In December 2019, The New Yorker profiled Roger McNamee, once Mark Zuckerberg’s adviser and an important early investor in his company, but in the last few years one of Facebook’s most influential and trenchant critics. McNamee would like to ban the trading of personal data by companies who collect it. If his plan were to be enacted, the magazine says,
most of Google’s and Facebook’s revenues would disappear overnight, since nearly ninety per cent of both companies’ money comes from ads.
This may be an exaggeration. McNamee’s aim is to make it impossible for a company like Facebook to sell its users’ data to other companies. This would (if implemented effectively) put an end to the phenomenon of individually targeted adverisements, in the process removing one of the pillars of the model of surveillance capitalism identified by Shoshana Zuboff. It is not clear, however, that if this were to occur, Facebook’s or Google’s revenues would necessarily collapse. If the surveillance model of advertising became unworkable, in all likelihood companies would continue to advertise, just in a more traditional manner, and because of their established position in the market Facebook and Google would remain ideally placed to hoover up the lion’s share of those companies’ advertising budgets.
They might not be able to charge quite so much for more widely directed ads but it’s likely that these companies would continue to dominate the market. It also seems probable that scattergun-style ads would not be much less effective than the narrowly targeted ones. The New Yorker profile cites research which seems to show that targeted ads generated only 4% more revenue than the untargeted variety and when it came to identifying the sex of the targeted consumers, the data was less reliable than a coin toss.
The profile’s author, Brian Barth, suggests that, because targeted advertising is not as effective as its practitioners would like the rest of us to think, concerns about surveillance capitalism are misplaced and alarmist:
Contrary to conventional wisdom in Silicon Valley, companies don’t need to target consumers to make money … [This] implies that McNamee’s dire warnings about behavioral manipulation may not be entirely sound. McNamee’s oft-repeated claim is that surveillance capitalism undermines democracy by manipulating users’ habits and choices, but his rhetoric effectively cedes agency to tech companies: we’re helpless unless Silicon Valley agrees to change its ways.
This is an unduly sanguine view. It doesn’t follow that because advertising based on personal data seems to fall short of its aim, that it is therefore entirely innocuous. The targeters may not succeed in manipulating our attitudes and behaviour in the ways they want, but that is not to say that their efforts do not have any distorting effect on those attitudes or behaviour.
It may, in any case, be difficult to persuade companies that targeted advertising doesn’t produce a big enough return to justify the high cost. In that respect, it’s not much different from any other kind of advertising. There’s a fascinating piece of analysis in The Correspondent which looks in depth at the reluctance of advertisers to recognize to what extent they’ve overestimated the return on their advertising budgets. This longish piece (about 6,000 words) is well worth a read: not so much an eye-opener as a mind-boggler. Although The Correspondent is a subscription publication, this story is free to read. The gist is that companies (including some of the most tech- and business-savvy) have been paying far too much for online advertising and have generally resisted having their eyes opened to the waste of resources.
No doubt that resistance is at least in part due to the vested interest of advertising departments in maintaining their budgets and status. The net result is that the advertising-based business model of Facebook and Google appears at the same time both stable and precarious. Companies have for decades happily paid out large sums for advertising and show every sign of continuing to do so indefinitely. On the other hand, we know that nothing in economics is indefinite, and the edifice built on top of online advertising is (if The Correspondent ‘s analysis is correct) vulnerable to the possibility of a generalized and sudden recognition that the emperor’s clothes are much more threadbare than we have so far been willing to acknowledge.
Incidentally, The Correspondent piece confirms what Brian Barth says in The New Yorker about the dependence of Facebook and Google on advertising:
In 2018, more than $273bn dollars was spent on digital ads globally, according to research firm eMarketer. Most of those ads were purchased from two companies: Google ($116bn in 2018) and Facebook ($54.5bn in 2018).
In short, as far as online advertising in general, and the prospects of Facebook and Google in particular are concerned, we appear to be living through a period of sustained equilibrium which could, however, collapse at any moment. That it will collapse at some point in the short-to-medium term seems practically certain, but it’s impossible to predict how soon this collapse is likely to come. None of this is to say that I expect either Google or Facebook to collapse catastrophically. Twenty-five years ago, Microsoft seemed destined for world domination. It remains one of the wealthiest companies in existence and an important player in the tech world. However, a combination of factors have turned the former 800lb gorilla into a well behaved corporate citizen. IBM, whose business Microsoft had previously disrupted, is still a multinational giant but it is in a very different business than anyone would have predicted forty years ago.
Google regularly comes in for criticism because of privacy infringements and data collection, but it has also given the world a number of useful products and services. I recently suggested that there may be important innovations to come. Facebook does not have Google’s redeeming features but even I can admit that a chastened and declawed Facebook might be a net benefit to the world. It will be interesting to see what develops.