Opaque markets, in short, allow expectations about a market to diverge from reality. On the one hand, things can get a whole lot worse without anyone knowing. On the other, conflicted players can overheat the market without being checked. This divergence between rosy outlooks and structural vulnerabilities is kindling for crises of confidence. When a hot, overpriced commodity is discovered to be effectively worthless, panic can set in, causing the market to implode.
Closely examining the state of the programmatic advertising marketplace makes it clear that these dynamics are very much in play in the economy of the web. The online attention marketplaces that underwrite the internet might have inherited not only the structure of modern financial markets but the pathologies of those markets as well. The seemingly endless growth of the modern-day advertising giants of the web may rest on shakier foundations than might initially appear.
3Opacity
The advertising industry has long struggled with a simply stated but deeply complex question: Does advertising work? In other words, how does one really know that the advertising messages being broadcast actually influence the great mass of browsers, readers, and listeners out in the world? Traditionally, this struggle has been summed up by a pithy adage often attributed to John Wanamaker, an early advertising industry pioneer, who noted that “half the money I spend on advertising is wasted; the trouble is I don’t know which half.”1
To the outsider, this long-standing institutional ignorance can seem a bit puzzling. After all, one would think that making reasoned judgments about what types of advertising work and don’t work is the primary job of the marketer, and the marketing industry as a whole.
It turns out that this is a much more difficult task than it might initially seem. Imagine you have to promote a new brand of cereal. You want lots of people to know about this new cereal, so you pay to put up a billboard right next to a busy highway. You might know roughly how many people pass by that billboard based on traffic statistics, but that doesn’t tell you anything about who noticed the advertising, who was influenced by it, and whether it did anything for the cereal. You might find that cereal sales increased after the billboard went up, but how can you ever know whether the sales were due to that billboard? A person who saw the billboard and then later bought the cereal might have picked it up on a whim at the supermarket, or been persuaded to try it by a friend. There’s simply no way to know whether the billboard played a role in the purchasing decision.
In contrast, online ads are traceable, trackable, and thoroughly quantified. This has been a selling point for digital advertising since the very beginning. Google’s early nemesis GoTo—later renamed Overture—claimed in the early days of programmatic advertising that “[online advertising] is one of the few truly measurable media.”2 Google’s then CEO, Eric Schmidt, would claim in 2008 as the AdWords product was taking off that the company’s growing profits were attributable to its “system [being] better and more measurable than other forms of advertising.”3 Wanamaker’s law appeared to have met its match.
The popular press covering the internet often echoed this opinion. In 1998, Wired magazine opined that “the Net is accountable. It is knowable. It is the highway leading marketers to their Holy Grail: single-sourcing technology that can definitively tie the information consumers perceive to the purchases they make.”4 This claim was repeated almost a decade later in 2006, when The Economist declared an end to the “Wanamaker era” of advertising, arguing that the internet was giving rise to a world where “advertisers pay only for real and measurable actions by consumers, such as clicking on a web link, sharing a video, placing a call, printing a coupon or buying something.”5
That the internet affords a quantity of information inconceivable to earlier generations of advertisers is indisputable. A complex ecosystem of data brokers, tracking cookies, and surveillance now enables advertising to be precisely targeted, and the results of that advertising to be monitored. Today, an advertisement can be easily targeted to a specific audience defined by an incredibly granular set of characteristics, from race and gender to income and location. Ads delivered online can track how long the ad is viewed, when it is seen, and how soon people make a purchase after viewing it.
This monitoring infrastructure allows advertisers to accomplish feats of marketing that would have been prohibitively expensive or otherwise impossible in a pre-internet era. “Retargeting”—which identifies when a specific user has seen a product online, and delivers that user ads for the same product again and again as she browses the web—is possible because of the level of tracking that online advertising provides.6 Computer security experts have shown that it is even possible to identify the location of a single, specific person using only the geotargeting infrastructure of commonplace programmatic advertising tools.7 Our cereal billboard campaign is positively Stone Age, from a measurability standpoint.
Today’s advertisers are flooded with data about consumers. If anything, they are struggling to figure out how to manage the tidal wave of data now available to them. It is technically feasible to know that this ad was viewed by this individual, at this time, in this location. It’s even possible to know when and whether the individual purchased the advertised good or service.
Deeper context, however, remains elusive. Consumer behavior is exposed in fine detail, but the overall market stays opaque. The wealth of tracking data doesn’t help advertisers determine a fair going price for reaching a particular kind of person, and buyers in the programmatic marketplace can have limited knowledge about where or how their
