by Tim Hwang
The global scale and the rapid speed of the programmatic advertising marketplace mean that the existing process for securities cannot be adopted wholesale. Registration in the securities context frequently requires teams of attorneys working with reviewers based at the SEC who manually examine submissions. Compliance is often expensive and time-consuming.
But adapting the disclosure approach does not mean replicating it wholesale. We should implement a regime of mandated disclosure in programmatic advertising that does not come at the expense of market dynamism. Disclosures around particular types of advertising inventory might be made available in a machine-readable fashion, allowing buying and selling algorithms to quickly evaluate the information and take actions accordingly. Instead of a single, centralized bureaucracy like the SEC acting as a gatekeeper to the advertising marketplaces of the web, we might simply mandate that these disclosures flow to a more widely spread network of trusted watchdogs that can monitor and verify claims.
As with the disclosure philosophy undergirding the Securities Act of 1933, the goal of regulation in this space cannot be to guarantee that advertising works or will be a success. Wanamaker’s dictum about the uncertainty of advertising remains relevant today: even as we are awash in data about ads and consumers, it remains in many cases impossible to know if an ad is truly effective. Advertising also remains a diverse marketplace. Buyers demand very different things of their advertising—from increasing sales to simply “positioning” their product—and that diversity of incentives is beneficial. No one entity could guarantee that a given piece of ad inventory is “worth buying.” Instead, the purpose of mandated disclosure under such a regulation would be to ensure that buyers of online advertising have access to high-quality information about what it is they are buying in the first place. The decision on whether it is worth the price will be up to them.
There is no doubt that many in the programmatic advertising ecosystem will rail against the imposition of greater legal burdens on the buying and selling of ads. Similar complaints accompanied the passage of the 1933 act. But it is past time for real legal intervention in this space. The rise of the internet has produced a deep entwining of the marketplaces of advertising with the rest of the economy. This means that the public has an interest in the fate of these markets, because their fluctuations will have major implications for the critical infrastructure of the web and the dizzyingly vast ecosystem of human activity that rests upon it. We should not wait for a new Great Crash before taking action in the global attention marketplaces of the internet.
Epilogue
The economy looked great in the years leading up to the 2008 subprime mortgage crisis. Housing prices rapidly grew in the United States and throughout Europe from 2002 to 2006, profiting homeowners and spurring construction. A World Bank report assessing prospects going into 2007 and 2008 noted that the outlook appeared “fairly bright” and characterized the global economy as a “promising environment for growth.”1
Experts missed the warning signs. The collapse of the global economy came as a shock because economists and financial regulators had their eyes elsewhere. As the historian Adam Tooze documents, numerous reports and newspaper articles of the era worried about the problems posed by “excessive public debt, underperforming schools and a Chinese sell-off” when they should have been looking at “the basic functioning of America’s economy, its banks and financial markets.”2
Experts also felt that they had conclusively solved the problems of the past. Economists of the era expressed confidence that they had finally discovered the keys to ensuring stable economic growth and had effectively eliminated the risk of a future great recession. In 2003, the economist Robert Lucas told the American Economic Association that the “central problem of depression prevention has been solved, for all practical purposes, and has in fact been solved for many decades” by economists.3
That a market is doing well tells us nothing about its future prospects. Indeed, the moment when the growth of a market seems inevitable is precisely when we should be most fearful about what is driving this growth, and the structural weaknesses that might be obscured by the optimism.
Online advertising appears, by all accounts, to be continuing its rise. The COVID-19 pandemic is battering the advertising economy as this book goes to press. In spite of this, Google and Facebook appear unthreatened by any serious financial distress. If anything, the giants of programmatic advertising are poised to emerge from the crisis more dominant than ever before. Overall, advertising dollars continue to flow online at a staggering rate, which means that ever more capital is tied up in the massively automated system of programmatic buying and selling.
