devices
Source: eMarketer, 2016

This growing media use by consumers and businesses means that the availability of advertising units is increasing. And this confluence means that global internet adoption combined with new technical modalities, such as machine learning, support a tremendous diversity of messages and reinforce them in a precisely targeted manner to manipulate consumer behavior. What’s more, the platforms make advertising targeting simple, effective, and user-friendly. Anyone with a credit card and two hours of attention can precisely target a demographic and send a message.

The visual below by Kleiner Perkins illustrates the steep curve of global internet advertising spend vs. TV ad spending.

Source: Kleiner Perkins, 2017

According to Nielsen estimates for TV spending between the 2015 –  2016 season and the 2016 – 2017 season, total TV advertising spending rose from $59 billion to $61 billion. For radio ad spending between 2016 to 2017, there was a decrease from $3.4 billion to $3.3 billion.

Contrast those numbers to digital marketing spending. Digital ad expenditures surpassed TV for the first time in 2016, and the gap was expected to grow by $10 billion in 2017. According to eMarketer, there will be double-digit growth in digital ad spending, which is estimated to rise from $83 billion in 2017 to $129.23 billion in 2021.

And advertisers are increasingly targeting mobile users.

Source: Kleiner Perkins, 2017

Social and Mobile Advertising

Source: WSJ, 2014

Mobile is the main reason for digital advertising growth in 2017, accounting for over 70 percent of digital ad spending. The growth is expected to continue at a double-digit rate, and mobile ad spending is expected to surpass TV advertising in 2019.

Source: eMarketer

The competition in digital advertising is highly concentrated. The table below by eMarketer shows how revenues have played out since 2013 and shows that a trend toward advertising on social media and mobile rather than digital display ads has been evident since 2015.

Source: eMarketer

eMarketer expected Twitter to surpass Yahoo in total U.S. digital display ad revenues for the first time in 2015; however, despite the expectation that Yahoo would see positive display ad growth, its market share continued a rapid decline, falling to 4.6 percent in 2015, down from 5.5 percent in 2016 and 7.2 percent in 2013.

Google was expected to maintain its market position behind Facebook. According to eMarketer, the gains achieved by Facebook and the gains by Twitter in the digital display market are because of mobile advertising. Advertising spend on mobile overtook desktop in 2017.

Source: KP Internet Trends, 2018

According to eMarketing data from 2017, 90 percent of ad revenues for Twitter in the United States were expected to come from mobile devices. Also, between 2016 and 2017, Facebook’s U.S. mobile ad revenues were projected to grow over 50 percent while Twitter was expected to double its U.S. mobile ad revenues.

New Tools for Advertisers: Retargeting Methods

Retargeting, or remarketing, is a method of online advertising that helps companies increase conversion by advertising based on past behavior. Retargeting uses cookies to follow visitors all over the web. It’s effective because the consumer, by visiting a site and researching a brand, has already expressed an interest in the brand. Ninety-eight percent of users don’t convert on the first visit to a site, according to Retargeter.com, but remarketing is a way to keep a brand in front of those visitors who don’t convert. Eventually, they might.

John Koetsier, contributor to VentureBeat, cited a survey by AdRoll that found that 90 percent of marketers consider retargeted ads more effective than digital marketing or search ads.

Retargeting through social channels is effective according to those polled. According to Koetsier, “over 50 percent of B2B and B2C marketers said social was hotter than mobile, search, or email retargeting, and AdRoll data show that social retargeting drives 2.8X the impressions, 3X the clicks, and 2.2X the conversions as non-social retargeting.”

The success rates for retargeting explain why marketers are so keen to follow visitors all over the web and target them on their social platforms and mobile devices. According to Marketing Land, three out of four consumers notice retargeted ads; the average click-through rate for display ads is 0.07 percent versus 0.7 percent for retargeted ads. Also, visitors who are retargeted with display ads are 70 percent more likely to convert on an e-commerce website.

Although close to 40 percent of consumers report being put off by retargeted ads, 46 percent of search engine marketers state that retargeting is the most underused online marketing technology. It doesn’t seem, then, that marketers have any intention of tracking consumers less or backing off to give them more privacy.

In fact, Charlense Weisler, senior media research executive with Media Village, asked Manish Bhatia, North America CEO of Kantar Media, his opinion on consumer privacy. Bhatia’s response was to say that companies should obtain even more personal information about consumer preferences. “You need a full understanding of all the media consumers are using – often, in this hybrid world, all at the same time. True cross-media measurement is key,” said Bhatia.

His advice to marketers? “Invest in quality data and tools that will give you a complete picture of the media landscape.” And a complete picture of the consumer, presumably.

