A back of the envelope analysis from Felix Stalder gives a sense of how little these ads are worth. Last quarter, Facebook reported that it had 1.32 billion users, collected $2.91 billion in revenue and made a profit of $791 million, for a profit margin of 27 percent. Facebook is clearly doing a great job making money from ads. But the profit per user is just under $0.60. That’s a fascinating figure, because Facebook reports that users spend 40 minutes per day on the site, or roughly 60 hours per quarter.
Stalder is interested in the idea that users are working for Facebook, generating content that the company profits from without getting compensated. But even if we ignore the important idea of “free cultural labor” that makes a business like Facebook (or Tripod!) possible, it’s striking that our attention, as viewers, is worth only a penny an hour to Facebook’s advertisers.
Don Marti uses the same set of Facebook earning numbers to demonstrate that print newspapers make roughly four times as much money in advertising as Facebook does in the United States. Print advertising generates these enviable, if shrinking, numbers despite capturing only about 14 minutes a day of Americans’ attention. This “print dollars, digital dimes” problem is an apparent paradox: Why are targeted digital ads worth an order of magnitude less than untargeted print ads, in terms of “attention minutes”? Marti argues that advertising in a public place, like a newspapers, builds brands in a way that private, targeted ads can’t. (I’ve argued that this is a legacy effect and that print ads will fall in price once there are efficient digital ways to reach the majority of consumers in a market.)
Cegłowski tells us that it doesn’t matter.
The poor performance of digital ads just makes investor storytime more compelling. After showing how poor YouTube’s targeted ads are in understanding him as a consumer, he explains, “Of course, for ad sellers, the crappiness of targeted ads is a feature! It means there’s vast room for improvement. So many stories to tell the investors.”
Most investors know your company won’t grow to have a billion users, as Facebook does. So you’ve got to prove that your ads will be worth more than Facebook’s. In 1997, I argued that Tripod’s users were more valuable to advertisers than the average web user because I could use algorithms to analyze the home pages they posted and target ads to their interests and demographic data. Facebook makes a vastly more sophisticated version of that argument, and faces problems much like those we faced almost two decades ago. Targeting to intent (as Google’s search ads do) works well, while targeting to demographics, psychographics or stated interests (as Facebook does) works marginally better than not targeting at all.
Demonstrating that you’re going to target more and better than Facebook requires moving deeper into the world of surveillance—tracking users' mobile devices as they move through the physical world, assembling more complex user profiles by trading information between data brokers.
Once we’ve assumed that advertising is the default model to support the Internet, the next step is obvious: We need more data so we can make our targeted ads appear to be more effective. Cegłowski explains, “We’re addicted to ‘big data’ not because it’s effective now, but because we need it to tell better stories.” So we build businesses that promise investors that advertising will be more invasive, ubiquitous, and targeted and that we will collect more data about our users and their behavior.
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I have come to believe that advertising is the original sin of the web. The fallen state of our Internet is a direct, if unintentional, consequence of choosing advertising as the default model to support online content and services. Through successive rounds of innovation and investor storytime, we’ve trained Internet users to expect that everything they say and do online will be aggregated into profiles (which they cannot review, challenge, or change) that shape both what ads and what content they see. Outrage over experimental manipulation of these profiles by social networks and dating companies has led to heated debates amongst the technologically savvy, but hasn’t shrunk the user bases of these services, as users now accept that this sort of manipulation is an integral part of the online experience.
Users have been so well trained to expect surveillance that even when widespread, clandestine government surveillance was revealed by a whistleblower, there has been little organized, public demand for reform and change. As a result, the Obama administration has been slightly more transparent about government surveillance requests, but has ignored most of the recommendations made by his own review panel and suffered few political consequences. Only half of Americans believe that Snowden’s leaks served the public interest and the majority of Americans favor criminal prosecution for the whistleblower. It’s unlikely that our willingness to accept online surveillance reflects our trust in the American government, which is at historic lows. More likely, we’ve been taught that this is simply how the Internet works: If we open ourselves to ever-increasing surveillance—whether from corporations or governments—the tools and content we want will remain free of cost.
At this point in the story, it’s probably worth reminding you that our intentions were good.