Subprime Attention Crisis

the marketplaces of advertising with the rest of the economy. This means that the public has an interest in the fate of these markets, because their fluctuations will have major implications for the critical infrastructure of the web and the dizzyingly vast ecosystem of human activity that rests upon it. We should not wait for a new Great Crash before taking action in the global attention marketplaces of the internet.

Epilogue

The economy looked great in the years leading up to the 2008 subprime mortgage crisis. Housing prices rapidly grew in the United States and throughout Europe from 2002 to 2006, profiting homeowners and spurring construction. A World Bank report assessing prospects going into 2007 and 2008 noted that the outlook appeared “fairly bright” and characterized the global economy as a “promising environment for growth.”¹

Experts missed the warning signs. The collapse of the global economy came as a shock because economists and financial regulators had their eyes elsewhere. As the historian Adam Tooze documents, numerous reports and newspaper articles of the era worried about the problems posed by “excessive public debt, underperforming schools and a Chinese sell-off” when they should have been looking at “the basic functioning of America’s economy, its banks and financial markets.”²

Experts also felt that they had conclusively solved the problems of the past. Economists of the era expressed confidence that they had finally discovered the keys to ensuring stable economic growth and had effectively eliminated the risk of a future great recession. In 2003, the economist Robert Lucas told the American Economic Association that the “central problem of depression prevention has been solved, for all practical purposes, and has in fact been solved for many decades” by economists.³

That a market is doing well tells us nothing about its future prospects. Indeed, the moment when the growth of a market seems inevitable is precisely when we should be most fearful about what is driving this growth, and the structural weaknesses that might be obscured by the optimism.

Online advertising appears, by all accounts, to be continuing its rise. The COVID-19 pandemic is battering the advertising economy as this book goes to press. In spite of this, Google and Facebook appear unthreatened by any serious financial distress. If anything, the giants of programmatic advertising are poised to emerge from the crisis more dominant than ever before. Overall, advertising dollars continue to flow online at a staggering rate, which means that ever more capital is tied up in the massively automated system of programmatic buying and selling.

Experts believe that they have solved some of the most enduring challenges of their field. Programmatic advertising appears to surpass all that has come before it, offering the holy grail of marketing channels: lightning-fast speed, mind-bogglingly detailed data, and incredibly low cost. Fears around the power of “micro-targeting”—the laser-focused delivery of persuasive messaging facilitated by the internet—show that even critics of the technology industry implicitly accept the claim that these advertising systems have unsurpassed potential to manipulate opinion and change public behavior.⁴

There is no doubt that in some cases online advertising is truly effective. But the everyday reality may be quite the opposite of an all-seeing, all-knowing, all-powerful promotional engine. The reality is that vast portions of the programmatic marketplace are not so much miracle cure as snake oil. On the whole, ads capture an increasingly small portion of available attention online, and what these ads do capture is shrinking in real economic value. All the while, the market remains murky and opaque, constantly oversold by an unhealthy ecosystem of conflicted players. The result is a bubble, one that cannot grow forever.

By itself, this dysfunction in the advertising industry might be a niche problem, something that keeps a handful of advertisers and publishers up at night. But the internet we have, for better or worse, is yoked to the structure and prospects of the advertising economy. If this system of advertising is brittle, then the internet as we know it is brittle. Whether we leave these marketplaces deregulated and feral or implement systems to manage them for public benefit will define not just the future of advertising, but the future of the technologies that have shaped and continue to shape our society.

Notes

Prologue

  1. “eMarketer Releases New Global Media Ad Spending Estimates,” eMarketer, May 7, 2018, www.emarketer.com/content/emarketer-total-media-ad-spending-worldwide-will-rise-7-4-in-2018.

  2. Ibid.

  3. Nico Neumann, “How Wrong Audience Targeting and AI-Driven Campaigns Undermine Brand Growth,” Programmatic I/O 2019, d3w3ioujxcalzn.cloudfront.net/item_files/183e/attachments/684322/original/howwrongaudiencetargetingunderminebrandgrowth_niconeuman.pdf.

  4. Ibid.

Introduction

  1. “Horowitz Says Lack of Business Model Hampers Internet Profits,” Communications Daily, October 3, 1996, 1.

  2. “IAB Internet Advertising Revenue Report,” Nov. 2018, IAB, www.iab.com/wp-content/uploads/2018/11/IAB-WEBINAR-HY18-Internet-Ad-Revenue-Report1.pdf.

  3. Tess Townsend, “Google’s Share of the Search Ad Market Is Expected to Grow,” Recode, March 14, 2017, www.recode.net/2017/3/14/14890122/google-search-ad-market-share-growth.

  4. “IAB Internet Advertising Revenue Report.”

5. “Google, Facebook Increase Their Grip on Digital Ad Market,” eMarketer, March 14, 2017, www.emarketer.com/Article/Google-Facebook-Increase-Their-Grip-on-Digital-Ad-Market/1015417.

  6. “IAB Internet Advertising Revenue Report.”

  7. “Data Suggests Surprising Shift: Duopoly Not All-Powerful,” eMarketer, March 19, 2018, www.emarketer.com/content/google-and-facebook-s-digital-dominance-fading-as-rivals-share-grows.

  8. Ibid.

  9. Tim Wu, The Attention Merchants: The Epic Scramble to Get Inside Our Heads (New York: Alfred A. Knopf, 2016), 6.

10. Zeynep Tufekci, “YouTube, the Great Radicalizer,” New York Times, March 10, 2018, www.nytimes.com/2018/03/10/opinion/sunday/youtube-politics-radical.html; Zeynep Tufekci, “Facebook’s Ad Scandal Isn’t a ‘Fail,’ It’s a Feature,” New York Times, Sept. 23, 2017, www.nytimes.com/2017/09/23/opinion/sunday/facebook-ad-scandal.html.

11. See “Grand Jury Indicts Thirteen Russian Individuals and Three Russian Companies for Scheme to Interfere in the United States Political System,” press release, U.S. Department of Justice, Feb. 16, 2018, www.justice.gov/opa/pr/grand-jury-indicts-thirteen-russian-individuals-and-three-russian-companies-scheme-interfere.

12. Lawrence Page and Sergey Brin, “The Anatomy of a Large-Scale Hypertextual Web Search Engine,” Computer Science Department, Stanford University, infolab.stanford.edu/~backrub/google.html.

13. “eMarketer Releases New Programmatic Advertising Estimates,” eMarketer, April 18, 2017, www.emarketer.com/Article/eMarketer-Releases-New-Programmatic-Advertising-Estimates/1015682.

14. Lauren Fisher, “US Programmatic Digital Display Ad Spending,” eMarketer, Nov. 21, 2019, www.emarketer.com/content/us-programmatic-digital-display-ad-spending.

15. AppNexus, “The Digital Advertising Stats You Need for 2018,” www.appnexus.com/sites/default/files/whitepapers/guide-2018stats_2.pdf.

16. Ibid.

17. Ibid.

1. The Plumbing

  1. Jun Wang, Weinan Zhang, and Shuai Yuan, Display Advertising with Real-Time Bidding (RTB) and Behavioural Targeting, July 18, 2017, arxiv.org/abs/1610.03013.

  2. See, for example, Robert D. Blackwill and Meghan L. O’Sullivan, “America’s Energy Edge,” Foreign Affairs, March–April 2014, www.foreignaffairs.com/articles/united-states/2014-02-12/americas-energy-edge. The article discusses how falling energy prices driven by shale oil will