New Marketing Touchpoints & the Rise of Video Advertising

As platforms like Google, Facebook, and Amazon increasingly control product discovery, consumer interface with brands is becoming more removed. Consumer touchpoints, today, are far more ubiquitous than in the past. Nielson noted the recent upsurge in advertising via store websites (and mobile store websites), mobile apps, text messages, social media, emails, and blogs, and Nielsen predicts that more U.S. households will be using these touchpoints going into 2019.

The graph, below, created by Nielsen shows the myriad marketing touchpoints that companies can tap to ensure consumer engagement and gather data.

Source: Nielsen

What this graph does not show is that video is a huge channel for digital advertising and both Google and Facebook are leveraging it to their advantage.

Facebook Business explains why videos improve ads, and what Facebook discovered when its Marketing Science team commissioned Nielsen to study the effect of video on brand metrics. The results of the study showed that within one second of a viewer watching an ad, there was improvement in ad recall, brand awareness, and purchase consideration.

In fact, just the impression of the video had an impact. Ad lift increased the longer the video was watched, and even videos that were viewed for less than 10 seconds effectively built awareness and affected viewer’s purchase intent.

According to Michael Guta, writer for Small Business Trends, by 2019, 80 percent of consumer internet traffic will be in the form of video. So, it’s no surprise that Google and Facebook announced that they both plan to expand their video ads “to ensure that both advertisers and publishers continue to see the value in using their platforms either to advertise or distribute content.”

Google has launched a new ad platform, Outstream Video Ads, for mobile devices that means that advertisers can reach mobile users with video ads without using YouTube. Ads will be charged on a cost per thousand impressions (CPM) basis.

Facebook is expanding pre-roll video ads in an attempt to grow Watch, a platform for showcasing Facebook’s video content, and it is also vowing to improve the quality of the videos shown on Facebook. According to Audrey Schomer, research analyst at Business Intelligence, the steps are designed to “create a compelling environment for advertisers and brands.”

Customer Acquisition Costs

If the competitive environment seems like a feeding frenzy, that’s because it is. While Google and Facebook pontificate their next advertising gambit – video or blockchain – the rest of the competition is obsessing over customer acquisition costs.

Steve Olenski, contributor to Forbes, describes “marketers jostling for position to win consumers attention and engagement. The competition raises the cost of acquiring a customer beyond reason – and the resulting economic outcomes reflect this.” J.T. Benton is founder and CEO of WorkBook6, a customer acquisition and demand generation firm. Benton discusses the rising cost of customer acquisition with Olenski of Forbes: “Customer acquisition costs, often referred to as CAC or COA, have been the north star for direct response marketers since the industry’s inception,” said Benton. “Auction-based media buying drives the component costs (impression, clicks, and leads) of these outcomes up significantly, often without improving the lifetime value of the customer acquired.”

Many companies try to acquire new customers by reducing their product costs, but this impacts another key marketing metric, lifetime value (LTV): the total value of a new customer to a brand. When companies are desperate for new customers, this price strategy encourages price-focused customers who have minimal brand loyalty, and so the LTV for that customer is diminished.

Throughout all this activity designed to acquire and keep customers, the consumer is being tracked more efficiently than ever – and increasingly in ways that are boundaryless and intrusive.

Who is Making What Money Where?

Advertisers will naturally use the ad models with the highest ROI, and the most profitable models are those that provide the most personalized experience for the consumer. Location-based advertising, where advertisers can personalize their message based on the location of the user, are an example of how mobile advertising using data captured through apps is taking off.

According to a 2016 U.K. Interactive Advertising Bureau study, 66 percent of marketers believe location-based advertising is the most exciting mobile opportunity. Over 50 percent also think that wearables are a significant channel for advertising. Fifty-six percent of those polled intend to advertise through wearables in 2018 and 2019.

According to CNBC, Google earns the most from the search engine market, but Facebook earns more from display ads. Both are earning a lot from mobile and video advertising. In 2017, mobile advertising accounted for over 80 percent of Facebook’s revenue. Google’s mobile ads account for approximately half of the company’s advertising revenue.

Google remains the leader in digital ad revenue, but Facebook is upping the ante with its acquisition of Instagram and the growth in video ads. Google’s YouTube is the preferred platform for video advertisers but, according to a survey by Cowen cited by Michelle Castillo, reporter with CNBC, just over 40 percent of those polled think that Facebook video is the best place to launch an ad campaign.

