These inconsistencies have led some to claim that Facebook deliberately misled the advertising industry, a claim that Facebook has denied.33 Plaintiffs in a lawsuit against Facebook say that, in some cases, the company inflated its numbers by as much as 900 percent.34 Whatever the reasons for these errors in measurement, the “pivot to video” is a sharp illustration of how the modern advertising marketplace can leave buyers and sellers beholden to dominant platform decisions about what data to make available.
As this book goes to press, the controversies sparked by these and other disclosures have made Facebook and Google more willing to voluntarily accept third-party auditing of their metrics.35 Under these new arrangements, the Media Rating Council—an independent nonprofit founded in 1964 that provides third-party accreditation of media—is granted internal access by the platforms to confirm that the specific metrics they report to advertisers are legitimate.36 This development marks the end of a protracted period in which Google and Facebook resisted suggestions that they accept more verification and accountability of the metrics they distribute.37
I’m skeptical that the platforms’ newfound tolerance of oversight represents a structural change in the marketplace. These accountability measures leave the fundamental balance of power between the intermediaries and the markets they facilitate largely unchanged. Indeed, both Google and Facebook retain the ultimate power to decide precisely which third-party partners are permitted to verify and measure advertisements distributed on these platforms. This gives them tremendous practical leverage over the degree of scrutiny that they face. Even with the ongoing audits, advertisers’ access to granular data about the overall programmatic advertising marketplace will remain limited.
Public pressure and the threat of losing major advertisers have forced the platforms to accept only a limited level of third-party verification. Such reluctance might not have been possible in a more competitive marketplace, where media buyers could easily shift to platforms that offered more transparency. Instead, advertisers face the unenviable choice of buying ads on the unverifiable assurances of the major platforms or giving up the huge audiences these companies command. In this sense, the highly concentrated market of online advertising itself increases opacity in the marketplace.Why Opacity Matters
Opacity in the programmatic advertising markets can seem very much like an industry insider’s problem. Why should we care about the degree to which advertisers can get data about advertising inventory? If anything, shouldn’t we be glad that the market is perhaps more opaque than advertisers would like? Opacity limits the intrusiveness of advertising and perhaps in some marginal way helps to protect a modicum of privacy.
We should care because opacity is a key precondition for market failure. Opaque markets are ones in which participants cannot accurately assess the value of things being bought and sold. This can allow irrational exuberance to push the prices of things far above their real value. It can also allow the value of things to erode significantly without it being widely known. In both examples, expectations about the market diverge from reality. When these expectations come crashing down—whether in the value of online advertising or in the stability of mortgage-backed securities—panic sets in.
Granted, the infrastructure of online advertising provides more clarity in certain areas, especially when compared with earlier channels of advertising. There is an unprecedented level of information available about the performance of advertising once it has been delivered. How many times and when an ad has been seen, for instance, are standard, widely available metrics that would have been very expensive or impossible to acquire in the past.
But murkiness persists in critical areas. Algorithmic trading makes it challenging to assess where ads end up and who sees them. Dark pools obscure the real price of ads, allowing selected buyers and sellers access to more information and better opportunities to place ads unavailable to the rest of the market. Market concentration has made buyers and sellers beholden to data provided by a handful of major platforms, raising the barriers to acquiring verified information about ad quality. It is unclear whether the prices emerging from real-time bidding accurately reflect the value of advertising inventory across the entire market. It is unclear why the bidding algorithms behave the way they do. It is easy to get granular information about a given ad that you have placed, but far harder to get a sense of the overall marketplace.
We should care about opacity in the programmatic advertising marketplace because it has a big role to play in determining the future of these marketplaces and the future of an internet that is dependent on ads as a primary source of revenue.
On its own, opacity doesn’t create a financial crisis. Pre-internet advertising was highly limited in the metrics that were available about performance, but it grew substantially as a market over the course of the twentieth century. People wanted to buy ads, even in an information-poor environment. It is still challenging for the buyers of attention to assess the quality and effectiveness of the assets they are buying, even with today’s wealth of attention-tracking data. But if the underlying attention purchased online remains high quality nonetheless, the market might remain sustainable.
Opacity merely sets up the circumstances for expectations to diverge from reality. To precipitate a market crisis, other forces must both erode the true underlying value of the assets being traded in the marketplace and wildly inflate their perceived market value. It is to those forces we now turn.
4Subprime Attention
Opacity in a marketplace creates a smoke screen behind which an economic situation can deteriorate significantly without the broader market’s becoming aware of it. The realization that the thing being bought and sold is in fact worth less than buyers and sellers believe shakes confidence and can produce widespread panic.
There are good reasons to believe that online advertising inventory is steadily decreasing in value over time. Two forces drive this erosion of value: structural shifts in what people pay attention to, and a massive global economy of fraud in the programmatic advertising marketplace. These trends are hidden by the
