Robin: I was reading and now I’ve forgotten all about it, but I do remember your ruminations on targeted advertising and overtargeted advertising, and if targeted advertising was that good, we’d all love spam, wouldn’t we?
Don: Well, everything they are saying about hypertargeted internet advertising now is exactly what Sanford Wallace the spam king was saying about spam in the late ‘90s, and if he’d been right then, we could have had everything that the ad tech companies are promising on the email spam platform.
Robin: That’s right. And I noticed that let’s say I go through and I looked at like for this phone, I looked at a cheap phone, I saw that, and now I go to read oh I don’t know Slashdot, and my god, off to the side, there is an ad for that phone, right?
Don: Yeah. It is one of those things where in a typical advertising connection with the company, the company is asking you for attention, but they are really giving you a lot of information by the fact that they are choosing to advertise that product, the fact that they are choosing specific places to advertise it, and the amount that they are throwing at it. Let’s say you are a company CIO and you are looking to invest for years in the exampleware platform, or even if you are an individual buying a cell phone and you are looking for years and years of apps and content on a phone platform you really want the companies to send you an accurate signal about how much they are putting into that platform for the future. If a company is able to target specific individuals, people who might already be invested in a platform, and blow up their signal artificially then there is no real reason for you to look at advertising any more.
Robin: Ah, okay, so does that mean more people I’ll never use an ad blocker, because I make my living writing for ad supported sites, and if I did use an ad blocker I wouldn’t admit it.
Don: Well, when I was working for ad supported sites I always ran an ad blocker because I didn’t want to be fair or unfair to a particular company depending on who’s advertising on the site, so if somebody said, “I can’t believe I saw the ad that example.com placed on your website,” I’d say, “Well, look I am on the editorial side, in order to be fair, I don’t look at any of the ads.”
Robin: Yeah, but now I am finding that if I had an ad blocker, I am not saying I do, but let’s say I went to the Washington Post website, it doesn’t work – I see the ads – what’s up?
Don: Well, there are two kinds of ads. It is interesting that you bring this up, because the Wall Street Journal and the New York Times are starting to fall back on what you might call first party advertising. I run a tool called disconnect.me which is a nice privacy tool that helps protect your information from third party trackers, and that tool as a side effect, blocks a lot of the third party advertising. But when I go to nytimes.com, there are a lot of ads that show up on the home page, and those are the ads that aren’t coming from those big third party ad networks, but they are coming from the nytimes.com domain. The Wall Street Journal is doing something similar.
Robin: So what you are saying is going back to, as we did in the old days, serving the ads from their own servers.
Don: Exactly. I don’t know if you have seen the TV show Mad Men where they are going out and drinking; well, it is the old 1960s advertising business, they are going out drinking and billing it to their client, they’ve got big expense accounts, they’ve got super deluxe offices, and you look at that advertising world and you compare it to everybody on a laptop type of ad world of today, and you think, “Wow! We must be so much more efficient today with the internet. The internet makes everything more efficient, doesn’t it?”
Robin: But not as much fun. Come on, Don, l mean let’s face it. I would love to take you out for a big boozy expense account lunch or something.
Don: Well, look at the actual numbers then. Something really interesting that Tim Armstrong the CEO of AOL came up with is today publishers are getting about 25 to 45 percent of what advertisers spend. Back in the
Robin: Wait a minute, you are talking about paper publishers?
Don: I am talking about online publishers.
Robin: Oh online? Okay.
Don: Online publishers, they are pulling down 25 to 45 percent of the advertiser’s budget. Go back to Mad Men days with the deluxe offices, and the free martinis and all that good stuff – those guys were letting the publisher have 85 percent while the agency pulled in 15 percent. So in this case, and it is something that makes you think of it as a bubble because it is way too much money chasing way too little value. In this case, we’ve got the internet making something dramatically less efficient because a lot of the people who are involved in ad tech and targeted advertising don’t really understand what advertising is for.
Robin: And it is for
Don: Advertising is for signaling. When a company is selling a product to people, potential buyers, the seller always has way more information than the potential buyer does. So if you are a buyer of a used car, you don’t know the maintenance history of the car, you don’t know if the seller tried to change his own oil and the oil all fell out, and you put the oil back in, but the car is trashed; in almost every situation, the buyer doesn’t have the good information that the seller does. So sellers have to come up with signaling mechanisms to say, “Here’s a credible way, here’s a credible piece of information we can give you that shows we back up this product.” And spending money on advertising, making an investment that will become worthless if that brand name item turned out to be low quality, is one of the ways that they do it. And they spend a lot.
Robin: Now wait a minute, wait a minute, so you are saying that Ford should not have advertised the Pinto as there was a dog that killed people.
Don: Ford should have built a better car. We all know that.
Robin: Well, yeah.
Don: And advertising in the short run can help with selling a deceptive product. If you look at the best example is the ads in comic books, right? Everything you see advertised in a comic book is probably crap. There are sea monkeys, which are really brine shrimp; there are x-ray specs which are these cardboard goggle things that totally don’t work. The ads in comic books are reaching a continually turning over audience of kids who are having their initial experiences with advertising. And they are getting ripped off.
Robin: Well, I am 60 years old, right? Which mean I have been seeing those ads for 55 years, more or less. I started reading well at age 5, as you probably did too, and we are on Slashdot where that’s common, it doesn’t mean we are special in this group, but I remember the sea monkey ads, a friend of mine bought those, and what they were doing I think was teaching us that ads are lies. Isn’t that It is not what I am catching on here?