How Platform Business Models Allow Advertisers to Know and Influence Customers

The leaders in advertising today and two of the most valuable companies in the world – Facebook and Google – provide free digital products and services. So how are these companies and others like them profiting so massively? In short, Google and Facebook are platforms.

The free products Facebook and Google offer ensure that these companies reach the largest audience available. The bigger the platform, the more consumer data – and this leads to both an improved customer experience and more advertising capacity to collect more consumer data. That combination means greater understanding of consumers, the power to influence, and revenue from targeted advertising. And these companies achieve this all while delivering more value to the user.

Moreover, the platforms that sell ad space benefit from a larger user base. Researchers from Google released a paper on a new deep learning system, and the paper noted that “a company with a large user base can greatly increase revenues with a small improvement.”

A large user base is also crucial when it comes to collecting user data. Facebook can learn a lot more from a person’s profile and can offer advertisers greater access to that person’s buying habits if that person spends more time on the Facebook platform. Thus, Facebook tries to centralize data by buying up companies that have large user bases or companies that might be a competitor. According to The Guardian, “Anyone that looks like a threat gets acquired, as we saw with Instagram and WhatsApp.” With each acquisition, Facebook corrals users onto their own platform and, in many cases, the consumer does not realize they are on a Facebook platform.

According to Olivia Solon writing in The Guardian, the more a consumer uses a platform, the more the platform knows about the user. And over time, the platform can charge companies more for advertising access to the user because the platform can guarantee better results.

Deep learning is helping companies accurately predict and influence ad clicks. Deep learning, according to Nvdia Accelerated Computing, is “a form of AI and machine learning that uses multi-layered artificial neural networks to precisely predict outcomes such as object detection, speech recognition, and language translation” to name a few.

A deep learning process follows ad clicks to predict and influence future buying behavior. In many cases, a company only pays for the ads when a person clicks on them. According to research by Microsoft’s Bing, “even a 0.1 percent accuracy improvement in our production would yield hundreds of millions of dollars in additional earnings.”

And with more data, the platform is better able to optimize the environment to keep the user on that platform. Facebook is building a platform underneath social interactions in a way that is similar to what Apple has done with their operating system and Apps, photos, music, and TV – by consolidating them onto one platform so that the switching costs are insurmountably high for the consumer and extremely inconvenient.

For a Facebook user, the negative emotional and social consequences of leaving the Facebook ecosystem is enough to keep them engaged. For companies advertising on Facebook, the data and access that the platform provides is sufficient to keep them engaged and actively placing ads.

If you want to read more on platforms, see our platform book summaries.

Where Investors Are Placing Their Money and Their Bets

One of the best indicators of how the industry is evolving is where venture capitalists are placing their money.

Digital advertising has become a multi-billion-dollar industry, and investment in the sector is huge. According to Statistica, the United States is the largest advertising market in the world by far. Over $190 billion were spent in advertising in 2016, which was over double the amount spent in advertising in China.

But CB Insights shows that investment in traditional advertising firms is down. According to a keyword analysis, mentions of the keyword “advertising” decreased by 100 percent between 2010 and 2016 among top venture capitalist portfolios. Further, data from CrunchBase plotted by TechCrunch shows a similar decrease in venture capital funding within adtech.

Rather than invest in technology directly related to advertising, investors are more interested in solutions that directly control the user’s attention or provide a level of functionality (workflow, tracking, analytics) on top of existing solutions.

Entrepreneurs and investors are turning to areas such as influencer marketing; according to CB insights analysis, investment in influencer marketing startups is growing quickly and these startups represent strong acquisition targets.

Source: CBinsights, 2017

This is an area where firms can actually compete with the network effects brandished by Google and Facebook. Influencer marketing can disintermediate the relationship between the user and information and content that has been so skillfully internalized by efforts such as Google’s Accelerated Mobile Pages (AMP) and Facebook’s instant articles.

For more on using influencer marketing in your own business, see our article on The Power of a Story and Micro-Influencers.

Investment in marketing tech startups – new companies that create a product or service to help marketers harness and analyze digital content – is also increasing. According to CB Insights, investment in these startups increased by 90 percent between 2012 and 2015. Investment amounts reached $3.8 billion in 2015 when they hit their peak but then decreased by a quarter in 2016.

However, 2017 investments on a quarterly basis indicate signs of a possible recovery in the marketing tech sector. In Q1 of 2017, startups within this sector received in excess of $700 million in funding, which was the second-highest amount since Q3 of 2015, when investment was peaking.

Source: CBInsights, 2017

CB Insights, using natural language processing, identified the most common words used in descriptions of companies that received early stage VC investment between 2010 and 2016. CB Insights selected VCs based on their portfolio valuations and investment outcomes, and according to the research, the most common word in the descriptions over nine out of 10 firms that received funding was “platform.”

