Frenemies: The Epic Disruption of the Ad Business (and Everything Else) (19 page)

They are no longer doing what she thinks “advertising has been doing for a long time, which is guessing.” She dubs this her “customer-centric model.” They chart for clients: What messages worked? What doesn't work? Who comes to the store? Who doesn't come to the store? It becomes, she believes, “a game changer.” Using this data, the brand can make changes to improve the customer
experience and convenience, as Warby Parker has done for eyeglasses and Uber and Lyft have done for transit. Unless big agencies learn to shed old habits, to move faster, she believes they are in danger of plunging down the same rabbit hole as most newspapers.

Big data excites Laura O'Shaughnessy,
as it does Irwin Gotlieb, Martin Sorrell, Carolyn Everson, Michael Kassan, and the entire marketing industry and its clients. It alarms Nate Cardozo, senior staff attorney and one of eighteen lawyers who work for the Electronic Frontier Foundation, a nonprofit based in San Francisco, whose mission is to repel privacy threats. “I want companies to be honest with what they're collecting and what they do with it, and right now that information is really difficult to figure out. The companies don't need to make that information public, and they do their best not to.” Under the long, densely written contracts most consumers “sign” when joining an app or buying a product or service, the “terms of service” that we agree to empower a Tesla or Ford to track where we drive and stop, or allows DMVs, credit card companies, Facebook, or Google to sell data to secretive data-collecting companies like Palantir in Silicon Valley or Acxiom in Arkansas, who in turn can sell it to marketers. Google, Cardozo continues, “tracks every YouTube video you watch, every search term you enter, every result you click on. All of that data is tracked. And they're still using it. . . . We just don't know how they use it. They say they use it to improve products and services. What does that mean?” Even if marketers don't know your name, he says, as long as they have your IP address—the Internet Protocol number assigned to every computer—they can in most cases locate your building.

Cardozo says he has two nightmares. One is the danger “of identity theft on a massive scale. It's only a matter of time before there's a
breach.” (That nightmare occurred in 2017 when there was a massive theft of personal data from consumer credit reporting agency, Equifax.) Second, “If the data is there, advertisers, civil litigants, government agencies, you name it, are going to ask for it. What if you could subpoena someone's entire behavioral profile? What if you have a knee replacement that failed and you sue the manufacturer and the manufacturer goes to Acxiom and subpoenas your behavioral history to show you viewed ads about canoeing? Does that mean you went canoeing? It means you're interested in canoeing.” Advertisers would be keen on having access to medical records so they could market pharmaceutical products.

The accumulation of data to predict future behavior has been labeled surveillance capitalism by Shoshana Zuboff, a professor of business administration at Harvard Business School. Its pioneers have been digital companies like Google and Facebook that derive their marketing power from shadowing citizens and using data to become fortune-tellers.

“The game,” Zuboff wrote, “is no longer about sending you a mail-order catalogue or even about targeting online advertising. The game is selling access to the real-time flow of your daily life—your reality—in order to directly influence and modify your behavior for profit. This is the gateway to a new universe of monetization opportunities: Restaurants who want to be your destination. Service vendors who want to fix your brake pads. Shops who will lure you like the fabled Sirens.” Success at this “game” flows to those with the “ability to predict the future—specifically the future of behavior.”
*

Success is more likely to come to marketers who harness this data to make it more personal, more useful to citizens annoyed by
interruptive ad messages but who welcome messages about their hobbies, pets, or favorite vacation spots. Michael Hussey is the CEO of StatSocial, a data company that has constructed consumer profiles of 600 million citizens from around the world based on their public activities on Twitter, Facebook, Instagram, YouTube, blogs, along with the e-mail addresses of 170 million citizens purchased from data companies he says he is not contractually free to identify. In a separate partnership with IBM's Watson, its artificial intelligence arm, Hussey says they have identified 50 million citizens and segmented each into “the fifty-two personality types” Watson tracks, such as adventurous, conservative, liberal, conscientious, or open to change. In work they do with Irwin Gotlieb's GroupM for Ford, they track consumers seeking to buy a new car. “The personality type that is ‘conscientious,'” Hussey says, “should get a different message—maybe the eco-friendly car—than the ‘adventurous' person. . . . Everything is about personalization, microtargeting your audience with different messages.”

