QoTD: Ari Jacoby
We already have a situation where
most people don't click on ads, and the
ones that do are suspect people. — Ari
Jacoby, CEO, Solve Media
The targeting game
We have an information gap for discussing the ad targeting problem. There are papers that, if you put them together, help substantiate the argument that adtech is bogus. But they're behind paywalls.
Here's a good one. "I'm not a high-quality firm, but I play one on TV" by Mark N. Hertzendorf. RAND Journal of Economics, vol. 24, number 2, summer 1991. $24 to download. I have a copy because I helped Doc Searls with some research for his book, The Intention Economy, but you probably don't. (I promise I'll get to the Open Access rant some other time. Yes, “closed data means people die” but we'll talk about that later.)
Advertising is a form of signaling.
Rory Sutherland, vice-chairman of Ogilvy Group, said,
To a good decision scientist, a consumer
preference for buying advertised brands is perfectly
rational. The manufacturer knows more about his
product than you do, almost by definition. Therefore
the expensive act of advertising his own product is
a reliable sign of his own confidence in it. It
is like a racehorse owner betting heavily on
his own horse. Why would it be “rational” to
disregard valuable information of that kind?
But advertising can break down as a signaling
method when the medium is noisy enough that the
probability of an individual user seeing an ad is
low enough. Hertzendorf writes,
noise complicates the process of customer inference.
This enables a low-quality firm to take advantage of
consumer ignorance by partially mimicking the strategy
of the high-quality firm. That's in an environment
where the presence of many TV channels makes it harder
for the audience to figure out who's really trying
to signal. Noise helps deceptive sellers.
But what happens when we introduce targeting? Let's give the low-quality seller the ability to split the audience, without the audience members knowing, into marks and bystanders, with marks receiving the ad at higher probability. In that case, marks receive the signal of a high-quality seller, and the bystanders receive the signal of the low-quality seller.
Something that I just figured out from going over this
paper again is that the splitting of the audience
doesn't have to be accurate in order for adtech
to work. Rebecca Lieb, at iMediaConnection, points
out that her BlueKai profile is largely false, and writes,
If ad platforms aren't delivering the targeting
that advertisers are paying for, the emperor has
Au contraire. Ad platforms are doing their work just fine. Targeting works even if it's inaccurate, as long as it can reliably split the audience. Even the most basic cookie scheme will do that. An ad network can randomly call some users left-handed and others right-handed, or divide them by height, or whatever. The only important thing is to split the audience persistently, so that some have a higher probability of receiving an inaccurate "high-quality" signal from a deceptive seller.
Where sellers in Hertzendorf's scenario must rely on increasing noise in the medium in order to deceive, targeting lets them make the first move.
We're still in the early stages of the game, though. If an individual is aware that targeting is possible and doesn't know if he or she is mark or bystander, the signal is lost. So you get the effect that I think is happening in web advertising, with the value of the entire medium going down, even for advertisers who do not target.
However, some buyers are still unaware of the extent of targeting. One politician saw an ad for a dating site on a political party press release and attributed it to the party, not to the Google ad service used on the site where he read it.
From my point of view inside the IT business, a lot of the adtech stuff looks old and obvious, but some of the audience is still figuring it out. People already detest and block the email spam that the Direct Marketing Association worked so hard to protect, because that's obviously "addressed to me." Understanding web ad targeting is taking a lot longer, which is understandable because it's so complex. (see bonus links below for introductions to the current state of the art.)
The signaling power of an ad campaign is the seller's advertising expense as estimated by the buyer. Advertising that is itself costly, such as celebrity endorsements or signs in high-cost areas, has what you might call "creative signaling power." Advertising that is attached to a high-cost medium, such as Vogue magazine or the Super Bowl, has "media buying signaling power". And there's a multiplier effect from the quality of the ad itself, since some ads are more memorable than others and tend to make people think that they've seen them more often. (so quality does not map directly to "informative" or "entertaining".)
When an ad appears in a medium that facilitates targeting, the media buying signaling power tends to go away, depending on the accuracy of the targeting and the audience member's knowledge of the extent of targeting.
Brand advertisers, who Doc
Searls splits out from direct
response advertisers, seem to have
an understanding of the targeting problem. John
Hegarty, founder of the ad agency Bartle Bogle
I'm not sure I want people to
know who I am. I find that slightly Orwellian and I
object to it. I don't want people to know what I drink
in the morning and what I drink at night. I think
there's a great problem here - throughout history
we have fought for our freedom to be an individual,
and you're taking it away from us. I think there'll
be a huge backlash to that and Nike will have to be
The great thing about advertising
is that no-one takes it personally.
