How Google, Facebook, and Twitter make billions by offering 'free' services
Google has the third most valuable brand in the world: $56.6 billion, according to Forbes' May 2014 listing. The company has a market cap of $382.47 billion, placing it third in the world in market value as well. (Topping the list of valuable brands is Apple, whose brand is valued at $124.2 billion, followed by Microsoft's at $63 billion.)
Forbes places the Facebook brand as the 18th most valuable in the world, worth an estimated $23.7 billion. The company's market cap is a mere $159.27 billion. While Twitter didn't make the Forbes list of the 100 most valuable brands in the world, the company's market cap has grown to $31.73 billion.
It's no secret that these and other purveyors of free (or mostly free) Web services make their money by selling ads. As is often the case with technology companies, much of their value to investors is in their potential to continue their steep revenue increases. But there's trouble brewing in the online-ad world: we're getting adept at blocking and otherwise ignoring the ads.
Still no fool-proof way to measure an ad's effectiveness
The fabled 19th century retailer John Wanamaker is quoted as saying, "Half the money I spend on advertising is wasted; the trouble is I don't know which half." For many years online advertisers have claimed their ads are more effective at getting people to buy their products and services because they are targeted to the viewer's specific "tastes and preferences," as Benjamin Dean puts it in a November 25, 2014, article on The Conversation site. The advertisers learn our tastes and preferences via tracking cookies.
It turns out that targeted advertising is now less effective than old-fashioned direct-mail ads. Dean points out that click-through rates on banner ads have fallen from 7 percent in 1996 to 0.15 percent today. As more people block third-party cookies, the advertisers have less information to use to guess what we're most likely to want to buy.
Social networks trump these abysmal click-through stats by stating that their ads are even more personalized than those served up by online ad networks. According to Dean's research, these claims don't hold up, either. Dean analyzed the data from three of Facebook's ad partners (the company doesn't release any click-through data itself) and determined that the social network's ad click-through rate was even lower than that for banner ads from 2009 to 2012: 0.08 percent. The rate increases to 0.2 percent in subsequent years, but that's still only one person in 500 responding to each Facebook ad.
Mobile ads to the rescue?
The click-through numbers are much more favorable to companies that place ads on mobile devices, as Ben Osman reports in a February 18, 2014, post on Coull.com. Osman's research indicates that click-through rates for ads on the Facebook newsfeed increase from 0.12 percent on desktops to between 3 percent and 6 percent on mobile devices. Likewise, video-ad click-through rates jumped from 4.25 percent on desktops to 11.8 percent on mobile devices.
Bean tempers these rosy numbers by pointing out that just as click-through rates for banner ads plummeted once people realized they weren't of interest, the same decline is likely for video ads as we come to the same conclusion about them. It's beginning to look like the ad model won't support the revenue growth Google, Facebook, Twitter, and other free Internet services need to remain profitable.
One way the companies are responding to the cloudy outlook for ad revenue growth is by focusing on "app install ads." TechCrunch's Josh Constine explains in a November 30, 2014, article that as app stores become more cluttered with titles, developers look for new ways to get people to notice their products. If they can't get their app listed on one of the top-selling lists at Apple's App Store for iOS or Google Play for Android apps, they're lost in the crowd.
Constine points out two big advantages of app install ads: apps are inexpensive and easy to buy, so impulse buys predominate; and the purchases are easy to track on the mobile devices. By contrast, it's difficult to determine when an ad for Coca-Cola led to someone buying a can of the soda.
Mark Zuckerberg is quoted by Constine as stating that app install ads helped Facebook increase mobile ads' share of the company's total revenue from 23 percent to 30 percent in 2013. Likewise, 65 percent of Twitter's ad revenue in 2013 was from mobile devices.
Making money by selling what they know about you
Ads aren't the only source of revenue for Internet services. The Conversation's Dean reports that Facebook has begun to package information it gleans about its users for sale to media companies for use in their political analyses and other areas. Politico's Hadas Gold describes Facebook's data-mining operations in an October 30, 2014, post.
It didn't take long for other studies to bring into question the value of social-network data mining. In a November 28, 2014, post, Computerworld's Kevin Fogarty cites a study reported in the journal Science that debunks the accuracy of the resulting analyses. Derek Ruths of McGill University and Jurgen Pfeffer of Carnegie Mellon claim that in "smoothing" the data it loses its context and is generalized to the point of inaccuracy. For example, attempts to determine users' political affiliation based on their posts are at best 65 percent accurate, not the 90 percent many other sources have claimed.
If the companies can't make enough money to generate a profit from ads, and their data-mining operations aren't able to attract buyers of market intelligence, where do they turn for the new revenue streams they need to survive? I'm sure they'll figure something out.
The U.S. Centers for Disease Control's Morbidity and Mortality Weekly Report isn't what most people would consider required reading. Sometimes, however, the report can actually be downright inspirational.
For example, last week's report shows that the number of people in the U.S. who smoke cigarettes daily declined from 16.9 percent in 2005 to 13.7 percent in 2013. The number of cigarettes each person smokes per day is down as well. Mother Jones's Kevin Drum examines the smoking decline in a November 28, 2014, article.
The CDC report indicates that smoking is more prevalent among gay people than in the general population: 26 percent of gay people smoke, compared to 17 percent of all adults in the U.S. However, the CDC points out that the discrepancy could be due to the survey methodology, which relied on self-reporting and may not have accurately categorized "lesbian, gay, and bisexual."
If you're a smoker who would rather be an ex-smoker, check out the U.S. Department of Health and Human Services' Smokefree.gov, which is jam-packed with resources to help you quit. The American Cancer Society offers a Guide to Quitting Smoking
Long arm of the law nabs 118 online credit-card thieves
It may be a drop in the bucket, but it's still reassuring to know that not all Internet criminals go unpunished. In a November 28, 2014, article on the SecurityWeek site, Eduard Kovacs reports that the recent "Global Airport Action" involving law enforcement agencies around the world led to the arrest of 118 people accused of using stolen or false credit cards to purchase airline tickets online.
The operation entailed 60 airlines operating in 45 countries, as well as the International Air Transport Association and all the major credit-card companies. The IATA estimates that the airline industry has lost $1 billion due to fraudulent online ticket purchases. Of course, those losses are passed on to us customers in the form of higher ticket prices, smaller seats, bag-check fees, and innumerable other minor indignities. So much for the friendly skies!
The other day I was remarking to a friend that I'm spending much less time writing, reading, and (most importantly) deleting email than I used to. Yet reports persist that claim workers spend as much as one-fourth of their workday handling email.
Facebook co-founder Dustin Moskovitz has made it his mission to convince the world that email has peaked and will soon be obsolete. Wired's Marcus Wohlsen reports on Moskovitz's anti-email campaign in a January 21, 2014, article. Moskovitz left Facebook in 2008 and founded Asana with the goal of creating a more efficient way for workers to collaborate.
Taking the counter argument is The Atlantic's Alexis C. Madrigal, who posits in an August 14, 2014, article that email is the Internet's best feature. The reason for email overload, according to Madrigal, is that the technology is being used for purposes that it may not be well-suited to, such as document sharing and project management.
Could email evolve (or devolve) into the role for which it was conceived originally: letter writing? Imagine that!