At first glance, the tech giants don’t seem to have much in common. Google delivers information quickly. Metta connects you with friends and family. Amazon is a store. Apple makes phones and computers. Microsoft is all about business software.
But under the hood, they’re united by advertising, which author Tim Hwang calls “The Internet’s Heart of Darkness.” Subprime attention crisis. 80 percent of Google’s revenue comes from ads it places next to search engine results, before pages on the Internet and before YouTube videos. Meta makes more than 90 percent of its billions in advertising revenue. Amazon has the third-largest share of the U.S. ad market, as it charges independent retailers on its site. And although few people think of Microsoft as a company that profits from digital ads, it does, in fact, make billions from them every year.
Even Apple, which prioritizes user privacy as one of its selling points, is in on the advertising game. Advertising accounts for nearly $4 billion in annual revenue, according to research firm Insider Intelligence. The entire online advertising industry outside of China was worth about $500 billion last year, data from Omdia shows, with Google, Meta, Amazon and Apple believed to have taken $340 billion of that. Traditionally ad-averse companies are also finding their way in: After resisting ads since its inception, Netflix introduced an ad-supported version of its streaming service last year, as did Disney+.
Much of the internet is changing: social media feels less relevant than ever; Generative AI threatens to disrupt everything – advertising remains an inescapable business model. That’s a problem, because digital ads are terrible. Users hate them, they are easily exploited by fraudulent schemes, and they encourage controversial business practices like tracking. They also may not work well: studies suggest that most users ignore them, and roughly one-third of display-ad clicks are believed to be accidental.
But the ad-supported Internet is getting worse. Many publishers are motivated to generate as much content as possible for as many audiences as possible at the lowest possible cost. (That’s why they push so many formulaic posts out in droves, trying to make endless margin ad profits.) How old is this actor? Who is his wife? What is her net worth? Articles.) Now we can add more articles written by programs to this home fluff. In the age of ChatGPT, the future will see low-quality content automatically generated, “read” by other algorithms as they train themselves, and bots fraudulently generate ad clicks – an algorithmically created “grey go” internet, for algorithms, and removed by everyone with a pulse. Ads already make the internet useless; When we are forced to walk through the mud, the effect increases.
It is a problem that we urgently need a solution to. The internet as we know it relies on ads, but no one feels like they’re getting the best out of it. The web is critical infrastructure, but its financial foundations are alarmingly shaky.
With loads of conflicting ads loading, auto-playing videos and hard-to-get-away pop-ups that occasionally lead to accidental clicks, you’ll no doubt know that text pages drag you to where the loading stops. Very few of us intentionally see, let alone click on, online ads. Less than 1 percent of people who see ads placed next to content click on them, on average, and about 40 percent of Internet users in the U.S. employ ad blockers. The result is an online arms race, as the more determined ad networks vie to get their inventory in front of the public’s unwilling eyeballs.
One solution for the tech giants is to better match advertisers with consumers through improved targeting. This is often a win-win situation: we get more ads to appreciate, brands get better results from their campaigns, and both the website we visit and the ad network make more money. But the reality is very different. Targeting is not about optimizing the user’s ad experience. Showing high-value ads to users who match the advertiser’s criteria. In practice, this means that when you visit a site, it looks for identifying information about you and determines which list has the highest value.
For example, it can identify whether you are browsing a website from the US, whether you are currently logged into your Facebook account, and whether you are a regular reader of what we call a premium newsletter. Economic Times Journal. That last piece of information is the most valuable of the two: on average, readers of this publication have a salary significantly higher than the general American population.
This means you may even get an ad for a more premium product, even on a junk clickbait site, than someone who only got to the first two accounts. But this creates problems for the publication itself: the home page is now the most expensive place on the Internet for advertisers to reach their readers. Why pay to advertise there if users can find it cheaper when they browse elsewhere?
The result of this practice is a conflict of interest between the Big Tech companies that run the ad networks and their clients, relentlessly tracking users on the Internet, with perhaps dozens of different trackers looking to make money from advertising on any given site.
So-called artificial intelligence search, powered by large language models like GPT-4, will exacerbate this conflict as they allow Bing and Google AI assistants to serve up information from across the web on their own pages. Less reason for publishers to click.
Nowadays, if someone searches for information on a publisher’s website, the search engine makes some money by displaying ads next to the search results. If AIS scrapes and scrambles the key information, rendering the visit unnecessary, only the search site benefits. This is a legal gray zone—the information can’t be copyrighted, but the specific phrases can be—and it’s set to spark a new showdown between tech and content, once again who gets the ad dollars.
AI’s monkey wrench is being thrown into the machinery as regulators take a closer look at the digital advertising industry. Google faces an antitrust lawsuit over its advertising business, led by the Justice Department and joined by a consortium of 17 states.
Most of the previous charges were easily dismissed by Big Tech. Because of the companies’ scale, multibillion-dollar fines themselves are rare, with little to no cost to doing business. At this time, In an unprecedented move against a tech giant since efforts to target Microsoft in the 1990s, the DOJ wants to crack down on Google’s ad technology business.
The existence of this type of clothing can change the calculation of the business model of technology. This is especially true as European regulators begin to make more aggressive use of the Union’s strict data controls; After all, the EU has a larger population than the US and is one of the world’s largest markets. Meta was fined $414 million by the Irish Data Protection Commission for breaching privacy laws earlier this year.
There are signs that Big Tech is adjusting its model. Last year, Elon Musk paid $44 billion for the company, which made 90 percent of its revenue from advertising. It’s a model that Musk has frequently and openly criticized (Tesla doesn’t advertise it prominently, though that could soon change) and he quickly sought to replace Twitter Blue with an $8-a-month subscription model. A key part of Musk’s pitch to users who pay $8 a month is cutting the number of ads they see on Twitter in half. (Internal documents show that these economics don’t make perfect sense: The top 1 percent of Twitter users spend $40 a month in ad revenue. Twitter now makes about a third of what Musk pays.)
Elsewhere, Mark Zuckerberg has staked his company’s future (and even its name) on the Metaverse, an immersive world where fans hope for new ways to not only display ads, but to sell and trade virtual goods, including digital real estate. It didn’t fully explode. Amazon has made a big bet on Alexa as a new ecosystem users can connect to, but it has failed to monetize it. The crypto boom was overhyped in part because venture capitalists believed it would revolutionize how businesses made money online; It crashed and burned.
At some point, something new comes along – it always does. But new business models, let alone technological breakthroughs, rarely appear in demand. Also, they never benefited the graduates of the previous era of cutting edge technology. The Kodaks of the world had a lot to lose as their large but shrinking print business was increasingly phased out to digital, and they went down.
Tech companies that are heavily involved in the advertising industry hope this time is different. Advertising was the engine that propelled them to worldwide fame and unbelievable wealth. Now that they heard the engine sputtering, they were left wondering what to do. Will they restart or accept that they are set to spend their future in a stagnant state?
as if Tim Huang
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