On the audience side, we have the feeling of "creepy", which is hard to pin down, but that I think is an important notification from your inner economist about an information imbalance, which you would be mistaken to ignore.
So here, roughly, are the rounds of the adtech game. It would have been an interesting experiment to play them out in order, but this is a real-time strategy game, not a turn-oriented game. Some players have gotten to round 3, and others are still on round 1, or think they're on round 1 and are getting beaten at round 2.
Round 1: Targeting that partitions the audience without the audience's knowledge. Need not be accurate because a persistent split is enough to attract low-quality sellers. I'm using "low-quality" in the economics paper sense, not the "haha your phone sux and mine r00lz" sense. Most adtech people are not in it to deceive, but from a misguided quest for efficiency that follows from a lack of understanding of signaling.
Round 3: Privacy tech, such as stricter treatment of third-party cookies, makes targeting more difficult and less accurate. The value of advertising across the entire medium rises, and the sites that pay for original content are able to get more ad revenue and control, at the expense of adtech middlemen.
Just as targeting didn't have to work with total accuracy to give an advantage to deceptive signalers, privacy tech doesn't have to be 100% to push things back in the other direction.
Adam Lehman: Just Who Do The Data Paranoiacs Think We Are?
Doc Searls: How advertising can regulate itself
Advance look at post-adtech web ads: Village Soup Shows ‘Native’ Ads Can Work on Local News Sites
Software patent links
I turned this in last week and forgot to link here: The America Invents Act: Fighting Patent Trolls With "Prior Art". The America Invents Act changes a bunch of what we took for granted about patent law. Disclose early! (Maybe the next step beyond continuous deployment is continuous defensive publication. What? It could happen.)
More on the patent mess:
Mark Radcliffe: 2012: Top Ten FOSS Legal Developments
Brian Seal and Tom Southard: How to Out-Nuisance a Bank Patent Troll
Joe Mullin again: How Newegg crushed the “shopping cart” patent and saved online retail (via O'Reilly Radar - Insight, analysis, and research about emerging technologies and Disruptive Competition Project)
Gervase Markham: An Introduction to Modern Open Source Licence Patent Clauses
software development link frenzy
Great stuff that the RSS reader dragged in, some going back quite a ways. Enjoy.
The gas pump test
One of the points that the adtech crowd keeps bringing up is that privacy demands are coming from "activists" or "advocates" or some other polite word for "long-bearded freaks who know how to do HTTP over a telnet connection but have no connection to how people actually want to shop for stuff."
So here's my question.
If regular people like being tracked, why is there a Saturday night key signing party is good fun?
Why is another adtech person freaking out over fixing a privacy bug?
Scott Meyer (not the Basic Instructions Scott Meyer) writes that Firefox's new policy on third-party cookies will mean
So it sucks to be an adtech investor, but, seriously, people, all that investment based on a design mistake made in Netscape 1.0 that has been controversial from the beginning. It's hard to build a business on the expectation that a bug won't get fixed. (I could say the same thing about Microsoft Security Essentials and the MS-Windows desktop antivirus business, but that's another story.)
So the small fry of adtech will go away faster and with less lucrative exits. That, Meyer is right about. But there's a next step that will affect the larger sites. The harder problem is having the user stay logged in to sites he or she chooses to visit, without leaking information through third-party cookies from the same sites. I'm a fan of an approach called double keying, which would do what looks like the user-expected thing, but Social API and other ideas are also kicking around.
Should Mozilla have waited to fix the easy problem of pure third-party tracking until it could also handle the harder problem of "Like" buttons? I don't think so. If you have a clean fix for part of a hard bug, ship it and iterate. Don't hole up in an ivory tower and try to fix everything, then have to iterate anyway.
Next item: the degraded web experience. This one I'm just not seeing. Many of the most dedicated user experience people are fans of Apple's devices and operating systems. And, aside from users who never visit Disqus.com, but want to use the Disqus comments on blogs, the Apple implementation of third-party cookie blocking has been painless. Bloggers know that a post about an Apple problem is great clickbait, but so far we have: (1) Disqus comments break unless you also go to Disqus.com, and (2) well, fine, I'll get back to you on the other one.
Now for the overall point of Meyer's piece. There are "consumers" and "advocates", and the "consumers" want to be tracked, but those mean advocates are deceiving the browser developers into keeping users from giving away information. Or maybe a better way to put it is that users like to get original content free of charge, and that the advocates are destroying the adtech system that brings it to them.
