Amid all the industry jargon, one can lose sight of advertising’s ultimate objective: to shape the behavior or perceptions of the viewer in some way. For it to do this, a few factors have to be in play. The message being delivered should be relevant to the recipient. It should be delivered at the right time. Most fundamentally, the ad must capture the recipient’s attention. If the ad is ignored, money spent delivering it is effectively wasted.
This is a long way of saying that advertising packages attention: it is not the attention itself. All an advertiser wins in an ad exchange auction is the right to display its content on a loading web page. When a demand-side platform (DSP) is programmed to seek out opportunities to reach a demographic like “males 18 to 24 living in the United States,” it tells us whom the advertising will ideally reach, but not whether the people who actually see the ad will be persuaded, or even interested.
This divergence between the asset being bought—ad inventory—and the asset underlying it that defines its value—attention—directly parallels what happened to collateralized debt obligations (CDOs) during the 2007–2008 crisis.
CDOs were, in effect, bundles of mortgages. Financial institutions packaged together mortgages of differing risk and then sold the stream of payments coming from these loans as a single asset. But the CDOs were not the mortgages themselves, and each CDO in practice contained different bundles of mortgages taken by different homeowners in different places. One CDO might contain high-quality home mortgages that would reliably pay out over the entire lifetime of the loan, and an identical CDO might be filled with high-risk mortgages likely to default. In financial parlance, both CDOs and online advertising inventory are derivatives—they derive their value from an underlying asset. CDOs draw their value from the mortgages they contain; online ad inventory draws its value from the attention that it represents.
We can think about any unit of advertising—a banner ad on a website or a billboard on the side of a highway—as a rough proxy for the collection of eyeballs that see it. In the same way that we might peel back a CDO to learn what mortgages it actually contains, we can peel back an ad and assess the quality of the attention that it captures.
When we do this, a twofold problem emerges. First, the value of the attention “packaged” by online advertising is declining. Online advertising is increasingly ignored—or actively resisted—by the public at large. Second, the “attention” that ads do receive is increasingly garbage—the product of a massive, fraudulent economy designed to extract money from advertisers.
Attention is subprime. The bottom is falling out even as prices are pushed higher and higher. This is made possible and exacerbated by the pervasive opacity of the marketplace, which allows real value and market value to drift further apart over time.Who’s Paying Attention?
South Park is a pretty neighborhood located in the SoMa district of San Francisco. Set away from the busy, loud urban streets that bound the area, the neighborhood is built around a small oval park with a playground. It’s home to a collection of startups, marketing agencies, venture capital firms, and very expensive apartments. There’s a craft brewery, an artisan coffee shop, and a high-end grilled-cheese restaurant within a block of the park.
South Park is a significant location in the lore of San Francisco technology. The initial idea for Twitter was reputedly sketched out in the South Park playground, and the neighborhood was home to many leaders of the first dot-com boom.1 But, beyond being a hub for product innovations that would shape the web, South Park is historically important for the role it plays in the broader development of the web as a business.
It was here in late 1994 that the online advertising economy was born. Two South Park was then home to HotWired, a subsidiary of Wired magazine that owned and operated the publication’s website.2 In partnership with Volvo, AT&T, and other major brands, HotWired launched the web’s first banner ads.
The early banner ads of the mid-1990s were wildly successful compared with the ads of today. One common ad industry benchmark for success is the click-through rate, which measures the percentage of people viewing the ad who subsequently clicked on the ad. In other words, just how compelling was an ad to given users that they went out of their way to click on that ad to learn more?
The information we have suggests that this early generation of ads captured attention in a way that is virtually unheard-of today. When they launched in 1994, the first banner ads generated a remarkable click-through rate of 44 percent.3 That is, close to half of the people who saw these banners clicked on them. Today, banner ads command far less attention. One data set drawn from Google’s ad network suggests that the average click-through rate for a comparable display ad in 2018 was 0.46 percent. For some industries, that number is as low as 0.39 percent.4 That’s about one in every two hundred people. Recent attempts to measure click-through rates on Facebook ads reveal similar rates of less than 1 percent.5
These banner-type ads are a hundred times less effective than they were about twenty-five years ago. Even these sub-1-percent click-through rates may overstate the effectiveness of ads on some platforms. On mobile devices, close to 50 percent of all click-throughs are not users signaling interest in an advertisement, but instead accidental “fat finger” clicks—users unintentionally clicking on content while using a touch-screen device.6 Ads may also drive a response among only a small segment of the population. In 2009, one study estimated that 8 percent of internet users were responsible for 85 percent of all advertisement click-throughs online.7
Public indifference toward online ads is reflected in the surprisingly ambiguous empirical evidence that these ads do anything at all. One large-scale experimental study of