In addition, close to 90 percent of companies funded by VCs since 2010 have mentioned “data” in their company description. The VCs examined by CB Insights focus on tech companies that use keywords such as “platform,” “users,” “mobile,” “online,” “app,” “software,” and “network” in their company descriptions. The use of the keyword “artificial intelligence” has also risen by over 1,000 percent in the company descriptions, with AI companies showing record deals in 2016.

Although traditional advertising firms are not seeing the funding levels they might have in the past, the companies providing the digital technologies required to harness data and process it for marketing purposes are receiving record amounts of financing.

As illustrated above, investment has started to move toward firms who can control direct relationships with the customer or who can better instrument the value already offered by Google and Facebook.

There will continue to be an ebb and flow between startup investment and digital advertising giants as the market evolves. Currently, the industry is in a period of consolidation. However, according to Madhumita Murgia writing for the Financial Times, “As adtech start-ups are forced to target audiences and customers beyond Google and Facebook, investors believe innovation will creep back and the funding winter will cease.”

Google and Facebook are riding the advertising tsunami. The two companies are leveraging every channel that precision-targets consumers before competitors can get a look in. We take a closer look at the elevated market position that these two powerhouses command.

Google and Facebook: Platform Dominance

Google and Facebook have managed to dominate advertising by building their platforms through strategic acquisitions. This article also discusses the emotional connection between social media and advertising, the dynamics of paid content and native advertising, and the influence that advertising is likely to have on society in the future.

“We are Facebook’s product. Our attention and eyeballs are sold to the highest bidders, whatever they may be peddling.” 

Zeynep Tufekci, writer, academic, and techno-sociologist.

Google and Facebook have subsumed the U.S. advertising space. The graph, below, appeared in an article by Jamal Carnette of The Motley Fool and shows the growth trajectories of the four tech giants: Apple, Amazon, Alphabet, and Google.

Source: The Motley Fool, 2017

Asia markets aside, Facebook and Google’s “duopoly,” as it is commonly referred to, is advancing unchallenged, at least in the United States. Here are some eye-popping statistics.

  • 98% | The percentage of Facebook’s $9.3 billion 2017 first-quarter earnings that came from advertising, according to Wired.
  • 87% | The percentage of Google’s (Alphabet) $26 billion 2017 first-quarter earnings that came from advertising, according to Wired.
  • 63% | The percentage of U.S. investment in digital ads that the two powerhouses will claim in 2017, according to eMarketer predictions.
  • 40% | The growth in Facebook’s total digital U.S. revenues in 2017, according to eMarketer.

The graph, below, from Mary Meeker’s Internet Trends shows the dominance of Google and Facebook and their growth compared to competitors.

Source: Kleiner Perkins, 2018

The implications of Google and Facebook’s dominance involve their influence over consumer opinion and behavior.

Traditional media were bound by rules that were governed by one premise: media outlets were on an equal footing with one other. Facebook and Google, by contrast, have unimaginable reach. What’s more, they never have to create their own content or be responsible for their positioning and influence.

An example of how advertising conglomerates can overstep the bounds can be seen in the efforts to build brand loyalty among consumers at a young age. To maximize the duration of Millennial and Gen Z customers who have strong buying power, advertisers and companies are increasingly targeting young consumers. This aggressive marketing is occurring via mobile, the internet, in schools, and even in bathroom stalls, according to the American Academy of Pediatrics (AAP).

Exposure to ads at a young age contributes to adolescent obesity, poor nutrition, and cigarette and alcohol use, and many countries limit advertising that targets children. No advertising is allowed in Sweden and Norway that is directed at children younger than 12. Denmark and Belgium restrict advertising that targets children. And Greece bans toy advertising until after 10 pm.

The United States has no such regulation, and the average young person views more than 3,000 ads per day on TV, the internet, billboards, and magazines. Children and adolescents are a lucrative market for advertisers and brands: teenagers spend $155 billion a year, children younger than 12 spend another $25 billion, and both groups influence their parents who spend another $200 billion.

According to the AAP, children who are younger than eight years old are cognitively and psychologically defenseless against advertising, but adults are also becoming defenseless as advertisers are finding more effective ways to infiltrate and influence their behavior.

How Ads Change Consumer Behavior

Advertisers know what it takes to change consumer behavior, and they have scientific evidence on consumer responses to ad exposure on which to base their advertising strategies.