Experts believe that they have solved some of the most enduring challenges of their field. Programmatic advertising appears to surpass all that has come before it, offering the holy grail of marketing channels: lightning-fast speed, mind-bogglingly detailed data, and incredibly low cost. Fears around the power of “micro-targeting”—the laser-focused delivery of persuasive messaging facilitated by the internet—show that even critics of the technology industry implicitly accept the claim that these advertising systems have unsurpassed potential to manipulate opinion and change public behavior.4
There is no doubt that in some cases online advertising is truly effective. But the everyday reality may be quite the opposite of an all-seeing, all-knowing, all-powerful promotional engine. The reality is that vast portions of the programmatic marketplace are not so much miracle cure as snake oil. On the whole, ads capture an increasingly small portion of available attention online, and what these ads do capture is shrinking in real economic value. All the while, the market remains murky and opaque, constantly oversold by an unhealthy ecosystem of conflicted players. The result is a bubble, one that cannot grow forever.
By itself, this dysfunction in the advertising industry might be a niche problem, something that keeps a handful of advertisers and publishers up at night. But the internet we have, for better or worse, is yoked to the structure and prospects of the advertising economy. If this system of advertising is brittle, then the internet as we know it is brittle. Whether we leave these marketplaces deregulated and feral or implement systems to manage them for public benefit will define not just the future of advertising, but the future of the technologies that have shaped and continue to shape our society.
Notes
Prologue
1. “eMarketer Releases New Global Media Ad Spending Estimates,” eMarketer, May 7, 2018, www.emarketer.com/content/emarketer-total-media-ad-spending-worldwide-will-rise-7-4-in-2018.
2. Ibid.
3. Nico Neumann, “How Wrong Audience Targeting and AI-Driven Campaigns Undermine Brand Growth,” Programmatic I/O 2019, d3w3ioujxcalzn.cloudfront.net/item_files/183e/attachments/684322/original/howwrongaudiencetargetingunderminebrandgrowth_niconeuman.pdf.
4. Ibid.
Introduction
1. “Horowitz Says Lack of Business Model Hampers Internet Profits,” Communications Daily, October 3, 1996, 1.
2. “IAB Internet Advertising Revenue Report,” Nov. 2018, IAB, www.iab.com/wp-content/uploads/2018/11/IAB-WEBINAR-HY18-Internet-Ad-Revenue-Report1.pdf.
3. Tess Townsend, “Google’s Share of the Search Ad Market Is Expected to Grow,” Recode, March 14, 2017, www.recode.net/2017/3/14/14890122/google-search-ad-market-share-growth.
4. “IAB Internet Advertising Revenue Report.”
5. “Google, Facebook Increase Their Grip on Digital Ad Market,” eMarketer, March 14, 2017, www.emarketer.com/Article/Google-Facebook-Increase-Their-Grip-on-Digital-Ad-Market/1015417.
6. “IAB Internet Advertising Revenue Report.”
7. “Data Suggests Surprising Shift: Duopoly Not All-Powerful,” eMarketer, March 19, 2018, www.emarketer.com/content/google-and-facebook-s-digital-dominance-fading-as-rivals-share-grows.
8. Ibid.
9. Tim Wu, The Attention Merchants: The Epic Scramble to Get Inside Our Heads (New York: Alfred A. Knopf, 2016),
6.
10. Zeynep Tufekci, “YouTube, the Great Radicalizer,” New York Times, March 10, 2018, www.nytimes.com/2018/03/10/opinion/sunday/youtube-politics-radical.html; Zeynep Tufekci, “Facebook’s Ad Scandal Isn’t a ‘Fail,’ It’s a Feature,” New York Times, Sept. 23, 2017, www.nytimes.com/2017/09/23/opinion/sunday/facebook-ad-scandal.html.
11. See “Grand Jury Indicts Thirteen Russian Individuals and Three Russian Companies for Scheme to Interfere in the United States Political System,” press release, U.S. Department of Justice, Feb. 16, 2018, www.justice.gov/opa/pr/grand-jury-indicts-thirteen-russian-individuals-and-three-russian-companies-scheme-interfere.
12. Lawrence Page and Sergey Brin, “The Anatomy of a Large-Scale Hypertextual Web Search Engine,” Computer Science Department, Stanford University, infolab.stanford.edu/~backrub/google.html.
13. “eMarketer Releases New Programmatic Advertising Estimates,” eMarketer, April 18, 2017, www.emarketer.com/Article/eMarketer-Releases-New-Programmatic-Advertising-Estimates/1015682.
14. Lauren Fisher, “US Programmatic Digital Display Ad Spending,” eMarketer, Nov. 21, 2019, www.emarketer.com/content/us-programmatic-digital-display-ad-spending.