To an engineer, data is virtuous. It offers clues to the mysteries of human behavior, suggests efficiencies, offers answers that will better serve consumers. Data yields facts, advances engineers' quest to be more scientific. But as first Google, and then Facebook, discovered, that data made it possible to attract advertising dollars. “The more data it has on offer, the more value it creates for advertisers,” Sandy Parakilas, who was Facebook's operations manager on the Platform Team from 2011 to 2012, wrote in a scathing November 2017
New York Times
op-ed page commentary. “That means it has no incentive to police the collection or use of that data—except when negative press or regulators are involved.”
*
The mix of genuine engineering
curiosity and business greed inevitably relegated privacy issues to the nose-bleed bleachers.

The privacy issue draws too little attention, says Christian Sandvig, associate professor of communication studies at the University of Michigan, because corporate America and the marketing universe have succeeded in submerging it. “The key thing we see in privacy is that companies have made a decision to privatize privacy.” Companies insist that citizens make the choice whether something is private when they go to their settings or they click on opt in or opt out. He disagrees. “We've seen the privacy debate pushed into settings. The point of that feature is to inoculate the platform from criticism.”

People don't march
in one direction when it comes to privacy. Advertisers assert that targeted ads serve consumers information they desire, and this would be impossible without personalized data. The Interactive Advertising Bureau warns that strict privacy regulations will slow economic growth because they “threaten to hamper the data-driven growth of the Internet economy.” Without ads, content companies would die. Since there is no single universally accepted definition of privacy, contentious debates will persist. In his attempt to wrestle this ambiguous term to the ground, the great Louis Brandeis defined privacy as the “right to be left alone.” But where to draw the line? If I view advertising as intrusive yet it subsidizes my free television, is it really violating my privacy? If I physically bump into someone, I am certainly not leaving that person alone, but am I violating his or her privacy?

Some, like Ricky Van Veen, cofounder of CollegeHumor, the still popular user-generated Web site, who in late 2016 joined Facebook as its head of global creative strategy, thinks “privacy is overrated.” In the early days of CollegeHumor, “college kids would send in photos of
themselves with a beard at a party,” and years later when they were looking for a job they'd write in to ask if CollegeHumor would please take it down. “Today, everyone has a photo of them with a beard at a party. It's the new normal. About forty percent of all Instagram photos are deleted within the first ten seconds.” Why? Not because of privacy concerns but because “it won't get enough likes. People still care about how they're perceived, but the idea of privacy counts much less. Everybody is broadcasting themselves constantly!”

There is a body of evidence supporting the notion that privacy is losing popularity. In the studies he's overseen for Lippincott, chief content and strategy officer John Marshall believes the sharing economy advanced by social networks like Facebook and Snapchat has helped dramatically alter the attitudes of the young toward privacy. “As you start to connect seven billion people together much more seamlessly, you're moving toward a connected state being the natural state and the private state being the exception.” He holds up China as an exemplar of future attitudes toward privacy, as if a dictatorship heralds how democracies will evolve. “When you talk to a sixteen-year-old in China about this issue and they're living on WeChat, what you learn is they think of privacy differently from you and me. They know there are things they want to hide, but the hiding is the exception rather than the sharing. Having the public state that it is sharable can be equated with them being a good person.”

And the sixteen-year-old in the United States?

“Same thing.”

What is similar among Generation Z and millennials, he believes, is the realization that data about them is abundant and “their data has value and they want to get something out of it.” Traditionally, citizens willingly traded their attention and accepted advertising in exchange for free content. Today, he believes, a younger generation may be willing to trade their personal data, perhaps for discounts or partially
subsidized content. Joseph Turow has coauthored a paper, “The Tradeoff Fallacy,” which agrees that many Americans of all ages “believe it is futile to manage what companies can learn about them.” But their “survey results indicate that marketers are misrepresenting a large majority of Americans by claiming that Americans” are eager to make a trade. Although many are reluctantly resigned to the power of corporate data collectors, if a trade has to be made they want better terms.

