The Economist on what tech is doing to adland

Little Brother The EconomistDid you read The Economist’s report on advertising and technology?

It’s a 12-page special on how the automation of advertising is affecting tech firms, brands, agencies and publishers. You can read it in full here. Is it depressing? Is it hopeful? Depends where you’re sitting.

It kicks off by drawing attention to what seems to be – by The Economist’s reckoning – the biggest threat to the ad industry – a growing awareness among consumers that they are being followed, like Tom Cruise’s character in Minority Report, and the threat that poses to advertisers’ ability to predict what consumers want before they do. How the awareness of ‘Big Brother’ will affect Asia is not clear, as the report is fairly West-centric. But there are clues for how it might.

Here are a few highlights – in quotes, stats and theories – from The Economist’s report.

A backlash to Big Brother?

Do brands know too much about consumers? Are they managing that data responsibly, the paper wonders in the opening few pages…

Companies stress that they do not know users’ names. But they identify them by numbers, and as they build up detailed profiles about those numbered users, there is concern that the information might be traced to individuals. This puts the companies in an awkward spot. They like to boast about their robust tracking and data offerings but do not want to spook users by appearing to know too much.

Credit card firms are highlighted as data traders for advertisers…

Credit-card companies, including Visa, MasterCard and American Express, all sell anonymised data about their cardholders to advertising companies. Bidders for advertising space can go to MasterCard to buy aggregated segments of consumers who are likely to subscribe to particular telecommunications services, for example, or stay at particular hotel chains. American Express has an edge, says someone in the data business who has worked with the company, because it actually issues the card (whereas MasterCard and Visa are in partnership with banks), enabling it to put cookies on users when they log in to check their statements and see where else they go online.

But is the data advertisers use really secure and will remain anonymous? Only recently has it become possible for companies to make data completely anonymous in such a way that it cannot be unpicked to reveal individual identities, the report suggests. Scott Knoll, formerly of DoubleClick and now at Integral Ad Science, says:

The technology has improved, so it’s easier to anonymise stuff. Companies are doing it under the radar screen.

Some brands do not use the information they have, because they do not want to be seen to be spying on their customers. Tony Weisman of DigitasLBi says in the report:

We can do more technologically that we’re permitted to culturally.

What if a rogue programmer de-anonymised the data brands have on their customers? Scott Knoll of Integral Ad Science:

The question becomes, who is policing that? And are those checks and balances really there?

A computer science expert quoted will not put consumer worries at ease. Jonathan Mayer of Stanford University says:

The idea of personally identifiable information not being identifiable is completely laughable in computer-science circles.

Data protection, it seems, is becoming an issue in unexpected places, according to The Economist:

Even in China, where individuals’ rights have not loomed large, President Xi Jinping has asked his prime minister to look into data security and privacy issues.

What brands love and hate about mobile devices

In the context of native advertising – a popular theme throughout the report – the article reads:

Most firms have found that people engage more with “native” ads—which camouflage as content within apps—because they have to scroll through them when reading, and the small screens make it hard to spot the tiny icons indicating these are “paid posts”.

How Google has gone more “native” over time:

Ben Edelman, a professor at Harvard Business School, notes that over the past decade the yellow background which used to mark the ads in Google’s search results has faded every year and has now disappeared altogether. These days search ads just show a miniature “ad” icon.

On the wild frontier that is mobile’s relationship with privacy: Adam Foroughi, the boss of mobile-marketing company AppLovin, says:

No one has yet defined what is OK from the standpoint of consumer privacy, because mobile is a brand new platform. Nothing has been regulated.

Omnicom boss John Wren on the risk of upsetting customers by advertising to them through their mobile phones.

I don’t want to cross the line with a client and repent for making a mistake. There’s no commercial upside to that.

Programmatic buying

The opening few paragraphs put the impact of programmatic trading in context:

The advertising industry is going through something akin to the automation of the financial markets in the 1980s.

Ned Brody of Yahoo! on the angst caused by three-letter acronyms in the ad tech industry:

It usually ends with WTF

So, what’s holding back programmatic trading in China?

