The great online-advertising swindle
Google and Facebook accounted for 85 percent of all new online ad spending in the first quarter of 2016. According to a Morgan Stanley executive, $1 of each $3 generated by online ads is fraudulent. Where does that leave Google and Facebook?
At least one advertising executive believes online ads have turned him and his cohorts into “liars.” That’s the conclusion of Bob Hoffman, who writes as the Ad Contrarian. Hoffman’s April 27, 2016, post asks whether the advertising industry can save itself. He concludes that it can, but only if it dumps “ad tech.”
That’s the part of the online-ad ecosystem that does the tracking and profiling of everyone who browses the Internet on a computer or phone, and increasingly everyone who uses a mobile app. Because of ad tech’s creepiness, the companies that buy ads don’t trust the people who sell them – ad-tech practices are under investigation by the Association of National Advertisers, as Advertising Age’s Alexandra Bruell reports in an October 20, 2015, article.
Some ad sellers are accused of taking kickbacks and “rebates” from ad buyers in a way that does a disservice to the sellers’ advertising clients, which include such big names as Proctor & Gamble, Unilever, and L’Oreal. This is cited as one reason why more and more companies are bringing their ad operations in-house, according to Hoffman.
But growing distrust by advertisers of ad agency practices is not the only threat to advertising as we know it. The consumers to whom the ads are targeted are using ad blockers in increasing numbers – more than 200 million people currently use ad-blocking software, according to anti-ad blocking company PageFair. The sordid reputation of ad agencies has caused a talent drain, according to Advertising Age’s Lindsay Stein in a March 21, 2016, article.
The heart of the problem, according to Hoffman, is that ad agencies turn a blind eye to the “astounding amount of fraud and irregularities” perpetrated by their comrades. The numbers they present to their customers are unreliable, and the agencies know it. Not only are online ads pure schlock from a quality perspective, they enable crime, as Advertising Age’s George Slefo reported in an October 22, 2015, article. Slefo cites a report by Distil Networks that found $1 of every $3 spent on online ads was fraudulent, totaling $18.5 billion in fraudulent ads each year.
According to Forensiq CEO David Sendroff, the fraud takes three forms: the ad networks fake mobile traffic; they hijack devices and fill ads in the background; and they rejigger programmatic ad-buying systems to indicate they’re serving more ads than are actually viewed.
A threat online ads pose to consumers is the risk of being infected by malware delivered via an advertisement. In an April 11, 2016, article, Ars Technica's Dan Goodin reports on a recent "malvertising" attack on several of the Netherlands' most-popular sites. The attack used the same exploit kit that was spread one month earlier through ads displayed on such sites as the New York Times, the BBC, MSN, and AOL.
Who likes online ads? Nobody but Google and Facebook
The ad agencies routinely cheating their advertiser customers isn’t the worst result of the growth of ad tech, according to Hoffman. What’s more damaging is that online ads have “dismantled an edifice of reasonable trust between us and the rest of the world.” Get rid of ad tech’s invisible, insidious tracking and profiling, and consumers will be happy, advertisers will be happy, and the ad industry will be happy, Hoffman claims.
The only ones who wouldn’t be happy to see ad tech wiped from the face of the earth are Google and Facebook. John Herrman of the New York Times writes in an April 17, 2016, article that the two companies accounted for 85 percent of all new online ad spending in the first quarter of 2016, according to figures compiled by Morgan Stanley.
The current sad state of news media is the result of online advertising, according to Mother Jones CEO Monika Bauerlein and Editor in Chief Clara Jeffery. In an April 28, 2016, plea for donations to the non-profit magazine, Bauerlein and Jeffery point out that the number of working journalists in the U.S. has declined precipitously in the past 10 years. When you work the online-ad math, the reason becomes obvious.
If a reporter writes five articles each week, and each of those stories attracts 50,000 readers, the reporter will generate $2,500 in revenue that week – and that’s assuming a “very generous” rate of one cent ($0.01) per page view. That $2,500 per week adds up to $130,000 per year, from which the reporter’s salary, benefits, and overhead must be paid. Ask any company how much it costs to support one in-house office worker for a year (technology, sales and operations support, equipment, office leases, travel, and on). Overhead alone can total more than half of the revenue a reporter generates.
Advertising simply can’t support a first-rate online news operation, no matter how much spying, profiling, and personal-info reselling the ad networks do. As Bauerlein and Jeffery conclude, “the only way a free press can be paid for is by its readers.” The challenge is to overcome the inveterate reluctance of consumers to pay for the stuff they read and view online.
Ad-blocker vendor teams with site-payment service
In the “agonizingly slow realization” department, people appear to be wising up to the fact that most of the free content on the web is worth precisely what they pay for it. (Last week’s Weekly described the low opinion of ad-supported news sites held by industry pundits such as Verge and Vox Media co-founder Jeff Topolsky.)
Eye-o, the makers of the popular AdBlock Plus ad-blocking extension for browsers and mobile phones, announced this week that it will work with a company called Flattr to create a product that allows people using the ad blocker to pay the sites they visit for the content they read, view, listen to, or otherwise consume there. Tech Crunch’s Anthony Ha reports on the companies’ plans in a May 3, 2016, article.
Flattr Plus works by having users designate an amount of money they want to budget for online content each month. The product tracks their activities and automatically pays sites from the user’s account based on the person’s “engagement.” As Ha points out, calculating that engagement is “tricky.” What if the article is worthless, but you leave it open and unread for hours? Another potential stumbling block is that publishers have to sign up for the service to receive any revenue. If they haven’t signed up, they’ll receive only a notice of how much they could’ve been paid.
An AdBlock Plus executive states that the company’s customers have been asking for a way to block ads while also supporting the publishers of the sites they visit and apps they use. A product such as Flattr Plus is intended to provide them with just that opportunity. Whether they put their money where their eyes and ears are will be determined in due time.
Anti-ad blockers face a serious legal challenge in Europe
The battle between online ad networks and ad-blocking proponents took an interesting turn when European “privacy activist” Alexander Hanff filed a complaint with the EU Commission claiming that interfering with ad blockers violates the EU's ePrivacy Directive by failing to get users’ consent beforehand. TechDirt’s Mike Massnick reports on the complaint in an April 21, 2016, article.
The ePrivacy Directive, also called the Cookie Law, requires that sites receive users’ explicit permission before placing a tracking cookie on their systems. When an anti-ad blocking service runs a script on a user’s machine intended to detect whether the person is using an ad blocker, it is doing the same kind of client-side spying that cookies do. Hanff claims that a letter from the EU Commission in response to his complaint indicates that the commission agrees with his assertion.
It's uncertain whether the ad-blocker-detection script does indeed violate the European cookie law, but if it does – and Hanff claims to be readying legal action in several European Union states – the anti-ad blocking contingent would need a user’s permission before the script could run, and the user could theoretically prevent the script from running prior to viewing the page’s content.
The online advertising industry is attempting to prop up a revenue-generating system that works only for a handful of very, very large Internet companies. It doesn’t work for advertisers. It doesn’t work for consumers. And it doesn’t work for the vast majority of players in the advertising industry. What we have here is a lose-lose-lose proposition – unless your name is “Google” or “Facebook.”