Before tradeoffs can be made, a critical question intrudes: Who owns the data, the company or the citizen? And have citizens really ceded their ownership when they click “Accept” or “Agree”? “The entire economics of marketing depends on the answer to that question,” Marshall says.

It depends on one other question as well: What does government say?

The U.S. government has at times stepped in to regulate advertising. Inspired in part by Upton Sinclair's
The Jungle
, Congress in 1906 passed the Pure Food and Drug Act, requiring what was advertised on food and drug labels to accurately disclose all ingredients. In the 1930s, a variety of New Deal legislation was adopted creating oversight of how certain products, including drugs and cosmetics that might pose health hazards, could be advertised. Defying enormous political pressure from tobacco companies and broadcasters who benefited from their ad dollars, Congress in 1971 agreed that cigarette smoking could be a health hazard and regulated cigarette advertising. To protect consumers, the Federal Trade Commission is empowered “to prohibit unfair or deceptive acts or practices,” including false or deceptive advertising. And although privacy regulations are fragmented and not as strict in the United States as in Western European nations, the FTC has on occasion enforced privacy protections. Nor is it uncommon for the FTC to reach financial settlements with companies who are accused of false or nontransparent advertising.

By early 2016, pressures were rising on the government to become more assertive. Federal Communications Commission chairman Tom Wheeler proposed, and the commission later that year imposed, privacy regulations on cable and telephone broadband providers, preventing them from collecting user data and sharing it with advertisers without user consent. The rule paralleled the restrictions placed on telephone companies, which are prohibited from selling information describing which companies consumers contact and do business with on the telephone. The FCC declared, in Chairman Wheeler's words, that as with the telephone, “the information that goes over a network belongs to you as the consumer, not to the network hired to carry it.” The new rule that applied to Internet service providers was vehemently opposed by the advertising industry, which has long argued that if they so desire consumers should be allowed to opt out. “There is no record of consumer harm to justify treating web viewing” as requiring “opt-in consent,” declared a statement jointly issued by the ANA, the 4A's, the Interactive Advertising Bureau, the Direct Marketing Association, and the Network Advertising Initiative.

Less than seventy days after the new Trump administration took office, with attention riveted on Trump tweets and news of the possible Russian hacking aimed at sabotaging Hillary Clinton, the Republican-led Senate and House passed, and President Trump signed, legislation permitting cable and telephone Internet service providers to sell data about consumers' online activities to advertisers. The legislation also bans the FCC from ever establishing similar privacy protection restrictions. The government, in effect, declared privacy
privatized.

“There really isn't any significant difference between the various brands of whiskey, or the various cigarettes, or the various brands of beer. They are all about the same. And so are the cake mixes and the detergents and the margarines and the automobiles. And, I might add, the different brands of salt.”

—David Ogilvy

If Jon Mandel's March 2015 speech to the ANA sparked a client revolt that year, by 2016 signs were growing of a wider and more ominous revolt, a revolt by consumers against all advertising, as mobile technology brought ads more intimately and insistently into people's lives but at the same time gave them new tools to block them.

The marketing community gulped when Apple, which three decades before had famously aired a TV ad that declared a rebellion against the ruling IBM computer Goliath, now seemed to want to smash most advertising. Tim Cook, the CEO of Apple, stood on a San Francisco stage late that summer and announced that Apple would offer a new operating system for iPhones and iPads that would contain
apps empowering users to block ads. Apple, which received less than one percent of its revenues from advertising, was helping consumers seal their devices from ads.

