Don Marti

Sun 03 Jun 2012 07:46:42 AM PDT

Creepiness and conventional wisdom (part 1 of a series)

The whole idea that increasingly user-targeted advertising becomes less effective is starting to get some traction. Richard Stacy points out the essential differences between advertising and social, which is really important. (People who treat social sites as just an advertising venue are probably doing them wrong, whether it's as an individual Klouchebag or as a brand.)

Anyway, time to fill in the some details on the advertising targeting problem.

The conventional wisdom about online advertising is that creepier and more efficient tracking of users is somehow going to bring in way more money. Somehow this goes without saying, and it's the line of thinking that always gets dragged out when people start discussing online privacy. Latest example from James Ball in The Guardian:

"It's a hit-and-miss process which at the moment, frankly, usually misses. But better handling of user data and tracking, and the better adverts that would result, is the great hope of most websites looking to make money from free and open access."

The unquestioned assumption is that increasingly accurate user tracking is going to enable the targeted advertising fairies to bring web sites increasing amounts of money. (Remember when it was going to be micropayments fairies?)

Meanwhile, have a look at Mary Meeker's Internet Trends 2012 presentation (PDF). Slide 17. What is going on with with "print"? Seven percent of people's time, but 25% of ad budgets! Why is a legacy medium, that's almost entirely untrackable, still outselling an online advertising industry that's having a boom/bubble?

old black-and-white photo of newsboys

What does print have that online doesn't?

What print has is the sweet spot of awesome: it's easy to place your ad based on content, but hard to track individuals.

Hard to track individuals? That's a good thing?

It looks like it is, and it takes a little time to explain why, so here's why this is a part 1. We've got a few steps to work through here. So let's start with a couple of key pieces of reading.

I can't give you a link to the first one, but check your local library or borrow a copy. Here's a citation:

Akerlof, George A. (1970). "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism". Quarterly Journal of Economics (The MIT Press) 84 (3): 488–500.

There's a summary on Wikipedia. (Some college Economics departments have a little trouble setting up the access controls on the web sites where they put up their reading assignments, but I'm sure that doesn't concern you.) This paper helped Akerlof win the Nobel Prize in Economics.

Let's say you have a car that runs fine for now, but that you know won't last long because of the time with the attempted oil change and the drain plug you found in a pool of oil in the driveway and you cleaned up all the oil with kitty litter but...anyway, you know things about the car that a buyer couldn't, without an expensive engine teardown, and you're looking to sell. Meanwhile, a seller of a perfectly good, but indistinguishable, car is also trying to sell, but can't charge a price any higher than what you're willing to accept for your "lemon."

If you don't do something about it, prices get set by what people will pay for the worst possible car, nobody trusts anybody, and the market tends to break down. So the thing to keep in mind when reading this paper is: how does anybody manage to get any business done at all? Dr. Akerlof wrote later, "Indeed, I soon saw that asymmetric information was potentially an issue in any market where the quality of goods would be difficult to see by anything other than casual inspection. Rather than being a handful of markets, the exception rather than the rule, that seemed to me to include most markets."

If you don't like the used car example, the market for computer programmers is another tough one. How do you find someone who doesn't just interview well and blitz through programming puzzles, but can actually add value to a complex project?

As far as I can tell, anybody who buys or sells anything has to spend a lot of time getting around the asymmetric information problem. We have all kinds of solutions and institutions for that, from guarantees, to online ratings, to (for the computer programmer example) "social" coding. (It's not just social, it's Brand You.)

The problem with solutions to the asymmetric information problem is that deceptive sellers learn new tricks too. Buyers and honest sellers get one thing figured out, and the deceptive sellers come up with something else.

Just as an example, on a large scale, platform vendors act toward their individual customers just as deceptively as individual sellers of defective used goods. Or more so.

The cute startup is going to sell out to a legacy vendor that moves support to an understaffed call center.

The established Enterprise vendor is going to switch out the operating system on you, making your latest order of servers into "boat anchors."

The media format that you bought your book, movie, or music collection in is going away, with no way to copy over to a new format.

More and more buying decisions, even for individuals, are not just "Consumer Reports" level product selection decisions, but CIO-level platform investment decisions. (People are always on about the "consumerization" of IT, but the corresponding trend on the other side is the "CIOization" of home infotainment shopping.) Seller-side deception is alive and well, and a hard problem.

Anyway, more in part 2, and here's a bonus link: This Tech Bubble is Different by Ashlee Vance. Great quote from former Facebook "scientist" Jeff Hammerbacher: "The best minds of my generation are thinking about how to make people click ads. That sucks."

Part 2