15. AppNexus, “The Digital Advertising Stats You Need for 2018,” www.appnexus.com/sites/default/files/whitepapers/guide-2018stats_2.pdf.
16. Ibid.
17. Ibid.
1. The Plumbing
1. Jun Wang, Weinan Zhang, and Shuai Yuan, Display Advertising with Real-Time Bidding (RTB) and Behavioural Targeting, July 18, 2017, arxiv.org/abs/1610.03013.
2. See, for example, Robert D. Blackwill and Meghan L. O’Sullivan, “America’s Energy Edge,” Foreign Affairs, March–April 2014, www.foreignaffairs.com/articles/united-states/2014-02-12/americas-energy-edge. The article discusses how falling energy prices driven by shale oil will affect the geopolitical balance of power.
3. See Robert E. Hall, “The Routes into and out of the Zero Lower Bound,” Economic Policy Symposium Proceedings, Jackson Hole, Federal Reserve Bank of Kansas City (2013), 2.
4. See, for example, Seb Joseph, “Outdoor Advertising Braced for Its Programmatic Moment,” Digiday, Sept. 26, 2018, digiday.com/marketing/outdoor-advertising-braced-programmatic-moment.
5. See, for example, Jon Swartz, “Millions of Free E-mailers Soon May Pay Fees; Yahoo, Hotmail to Start Charging for Certain Services,” USA Today, April 1, 2002, B1.
6. See Steven Levy, In the Plex: How Google Thinks, Works, and Shapes Our Lives (New York: Simon & Schuster, 2011), chap. 4.
7. Ibid.
8. See, for example, Steven Levy, “Inside Facebook’s AI Machine,” Wired, Feb. 23, 2017, www.wired.com/2017/02/inside-facebooks-ai-machine; Gideon Lewis-Kraus, “The Great A.I. Awakening,” New York Times Magazine, Dec. 14, 2016, www.nytimes.com/2016/12/14/magazine/the-great-ai-awakening.html.
9. Devon Maloney, “Priscilla Chan and Mark Zuckerberg’s 99% Pledge Is Born with Strings Attached,” Guardian, Dec. 2, 2015, www.theguardian.com/technology/2015/dec/02/mark-zuckerberg-and-priscilla-chans-99-pledge-is-born-with-strings-attached; Mark Zuckerberg, “A Letter to Our Daughter,” Facebook, Dec. 1, 2015, www.facebook.com/notes/mark-zuckerberg/a-letter-to-our-daughter/10153375081581634?pnref=story.
10. See Elizabeth Dwoskin, “WhatsApp Founder Plans to Leave After Broad Clashes with Parent Facebook,” Washington Post, April 30, 2018, www.washingtonpost.com/business/economy/whatsapp-founder-plans-to-leave-after-broad-clashes-with-parent-facebook/2018/04/30/49448dd2-4ca9-11e8-84a0-458a1aa9ac0a_story.html.
11. Winterberry Group, “Programmatic Everywhere? Data, Technology and the Future of Audience Engagement” (white paper, Nov. 2013), www.iab.com/wp-content/uploads/2015/07/WinterberryGroupWhitePaperProgrammaticEverywhere.pdf.
12. Sarah Sluis et al., “The Top 10 Programmatic Publishers of 2018,” AdExchanger, July 31, 2018, adexchanger.com/publishers/the-top-10-programmatic-publishers-of-2018.
13. Ibid.
14. Joe Pompeo, “‘Everyone’s for Sale’: A Generation of Digital-Media Darlings Prepares for a Frigid Winter,” Vanity Fair—Hive, Dec. 5, 2018, www.vanityfair.com/news/2018/12/a-generation-of-digital-media-darlings-prepares-for-a-frigid-winter.
15. See, for example, Astead W. Herndon, “Elizabeth Warren Proposes Breaking Up Tech Giants Like Amazon and Facebook,” New York Times, March 8, 2019, www.nytimes.com/2019/03/08/us/politics/elizabeth-warren-amazon.html; Margaret Harding McGill and Daniel Lippman, “White House Drafting Executive Order to Tackle Silicon Valley’s Alleged Anti-conservative Bias,” Politico, Aug. 7, 2019, www.politico.com/story/2019/08/07/white-house-tech-censorship-1639051.