For consumers annoyed by intrusive pre-roll and banner ads, sluggish ad page load speeds, and uninvited marketing messages draining their batteries, or worried that their privacy was being invaded, this was a happy solution. The user experience must be paramount, Apple proclaimed. No, no, proclaimed Web sites, media companies, marketers, and ad-reliant companies like Facebook and Google: our ability to inform users and subsidize content is crippled by ad blockers. Those dependent on advertising accused Apple and ad blockers of murder. Apple and ad blocker advocates accused advertisers of committing suicide with mindless and intrusive ads. What neither Apple nor Google said publicly was that Apple's maneuver was part of a raging war between Apple and Google for smartphone supremacy. Apple made its money selling hardware and software; Google made its money selling ads. Apple was strategically offering consumers something Google couldn't.

In a June 2015 speech to the Electronic Privacy Information Center, Cook came down hard on how his neighbors in Silicon Valley “have built their businesses by lulling their customers into complacency about their personal information” and were monetizing it. “You might like these so-called free-services, but we don't think they're worth having your e-mail, your search history . . . sold off for god knows what advertising purpose.” And consumers were getting Cook's message. As Tim Wu puts it in
The Attention Merchants
, Internet users have begun “to realize that when an online service is free, you're not the customer. You're the product.”

Within weeks, Apple's ad blocking foray was duplicated by rival Samsung, which announced that it would include ad-blocking plug-ins
to the operating system of its popular Android phones. For the communities dependent on the flow of advertising dollars, the speedy adoption of ad blockers conjured nightmare images of Napoleon's final battle at Waterloo. A study by PageFair and Adobe estimated that 200 million consumers worldwide and 40 million in the United States used ad blockers, a number that jumped 41 percent in 2015, wiping out an estimated $20 billion of ad sales. This number was expected to double in 2016.
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It was akin, the study concluded, to the largest consumer boycott in history. In one sense, ad blockers are not novel. As we've seen, more than half of consumers who record programs on a DVR or the equivalent skip the ads. But at least they have to make the effort to do so.

AdBlock Plus, based in Cologne, Germany, is the world's largest purveyor of a free app users download to block ads. The app does not block all ads; AdBlock Plus offers a “whitelist” known as the Acceptable Ads Initiative, usually meaning ads they consider noninterruptive. However, for sites that wish to be whitelisted, AdBlock Plus taxes larger sites 30 percent of their ad revenue to allow the ad to appear; they say they don't charge smaller publishers, but will also block their ads if they are intrusive. Not surprisingly, members of the advertising community described the company's business plan, as the Interactive Advertising Bureau's CEO Randall Rothenberg did in a public speech, as “an old-fashioned extortion racket, gussied up in the flowery but false language of contemporary consumerism.”

When Till Faida, a founder and the CEO of AdBlock Plus, and Rothenberg were to appear back-to-back at a TechCrunch confab in early 2016 on the Brooklyn waterfront, the 2,500 attendees expected sparks to fly. The topic: “The End of the Ad Era.” Before the audience,
Faida repeated his mantra several times: AdBlock Plus was “user friendly” and was installed because “you can't have a business that relies on pissing off your users.” Instead of “personal rants,” he said Rothenberg and his organization should have “set ad standards years ago.” When he finished, Anthony Ha, the moderator, thanked him. As Faida, a large, burly man, exited the stage and the slight Rothenberg silently walked past, the moderator invited Rothenberg to pause and shake Faida's hand. Rothenberg kept walking. His aim was to state the opposition case, and he did. He assailed ad blockers for robbing publishers, particularly small publishers. Some Web sites, he claimed, were losing 40 percent of their revenues. If ad blockers were really “in the public service business” as they profess, he asked, “Why not do it for free?”

Faida sat alone backstage watching Rothenberg on a TV monitor. “He's making a point of not engaging in a dialogue with us,” Faida said when Rothenberg finished. “By sticking his head in the sand he's pretending this will go away.” Rothenberg later confirmed he had no interest in a dialogue with people he considers thieves.

Ad blockers were a clear and present danger, and marketers and publishers struggled to devise a counterattack. Worried clients turned to Michael Kassan and MediaLink for advice and reassurance, as they did after Jon Mandel's ANA speech. “It shook everybody,” Wenda Millard says. “No one could predict what would happen.” She and Kassan agreed that ad blocking was a menace, and a form of theft. But they also advised clients to create different kinds of ads, and to take more responsibility for lousy ads. “We said, ‘Stop making Web sites that look like Tokyo at night,'” Millard said. “Improve the ads, make the ads beautiful.”