For example, a study by Susanne Schmidt, assistant professor at Technical University Dortmund University, and Martin Eisend, professor at European University Viadrina, showed that maximum attitude is reached at approximately 10 exposures to an ad while recall increases linearly and does not level off before the eighth exposure.

In addition, the study showed that low involvement and spaced exposures enhance repetition effects on attitude toward a brand. Overall, the study supports the theory that repetition, or repeated exposure to ads, is the best way to build brand loyalty.

Not content with the findings of other researchers, Facebook conducted its own research study, which came to a similar conclusion. According to Facebook IQ, experimental research by Facebook Marketing Science explored the causal relationship between brand lift and frequency level. The results showed that lift for ad recall and purchase intent both increased with the frequency of exposure, meaning that higher frequencies of exposure increase behavior change such as purchase intent.

The strategy and science of ad frequency evokes the concept of brainwashing-type techniques, which neither adults nor children should be exposed to. To quote a white paper by Facebook IQ:

“the frequency level required to drive consumer action will depend on various factors… it stands to reason that a high frequency might be needed to convince people to try a new product from a new brand. But for a well-established brand, a relatively lower frequency might be enough to drive and maintain awareness,”

Facebook IQ

In addition:

“Frequency can also vary depending on individuals in a target audience—where one exposure may be enough for a brand champion, it might take several exposures to convince a person who has only ever bought a competitor brand’s product.”

Facebook IQ

While it might be an exaggeration to some to accuse advertisers of using brainwashing techniques, industry leaders such as Facebook and Google are doing everything they can to keep their audience’s attention, and that includes keeping then glued to their sites and their ads.

The Role of Social Media Platforms in Advertising & Notable Acquisitions

We’ve argued that the more a person uses a platform, the more that platform knows about the person. Here, we provide some insights to show that Google and Facebook’s activities and acquisitions align with this assertion.

Close to 80 percent of the population has a social media profile, according to Pew Research compiled by Statista, and the major players are engaging in aggressive acquisition to maximize the time an individual spends on their platforms. The graph, below, shows the numbers for the users of the top social platforms.

— Source: TechCrunch, 2017

Matt Reynolds, writing for Wired, gives a commentary on Google’s acquisitions toward global big data domination. Google’s aspirations became clear when it acquired Motorola Mobility in 2011 for $12.5 billion. According to Reynolds, by acquiring Motorola Mobility, Google “trampled all over the Samsung brand, since many users hated its take on the operating system or didn’t realize that Google had anything to do with it at all.”

In 2014, Google bought Nest Labs for $3.2 billion, a company that produces smart thermometers, security cameras, and other connected devices that all sync with Google Home. Back in 2008, Google had acquired DoubleClick, an ad service for publishers, for $3.1 billion, a move that it could parlay into its acquisition of YouTube two years earlier, for which it paid $1.65 billion. Google bought Waze, a navigation app, in 2013 for $996 million, which gave the company access to the 50 million Waze users.

Facebook, for its part, has been no less aggressive in M&A maneuvers designed to acquire new user segments and keep Facebook users firmly engaged in the platform. Adam Hayes, CFA and writing for Investopedia.com, lists some of the more significant Facebook acquisitions. In 2009, Facebook acquired FriendFeed for $47.5 million. FriendFeed was a social media aggregator with features that Facebook wanted such as the Like button and News Feed. With this purchase, Facebook also acquired the human expertise that had created AdSense and Gmail.

That same year, Facebook acquired Octazen Solutions, which allowed Facebook users to invite their contacts to join Facebook. Facebook also bought Divvyshot, an app-based photo-sharing site.

The acquisition of Chai Labs for $10 million boosted Facebook’s advertising revenues and, as an added bonus, the mastermind behind Google Adsense, Gokul Rajaram, came as part of the deal.

In 2011, Facebook paid between $40 to $70 million for SnapTu, an Israeli app developer that reinvented Facebook’s mobile app. Facebook also acquired Rel8tion to boost its mobile advertising revenues.

In 2012, Facebook famously acquired Instagram for $1 billion and gained control of the largest photo-sharing social platform. Facebook also acquired Lightbox.com, a mobile, HTML5, and Android photo-sharing site.

The acquisition of Face.com for $100 million provided facial recognition capabilities for Facebook’s photos so that photos could be tagged automatically. In 2014, WhatsApp was Facebook’s largest acquisition to date at $19 billion. WhatsApp is a free mobile messaging app that gave Facebook access to a huge user base worldwide. Oculus VR was a $2 billion purchase of a reality tech company with which Facebook intends to develop immersive VR gaming and VR social networking.