2. Market Convergence
1. See, for example, Jack Kessler, “The French Minitel: Is There Digital Life Outside of the ‘US ASCII’ Internet? A Challenge or Convergence?,” D-Lib Magazine, Dec. 1995, www.dlib.org/dlib/december95/12kessler.html. The article describes the French Minitel system, a precursor to the modern-day internet.
2. Robert D. Shapiro, “This Is Not Your Father’s Prodigy,” Wired, June 1, 1993, www.wired.com/1993/06/prodigy.
3. See Matthew Crain, “Financial Markets and Online Advertising: Reevaluating the Dotcom Investment Bubble,” Information, Communication, and Society 17, no. 3 (2014), academicworks.cuny.edu/qc_pubs/157.
4. Tim Wu, The Attention Merchants: The Epic Scramble to Get Inside Our Heads (New York: Alfred A. Knopf, 2016), 210.
5. Ibid., 208.
6. Steven Levy, In the Plex: How Google Thinks, Works, and Shapes Our Lives (New York: Simon & Schuster, 2011), chap. 2.
7. Ibid., 84.
8. Ibid., 77–78.
9. Ibid., 87.
10. Ibid., 90.
11. Ibid., 94.
12. Ibid., 83.
13. Ibid., 110.
14. Ibid., 116.
15. Ibid., 118.
16. Ibid., 117.
17. Robert A. Guth and Kevin J. Delaney, “Selling Web Advertising Space Like Pork Bellies; Exchanges That Pair Buyers, Sellers for Available Ad Slots Attract Internet Giants,” Wall Street Journal, May 29, 2007, B1.
18. Steve Lohr, “Your Ad Here,” New York Times, May 16, 2007, H1.
19. See, for example, Mike Nolet, “Exchange v. Network, Part I: What’s the Difference?,” Mike on Ads (blog), Aug. 16, 2007, www.mikeonads.com/2007/08/16/exchange-v-network-part-i-whats-the-difference. Nolet cofounded AppNexus, one of the major exchanges in the programmatic space.
20. Louise Story, “DoubleClick to Set Up an Exchange for Buying and Selling Digital Ads,” New York Times, April 4, 2007, C6.
21. Louise Story and Miguel Helft, “Google Buys DoubleClick for $3.1 Billion,” New York Times, April 14, 2007, www.nytimes.com/2007/04/14/technology/14DoubleClick.html.
22. Kevin J. Delaney, “Yahoo Will Buy the Rest of Right Media,” Wall Street Journal, April 30, 2007, A3.
23. George Gurley, “A Wealth of Ideas,” New York Times, March 26, 2014, www.nytimes.com/2014/03/27/fashion/Michael-Walrath-Right-Media-Founder-Wealth-of-Ideas-.html.
24. Abbey Klaassen, “The Right Media Mastermind,” Advertising Age, May 14, 2007.
25. Benjamin F. Kuo, “Interview with Jeff Green, The Trade Desk,” socalTECH, March 29, 2010, www.socaltech.com/interview_with_jeff_green_the_trade_desk/s-0027709.html.
26. Paul Durman, “‘Stock Exchange’ Opens for Online Advertising,” Sunday Times (London), Feb. 18, 2007, 3.
27. Kuo, “Interview with Jeff Green.”
28. Donald MacKenzie, An Engine, Not a Camera: How Financial Models Shape Markets (Cambridge, Mass.: MIT Press, 2008), 12.
29. See, for example, Erik Barnouw, A History of Broadcasting in the United States, vol. 2, The Golden Web, 1933 to 1953 (New York: Oxford University Press, 1968); Tom Standage, The Victorian Internet: The Remarkable Story of the Telegraph and the Nineteenth Century’s On-Line Pioneers (New York: Bloomsbury, 2014).
30. William Cronon, Nature’s Metropolis: Chicago and the Great West (New York: W. W. Norton, 1992), chap. 3.
31. Ibid
., 106–107.
32. Ibid., 126.
33. Ibid., 114.
34. Ibid., 118.
35. Ibid., 146.
36. Ibid., 110.
37. Ibid.
38. See Emily Lambert, The Futures: The Rise of the Speculator and the Origins of the World’s Biggest Markets (New York: Basic Books, 2012).
39. “About IAB,” IAB, www.iab.com/our-story.
40. “IAB Measurement Guidelines,” IAB, www.iab.com/guidelines/iab-measurement-guidelines.