China, which will overtake Japan to become the second-largest online advertising market after America this year, is behind in automated buying because it does not have third-part ad servers or data that advertisers trust.

What impact will programmatic have on media agency staffing levels? Bob Pittman, head of Clear Channel, says automation will…

…free up very smart people from grunt work. But it may also free them up to look for another job.

And, of course, the issue of transparency, which has been a hot topic in Asia of late as media agencies come in for criticism for arbitrage from clients, eventually cropped up in the report…

For all its promise, programmatic buying has not yet delivered greater transparency and efficiency. Advertisers and publishers complain, not without cause, about a “technology tax”, claiming that 60-80 per cent of ad spending is siphoned off by ad-tech firms which take advantage of the market’s opacity.

And what about the internet of things? Entrepreneur John Battelle predicts an ever-more programmatic future for advertising:

Media are laying the trace path for how we interact with information-based services in every category of endeavour.

Advertising agencies: dying a slow death?

How is the extravagant industry love-in that is Cannes a barometer for how traditional ad agencies are doing in a digitising world:

These days the prime beachfront tents are occupied by technology companies like Google, whereas once-storied agencies, such as Ogilvy & Mather, are relegated to dark, signless buildings, away from the sun and sand.

The former APAC boss of Ogilvy (which is a sponsor of the report, placing ads around the article online), and now the global head, gets treated as if he’s spinning The Economist a line with his views on the future of agencies:

Miles Young, the boss of Ogilvy & Mather, is putting on a brave face, claiming that technology has been a boon to creativity and enabled agencies to come up with ideas and campaigns that would not have been possible before. But there are probably more agency bosses who see their martini glass as half empty.

The boss of IPG, Michael Roth, appeared to be giving rather a lot away in a paragraph about the consolidation of ad agency land (but IPG spokesman today confirmed with Mumbrella that the quote was taken out of context).

We’re the next one to be consolidated.

Is Google a frenemy, as WPP boss Sir Martin Sorrell never tires of telling us?

The prediction that technology companies like Google will start to compete head-on with the agencies is likely to prove wrong. To provide full client services they would need to hire thousands of new employees, for limited gains.

We learn that Google enjoys far higher margins than the world’s largest ad firm, WPP – Google 50 per cent and WPP 17 per cent. But…

Perversely, the agencies’ mediocre returns may protect them from being wiped out by nimbler competitors. Their tents in Cannes may no longer have the best views, but the admen will still be there.

Publishers: virtual beauty parade

Publishers come off even worse than advertising agencies in the report. The author points out that online media owners such as newspapers are being undercut by web-born firms like Facebook, Google and YouTube, and programmatic buying and behavioural targeting bought directly by advertisers such as Kellogg’s is making it harder for news websites to charge a premium for ad space.

Competition for online advertising is fierce. The supply of ad space on the internet is virtually infinite. Demand, on the other had, is limited. Behavioural targeting has complicated media companies’ lives because it has made their once-vital role of aggregating audiences for advertisers much less important.

Some stats that put this into perspective.

The New York Times’s 31m monthly online users pale by comparison with Facebook’s 1.3bn… Google and Facebook alone controlled over 47% of all digital advertising in America last year, according to eMarketer, and over 57% of mobile advertising.

And an articulate, if apocalyptic, conclusion:

Next year, “Mad Men” will air the final episode of its final season. It has been wildly popular, but the end is nigh. The talk around the water cooler now is about “Silicon Valley”, a show about tech geeks and their quest for wealth. Television audiences have a good nose for the next thing.

But then a glimpse at a possible future…

David Ogilvy Quote

Ogilvy ad in The Economist’s report

In future there might be two options for targeted advertising, says Clement Tsang, an online advertising executive in China, just as there is now talk of creating a two-tier internet, with a free slower version and a paid-for faster one. Consumers could continue to get free services from Facebook, Google and other services on the understanding that their personal data will be collected and used; or they could pay a monthly fee to ensure the site did not track them.

For most of the quarter-century that the internet has been around, it has relied on advertising based on extensive consumer tracking across the web. So far people seem to have been willing to put up with that. Until they start protesting, David Ogilvy’s radar will keep sweeping.


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