But with all this social media and technology firepower, to what extent can these companies really manipulate the consumer? The answer is, nobody knows, but signs indicate that regulators and the public are becoming alarmed. Technology is only increasing the velocity at which these companies are gaining influence unchecked and without societal understanding of the short- and long-term effects.

The Social Media-Emotion Connection and Advertising

Plenty of researchers have studied the effects of social media use. Some studies show that Facebook has the opposite effect on users than they expect when they sign on to the platform to make social connections. Far from making people feel more connected and less lonely, the reality can be a growing sense of isolation. Other studies cite concerns surrounding the addictive nature of social media.

But even with these dire findings, people and advertisers continue to use social platforms. What is the effect of social media on the consumer-brand relationship, and how are consumer’s emotions being manipulated?

Studies show that social media is a powerful driver of word of mouth, which is important to corporations, institutions, anyone that wants to build a brand. If a person posts on social media that they love or hate a product, that’s serious dollars coming in or out of a company’s coffers. If an ad or post goes viral, it could be a marketer’s dream.

Also, social media is a place where users share their experiences and their emotional reactions to those experiences. According to Roger Dooley, author of “Brainfluence: 100 Ways to Persuade and Convince Consumers with Neuromarketing,” advertising campaigns that contain emotional content perform twice as well as advertising that contains rational content only.

Source: Neuromarketing, n.d.

It stands to reason, then, that companies such as Google and Facebook want to understand the consumer, even the extent of their emotions. If these companies can understand what motivates us, and emotions certainly do, they’re halfway to controlling consumers. Can their tracking and targeting strategies achieve that?

How Does Facebook Collect Consumer Data?

Facebook collects the information that users provide when they sign up for a Facebook account. The platform also tracks and collects data from messages, photos, and content users react to, and it monitors the frequency and duration of user activities. The platform collects information about the people and groups a user connects to and how the user interacts with those people, groups, and websites.

Facebook collects payments and financial transaction data that occur on the platform; for example, when a user buys a game or donates to a charity or cause. Credit and debit card information, account and authentication information, and billing, shipping, and contact details are all recorded.

Facebook collects information from the computers, phones, and devices that are used to access the platform. It collects information from websites and apps that use Facebook services, and it receives information from third-party partners, such as advertisers who provide data on users’ experiences or interactions with that advertiser. In other words, Facebook collects data on consumers from other companies that are owned or operated by Facebook or that partner with Facebook.

Below are 98 personal data point targeting options, or consumer data, that Facebook offers third-party advertisers.

  1. Location
  2. Age
  3. Generation
  4. Gender
  5. Language
  6. Education level
  7. Field of study
  8. School
  9. Ethnic affinity
  10. Income and net worth
  11. Home-ownership and type
  12. Home value
  13. Property size
  14. Square footage of home
  15. Year the home was built
  16. Household composition
  17. Users who have an anniversary within 30 days
  18. Users who are away from family or hometown
  19. Users who are friends with someone who has an anniversary, is newly married or engaged, recently moved, or has an upcoming birthday
  20. Users in long-distance relationships
  21. Users in new relationships
  22. Users who have new jobs
  23. Users who are newly engaged
  24. Users who are newly married
  25. Users who have recently moved
  26. Users who have birthdays soon
  27. Parents
  28. Expectant parents
  29. Mothers, divided by “type” (soccer, trendy, etc.)
  30. Users who are likely to engage in politics
  31. Conservatives and liberals
  32. Relationship status
  33. Employer
  34. Industry
  35. Job title
  36. Office type
  37. Interests
  38. Users who own motorcycles
  39. Users who plan to buy a car (and what kind/brand of car and how soon)
  40. Users who bought auto parts or accessories recently
  41. Users who are likely to need auto parts or services
  42. Style and brand of car driven
  43. Year car was bought
  44. Age of car
  45. How much money user is likely to spend on next car
  46. Where user is likely to buy next car
  47. How many employees a user’s company has
  48. Users who own small businesses
  49. Users who work in management or are executives
  50. Users who have donated to charity (divided by type)
  51. Operating system
  52. Users who play canvas games
  53. Users who own a gaming console
  54. Users who have created a Facebook event
  55. Users who have used Facebook Payments
  56. Users who have spent more than average on Facebook Payments
  57. Users who administer a Facebook page
  58. Users who have recently uploaded photos to Facebook
  59. Internet browser
  60. Email service
  61. Early/late adopters of technology
  62. Expats (divided by what country they are from originally)
  63. Users who belong to a credit union, national bank, or regional bank
  64. Users who are investor (divided by investment type)
  65. Number of credit lines
  66. Users who are active credit card users
  67. Credit card type
  68. Users who have a debit card
  69. Users who carry a balance on their credit card
  70. Users who listen to the radio
  71. Preference in TV shows
  72. Users who use a mobile device (divided by what brand they use)
  73. Internet connection type
  74. Users who recently acquired a smartphone or tablet
  75. Users who access the internet through a smartphone or tablet
  76. Users who use coupons
  77. Types of clothing user’s household buys
  78. Time of year user’s household shops most
  79. Users who are “heavy” buyers of beer, wine, or spirits
  80. Users who buy groceries (and what kinds)
  81. Users who buy beauty products
  82. Users who buy allergy medications, cough/cold medications, pain relief products, and over-the-counter meds
  83. Users who spend money on household products
  84. Users who spend money on products for kids or pets, and what kinds of pets
  85. Users whose household makes more purchases than is average
  86. Users who tend to shop online (or off)
  87. Types of restaurants user eats at
  88. Kinds of stores user shops at
  89. Users who are “receptive” to offers from companies offering online auto insurance, higher education or mortgages, and prepaid debit cards/satellite TV
  90. Length of time user has lived in house
  91. Users who are likely to move soon
  92. Users who are interested in the Olympics, fall football, cricket, or Ramadan
  93. Users who travel frequently, for work or pleasure
  94. Users who commute to work
  95. Types of vacations user tends to go on
  96. Users who recently returned from a trip
  97. Users who recently used a travel app
  98. Users who participate in a timeshare