This is where the adtech system is giving
itself way too much credit. Alexis C. Madrigal writes,
The ad market, on which we all depend, started
going haywire. Advertisers didn't have to buy The
Atlantic. They could buy ads on networks that had
dropped a cookie on people visiting The Atlantic. They
could snatch our audience right out from underneath
Snatching is going to be less and less of an option. One of the key points that privacy advocates often miss is that user tracking isn't just for targeting in order to increase response rates. User tracking is also a key part of adtech's fraud prevention efforts. After all, an adtech vendor that's willing to run ads on copyright-infringing or other illegal sites can't depend on those sites not to do some click fraud. Every extra step between the advertiser and the user is one more opportunity for fraud.
People disagree about the extent of fraud perpetrated on the adtech system—John Battelle makes a good case that there's a lot—but there's no doubt that denying third-party cookies will open up more places for it to happen. The natural response is for advertisers to pull back on highly automated adtech and go for more native advertising, just as publishers are backing away from third-party social sites to "own the conversation" about their content.
Today's online ad industry is largely based on exploits for a browser privacy bug. Fixing the bugs will mean fixing the business. This is good for online advertising in the long run, because paradoxically, the better targeted an ad medium can be, the less valuable it is.
And now, bonus links (things that the RSS reader dragged in. RSS forever.)
Jacques Mattheij: Disqus bait and switch, now with ads
Bob Garfield at MediaPost: The Miracle Machine That Keeps A Dying Magazine Alive.
Josh Dreller asks, Ad Blocking: Theft Or Fair Use? (But my big question is: why was ad blocking so rare until users started learning about tracking? If the adtech proponents are right, targeted ads should make blocking go down instead.)
Adam Lehman: Just Who Do The Data Paranoiacs Think We Are?
Mozilla Privacy Blog: Firefox getting smarter about third-party cookies
minimal rss reader
On the plus side, it does use Mozilla Persona, so no annoying password wrangling or online service lock-in.
Developed using the "write random crap until it basically works and then mostly leave it alone" methodology.
QoTD: Alexis C. Madrigal
The ad market, on which we all depend, started going
haywire. Advertisers didn't have to buy The Atlantic.
They could buy ads on networks that had dropped a
cookie on people visiting The Atlantic. They could
snatch our audience right out from underneath us.
A patent troll defense scheme
Depressing piece from RPX: Quantifying
the "Fight Hard" Strategy.
This kind of “fight
hard” stance against NPEs has always held tremendous
emotional resonance. Its economic foundations, however,
have been more elusive, and while dodging an
approximately $25 million dollar verdict – based on the
judgment of $2.5 million and a $.15/transaction running
royalty – is always cause for celebration, it is worth
noting that Newegg’s victory didn’t come cheap.
The big problem is that it's hard to
convince a troll that you actually have
a Fight Hard strategy and not a Put Up A
Fight And Then Settle Strategy. Eugene Kaspersky wrote,
From our (KL) side – we’ll fight the trolls
until the last round of ammunition (their round!). If
they attempt to just sneeze in our direction –
we’ll be back at them in a flash and take no
Kaspersky is credible because he has already done it. But are you? The troll probably figures that even if you want to fight hard, your board of directors will make you wimp out. So you won't get the same protection that a credible Fight Hard company has.
So here's a possible solution. Sign a contract with me, agreeing that if your company ever licenses from a troll or settles with a troll, you'll pay me ten times the amount first. You may not have established a credible Fight Hard position on your own, but you can show the troll that you don't have a viable alternative. (The contract will let you go out and license all the patents you want -- the protection just kicks in when an NPE contacts you with a licensing demand.)
I don't expect that any of my counterparties will ever have to pay me, but if anyone does, I'll figure out some productive troll-fighting things to do with the money.
Nuclear first strike?
Fortunately for advertising in general, Mike Zaneis has it wrong. Blocking third-party cookies would be a free gift to the advertising industry, because reducing trackability would raise the average value of online ads.
It's possible for both of these to be true:
This individual ad will have a higher click-through rate if we personalize it to the user.
Online advertising as a whole will be less profitable if we personalize ads to users.
Which makes it an interesting game theory problem. All advertisers would probably do better if nobody used creepy tracking on users, but if some advertisers track users and others don't, the ones who do might be at an advantage. As long as users believe that "online advertisers track and customize" the non-targeters won't get the credibility benefit they deserve.
Firefox fixing the problem at the client software level in a high-profile way is a win. Advertisers who are first to help with making "creepy tracking" harder will be better prepared for the new post-creepy Web.
Let's not get online advertising in general mixed up with specific creepy tracking techniques.
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