Don: Well, the informational content of the ad has very low value. People don’t write the ads for the information on the page. So Vogue magazine just had their second biggest advertising issue ever which is something to think about, (I am going to come back to talking about print ads later on)Vogue magazine just had their second best issue ever.And yes, the advertising photography is beautiful in that magazine. And yes, the outfits are great, the people are good looking.But really if you are in that business, you are looking at the ads, you are counting pages, you are seeing how strong is this company’s confidence in their collection for this year - how much are they putting behind it. And it is an important economic signal that a targeted ad just doesn’t care. That’s why print advertising still brings in such a high percentage of the total advertising market compared to the number of minutes that users spend with print.
Don: If you look at Mary Meeker, from Kleiner Perkins... she collects this kind of numbers on different ad media every year. In the last one, print media accounts for 6 percent of the time that users spend with media. But it is 23 percent of ad budgets. So why does print carry so much more weight than online ads that can be so well targeted to the individual? The answer is print is more valuable because it is not targeted. And because it is not targeted you can see what the advertiser’s overall intention is, not what’s the message that they are trying to send to a specific person.
Robin: Okay, so what you are saying is the message that we should be getting from advertising is that this vendor believes in their product enough to spend a big part of money on it advertising it.
Don: That’s right. Rory Sutherland compared it to a racehorse owner betting on his own horse.
Robin: Yeah, and if they bet against it, you see them at the window, you are going to worry, right?
Don: Right. If you see an owner that has multiple horses, and they are betting on one, but not the other, then they are likely to know something about that horse that you don’t. It is the classic problem that buyers and sellers have of information asymmetry.
Robin: Okay, now here’s a weird thing, people: Don Marti here, now we know him primarily as a Linux guy, he is writing about Linux he is an advocate in Linux Today and Linux Journal and so on and so forth, and that’s where at least I know him from, and am highly respectful. How the heck you go from writing about and learning and spreading the Linux gospel to advertising philosophy?
Don: Well, I came at it from the internet security point of view. When I was setting up infrastructure for companies, I was realizing that as ads become better and better targeted you may not want to be leaking information about your employees’ interests outside the firewall. If I’ve got 50 employees who are working on a new product, and a third party advertiser can see which content sites they are going to, there could be a lot of information leak that’s going on that I am uncomfortable with.
Robin: So all those Microsoft employees going to Apple and to their ordering pages, right?
Don: Well, Microsoft is one of the biggest Apple’s ISVs. Microsoft saved Apple back in 1997 when they invested and agreed to continue supporting Microsoft office on the Mac platform. Those two companies are joined at the hip - it is a desktop duopoly.
Robin: Okay, that’s why we just said there are proprietary operating systems, that I never differentiated between them, but now today, so you got into it from the security, and the security in what we now call big data census, is that what you are telling me?
Don: Yeah, and big data is the trendy name for it now but there have been a lot of other names applied to this kind of taking marketing and trying to make it more mathematical. It goes all the way back to direct mail and junk faxes, email spam of course. The idea of trying to get a bigger marketing budget by skewing math is an old one.
Robin: But it doesn’t work.
Don: It doesn’t work as well as a credible signal. Because users expect a fair exchange. If you are in a conversation, if you are in a truly informational selling situation then both the buyer and seller are asking for attention, and both the buyer and seller are providing information.
Robin: Hold on. We are going to cut that out. We are going to cut that out because there was some noise.
Don: Oh yeah, there is somebody here, let me check my schedule.
Don: Yeah. I don’t see anyone else having the room, but hold on, let me check who has it.
Robin: Not a problem. I am going to cut this.
Don: Okay, yeah, there are going to find another conference room. It wasn’t on the board when I came in.
Robin: Okay. We only need another couple of minutes here. People who are dumb, ba, ba, ba, okay with targeting, some targeting is obviously useful and healthy. Like for instance, you don’t want to advertise dog collars in Cat Fancy magazines.
Don: That’s why print is so great. Because print is divided up into many, many niche magazines. You can buy an ad in fine woodworking, you can buy an ad in a hamster magazine, you can buy an ad in successful farming. And print has the sweet spot of awesome, because you can target your ad to the content. But because you can’t target the ad to an individual user it carries a bigger signal.
Robin: But couldn’t you do the same thing online? I mean Violinist is a website, you can tell who the target is, and she is a nice lady who runs it, and there is a Theme Park Insider which is run by the husband of the woman who runs Violinist – I know them both. And obviously, I know Theme Park Insider he gets ads from guess what, not targeted you know, by little bits but people who go to Theme Park Insider.
Don: Absolutely. And sites like that remember, publishers are only getting 25 to 45 percent of ad budgets these days, because of all the intermediaries, all the ad tech, in between the original advertiser and the content site. If we are able to clean up some of the privacy problems with browsers, especially how browsers handle third party cookies, third party java script if we can fix some of those privacy problems with browsers, then the web can start to work more like print and be more valuable as a medium overall.
Robin: Okay, but couldn’t an online publisher do that right now, by just saying to advertiser, “Look” and we have a website, there is one, there is big bulletin board for Jeep Cherokee owners, I am a Jeep Cherokee owner, I go to it, I exchange maintenance tips with the other Cherokee owners. And there are ads on that site, for parts and things. And I believe that the owners of the bulletin boards sell those direct. So isn’t that there already now?
Don: It is, but the publicity around internet advertising for which the Wall Street Journal’s What They Know series was kind of the big coming out party for awareness of targeting. The fact that targeting is possible in the medium makes users just trust ads in the whole medium even when the individual site and the individual advertiser are trying to send a high quality signal. So the problem of lousy privacy policies in browsers cause the most trouble for those legit sites that are carrying strong signal advertising. As the browsers improve their privacy policies, then those ads that are targeted by content are going to regain their signaling value.