— Source: Washington Post, 2016

Social media platforms are one thing, but new household IoT devices such as Alexa, Amazon’s Echo, and Google Home push these companies’ reach beyond the screen and into the ambient atmosphere. Consumers have concerns that these devices are “always on” and listening to consumer’s lives. But that’s not enough to stop these products from reaching 47.3 million U.S. adults, according to a Voice.ai report cited in TechCrunch.

Bloomberg assures us that “devices like the Echo and Google Home are not really ‘always on.’ Rather, they’re in passive listening mode, using a small amount of power for something called device keyword spotting.” Bloomberg further explains that, “In effect, the device is recording about one second of ambient sound, hunting for the acoustic signature of their wake words, ‘Alexa’ or ‘OK Google,’ and then constantly overwriting and discarding that fraction of sound.”

Whether you find this assuring or not, at minimum, these platforms are listening, tracking, documenting, and recording photos, videos, sleep patterns, media consumption patterns, brand preferences, friend groups, family group, locations, and our preferred tools.

Platforms: Maximizing Consumer Value vs. Ad Placement

As long as there are profits to be made, companies will continue to attempt to strike an algorithmic balance between ensuring they deliver the perfect free (search engine optimization) service for the consumer and get the result that is going to help them monetize their ad units (pay-per-click or other model).

Facebook and Google are collecting so much consumer data because it places them in a strong position to increase their growth based on real-time bidding (RTB) for advertising.

When a publisher like Facebook creates revenue through display advertising, they sell ad space to advertisers through exchanges. When an internet user visits a website or app, the RTB process begins, and the publisher’s site sends a message to the supply side platform saying there is an impression available.

According to Maciej Zawadziński:

“the supply-side platform analyzes the information provided about the user (location, web history, and, if available, age, gender, and any other user information) and then sends this information to the ad exchange.  Once the ad exchange receives this information, it connects to the demand-side platforms and relays information about the user. The ad exchange starts an auction, and the DSPs then bid on the impression based on the value of that particular impression to them – determined by predefined parameters set by the advertisers.”

Maciej Zawadziński, 2018

“The advertiser who bids the highest amount wins, and the bid is sent back to the publisher and displayed to the user,” explains Zawadziński. “The whole process is repeated for every available impression on a web page every time a user accesses a website, a new page, or refreshes the page.” Moreover, each transaction takes approximately one-tenth of a second to complete, which is one-third of the time it takes to blink.

According to Zawadziński, the three largest ad exchanges – DoubleClick, AdECN, and RightMedia – were all bought by Google, Microsoft, and Yahoo!, respectively, in 2007. RTB is allowing the big companies to profit while brands are placing more and more targeted ads in front of the consumer in a frenzied effort to claim some piece of the pie for themselves.

This concentrated marketing push has spurned another societal trend facilitated by machine learning, big data, and platform ownership: the constant bombardment of consumers with advertising content across every aspect of their lives. Moreover, it has become increasingly difficult for the consumer to differentiate marketing content from real content, and that is no mistake on the part of the advertisers.

Blending In: Paid Content and Native Advertising

The American Marketing Association finds that “the average consumer is exposed to up to 10,000 brand messages a day. And as marketers are presented with more and more channels to reach their customers, that number is growing rapidly.”

