The economic significance of programmatic advertising is huge. Most obviously, the iconic services of the present-day internet—search engines, social media platforms, and more—are built on a bedrock of advertising both in the United States and beyond. Whether it is Google or Baidu, Facebook or Weibo, all these services rely on a robust, automated market for buying and selling attention to generate revenue. But programmatic advertising is critical not just because it is the business model for a handful of dominant technology players. It is important because it is increasingly intertwined throughout the broader economy.
Certain goods and services are more interlinked throughout the economy than others. Oil is a prototypical example. The price of oil is important not only because it influences the balance sheets of the companies that extract and refine it. Its influence echoes through the economy, affecting things like the costs of transportation and of the production of certain goods. Because it forms such a fundamental part of the economies of certain nations, the price of oil shapes the balance of power among countries as well.2
This relative interconnectedness of particular industries has important implications for what happens to the broader economy when those industries run into trouble. One reason that the 2007–2008 subprime mortgage crisis was so damaging was that banks and other major financial institutions at the core of the economy relied on the continued health of what turned out to be shoddy mortgages. When the mortgages failed, so did the banks, which in turn were connected to a vast range of economic activities throughout the world. This served to make a downturn in the mortgage market one that placed intense pressure on other parts of the economy at the same time. Economists contrast the 2008 downturn with the 2001 dot-com bust in technology stocks, which was more isolated and had a less enduring impact in part because the tech companies were less interlinked with the rest of the economy.3
Programmatic advertising more closely resembles oil than an overhyped mid-1990s technology stock in this respect. For one, advertising is still the primary financial engine funding the creation of most media. The ad exchange infrastructure is deeply integrated into the online world because everyone, from independent stars on YouTube to massive media companies, leverages the programmatic advertising infrastructure. Increasingly, advertising on “nondigital” media like television, radio, and even billboards is facilitated through these global exchanges.4
The influence of programmatic advertising, however, extends beyond its role in bankrolling the media. The online advertising ecosystem has proven to be a highly flexible infrastructure, one that can transform products and services that weren’t previously monetized through advertising into advertising businesses. It’s easy to forget that products like email were originally operated as fee-based businesses in which various features like storage and spam filtering were monetized as a subscription.5 Services like Gmail transformed this, using the advertising model to make email free to use and monetizing it through the sale of user attention.6
One way of looking at the interconnectedness of programmatic advertising is to follow the money, asking what kinds of businesses rely on the flow of money from these systems. It’s equally revealing to follow where the wealth generated by advertising is subsequently invested.
Google is a perfect example of advertising’s remarkable ability to fund other ambitious ventures. Whether underwriting a massive effort to scan the world’s books or enabling the purchase of leading robotics companies, Google’s revenue from programmatic advertising has, in effect, reshaped other industries.7 Major scientific breakthroughs, like recent advances in artificial intelligence and machine learning, have largely been made possible by a handful of corporations, many of which derive the vast majority of their wealth from online programmatic advertising.8
Online advertising is also important for the wealth it has generated on the individual level. The advertising economy turned Mark Zuckerberg into one of the richest people in the world, and that wealth now supports a range of other endeavors. Zuckerberg has pledged Facebook shares worth more than $45 billion to his Chan Zuckerberg Initiative, which focuses on “health, education, scientific research, and energy,” making it instantly one of the most well-resourced entities in these domains.9 And for every Zuckerberg, there are thousands of other technology entrepreneurs who have made smaller, though still significant, fortunes through businesses funded by programmatic advertising. How these lucky few spend their wealth connects the fate of the advertising economy with a range of other, unrelated causes.
The fact that these invisible, silent programmatic marketplaces are critical to the continued functioning of the internet—and the solvency of so much more—begs a somewhat morbid thought experiment: What would a crisis in this elaborately designed system look like? What if the advertising revenue generated by the online attention marketplace were to decline rapidly and remain depressed for a long time?
The immediate and most obvious impact would be on the online platforms and ad exchanges themselves. There would be not just a sharp decline in the revenue generated by their core businesses but also a corresponding pinch in stock prices driven by investor panic in the financial markets. Recall that—for all their market dominance—platforms like Google and Facebook are heavily dependent on their continued revenue from advertising.
Interestingly, the impact might not immediately be felt by the everyday user of the web. Companies like Facebook and Google hold substantial reserves in cash, and they might be able to weather the short-term impact by drawing on these resources to maintain the status quo. The platforms could continue to offer their services for free to consumers in the hopes that confidence would be restored and ad buyers would return to the market. They could continue to fund product development, hire top engineers, and ensure the flow of quality snacks to their corporate campuses.
This crisis would generate an intense phase of consolidation beyond the rarefied confines of the Google-Facebook duopoly. Companies without similarly massive cash reserves would face pressure to close or merge to remain in operation. But the net effect in the short term would be that while businesses would be hurting,