Facebook and Google are not collecting this much consumer data just to improve the consumer experience; a better consumer experience leads to profits. This does not necessarily lead to societal well-being, though, just bigger payouts for shareholders.

According to David Lazarus, writer for the LA Times, Facebook and Twitter deliberately deceive and mislead people, and they can do so because of the coveted information that they possess on consumers.

Paid media or native advertising, where native ads match the visual design of the space they inhabit, is disguised. This marketing content behaves just like the host content so that the audience is deceived into thinking it is natural content, not paid advertising. “Posts and tweets from advertisers aren’t labeled ‘advertisement’ or ‘paid ad.’” Facebook uses small gray print to say, ambiguously, “sponsored.” Twitter’s description is “promoted,” said Lazarus.

Stephen Greyser, a marketing professor at Harvard Business School who was interviewed by Lazarus, said:

“It’s hard for consumers unless the word ‘advertisement’ is there … The experts I spoke with said there’s no stopping this trend — it’s too far along and there’s too much money at stake. The onus, therefore, is on consumers to develop the critical tools required to recognize what’s a genuine story and what’s a well-clothed sales pitch.”

Stephen Greyser

Compounding the intensity of advertising is the fact that inventory in multiple types of media is available in one platform whereas historically, TV and digital advertising have traditionally been bought and measured through different systems and currencies. For example, Google announced in 2017 that its traditional TV advertising inventory would be available on its DoubleClick Bid Manager (DBM) platform in the United States. Also, Google announced plans to integrate it with WideOrbit, clypd, and Google Fiber, Google’s broadband internet and IP (internet protocol) TV business unit to broaden access to TV DBM inventory.

It’s getting easier and cheaper for advertisers to precisely target a demographic group and to influence their emotions. This article by Leslie Shapiro, writing for the Washington Post, is a good account of how this process occurred during the 2016 presidential campaign. According to Shapiro, Russian operatives were able to identify Facebook users with strong feelings about gun rights, illegal immigration, and other hot button issues and target them with ads likely to inflame their feelings.

The power of data is so clear to companies like Google and Facebook (and Amazon) that the money-making potential of consumer data was likened to the 21st century version of oil by Nick Scrnicek, writer for the Guardian. “Every interaction on a platform becomes another data point that can be captured and fed into an algorithm. In this sense, platforms are the only business model built for a data-centric economy,” said Scrnicek, who suggests that Google and Facebook should be nationalized and turned into public goods.

According to Scrnicek, “Google is using AI to improve its targeted advertising, and Amazon is using AI to improve its highly profitable cloud computing business. As one AI company takes a significant lead over competitors, these dynamics are likely to propel it to an increasingly powerful position.”

The Force Society Must Reckon With

The future of the advertising industry and how it will impact society in the short and long term is uncertain. There are many aspects of the digital ecosystem and the players therein that need to be examined, assessed, and ultimately regulated.

For example, what is the role of news outlets in advertising? Many of these outlets are biased and politically motivated. They, too, control distribution of the news and consumers’ understanding of the news by hiding facts, slanting the angle, or displaying social cues.

What about the influence of super PACs and digital political ad spending? The graph, below, created by Borrell Associates, a research firm that tracks political spending, shows how political ad spending is set to explode leading up to the 2020 presidential elections.

Source: Wired

If the comments given by Apple CEO Tim Cook to Lester Holt of NBC Nightly News are anything to go by, Google and Facebook may be in for more condemnation when it comes to their advertising and business practices. “I don’t believe the big issue are ads from foreign governments. I believe that’s like .1 percent of the issue,” Cook told Holt, “The bigger issue is that some of these tools are used to divide people, to manipulate people, to get fake news to people in broad numbers so as to influence their thinking. This to me is the No. 1 through 10 issue.”

Perhaps before consumers provide corporations with limitless data and resources to control minds, opinions, and actions, it should consider the social implications. Is it too late?

Zeynep Tufekci, writer, academic, and techno-sociologist, states:

“Here’s the hard truth …Facebook is approaching half-a-trillion dollars in market capitalization because the business model — ad-targeting through deep surveillance, emaciated work force, automation and the use of algorithms to find and highlight content that entice people to stay on the site or click on ads or share pay-for-play messages — works.”

Zeynep Tufekci

These posts are not designed to denigrate the success of Google or Facebook; these companies are a boon to the U.S. economy. Rather, these articles are designed to provide those in the advertising industry the best research we can gather for an accurate perspective on the state of the industry as it navigates digital transformation.

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