The marketing community threw a number of countermeasures against the wall, hoping to see what would stick. German publisher Axel Springer filed a lawsuit asking that ad blockers be declared illegal.
Twelve hundred American newspapers joined in a cease-and-desist letter to ad blockers, charging that they were “blatantly illegal.” Jerry Wind, from the Wharton School, decried this approach as dumb. “Blocking the ad blockers as some people in the industry want to do is the dumbest thing you can do,” he said. “The consumer is sending you a message: ‘I hate your advertising.'” Instead of saying, ‘OK, let's change what we're doing, those idiots are trying to block the ad blockers. It's almost as dumb as what the record companies tried to do when Napster came out”—suing their customers. Thus far the courts do not seem to be an effective venue in which to defeat ad blockers; by the spring of 2018, the German Supreme Court upheld the right of German consumers to block ads and generate income.

One-party states like China simply decree that ad blockers are illegal. Publications like the
Washington Post
and
Forbe
s banned users from accessing their sites unless they turned off their ad blockers. The
Guardian
tried a different tack, using pop-ups to tell users that their ad blockers erased monies that subsidized good journalism and offered alternate ways for them to aid journalism. Instead of joining lawsuits, the World Federation of Advertisers agreed: “The Internet advertising experience is not satisfactory for consumers.” They called for less alienating ads. Since Facebook is an app and ad blockers live on browsers, not mobile apps, Facebook was not as threatened as Google and others. But since it is an ad-dependent business, it took measures to try to prevent ad blockers from appearing on desktop computers using Facebook.

The industry's preferred
antidote to combat ad blockers was native advertising, which was unlikely to be blocked because its camouflage fooled the ad censors. Wherever one went in 2015 and early 2016— visiting a publication, a client, an agency—native advertising or branded
content was invoked as a great hope. Michael Kassan was a believer. He saw ad blockers as an opportunity, not just a disrupter. Native advertising was the remedy he promoted to publishing clients like Condé Nast, Hearst, the
New York Times,
the
Wall Street Journal,
the
Washington Post,
Time, Inc., and Vox, and to brand clients like AT&T and Disney, among many others. Native ads would be much more effective storytellers than their beta version, advertorials. Sounding evangelical, he envisioned a world where consumers wouldn't be able to tell the difference between news and advertising. The creators of those ads would often be the publishers or the brands, not the ad agencies. “Hearst and Condé Nast are now content companies, meaning ad agencies,” he said. “If every brand today wants to create content, as opposed to interrupting you with a commercial, then what the hell do I need a commercial for? I want to reach a point where premium content is like pornography. And Nirvana is when you can't tell the difference between the content and the advertising. You're actually in good shape because the consumer is going to get your message through branded content, or whatever you want to call it.” Some would call it deceptive advertising.

Native does not offer salvation. Native ads in 2015 generated a total of only $7.5 billion ad dollars in the United States. A Facebook study projected that by 2020 worldwide native advertising would reach $53.4 billion. The
Atlantic Monthly
reported that three quarters of its online ad revenue in 2015 came from native advertising;
Slate
attributed half its ad revenues to native. (This sounds better than it is, for the same digital ad usually generates about 10 to 20 cents compared to $1 for the same print ad.) Unlike TV or print ads that are repeatedly shown, native ads do not readily lend themselves to repetition.

Native can take many forms. To market its
Narcos
miniseries, Netflix paid the freight for the
Wall Street Journal
's in-depth native ad report on the Medellín drug cartel, including motion graphics, video clips from the miniseries, and a Spanish language option. Separate
from the
Journal
's native promotion of
Narcos
, the newspaper reported a lengthy story on the Medellín drug cartel on which the series is based. When asked directly if Netflix helped sustain the cost of this reporting, its chief communications officer, Jonathan Friedland, a former
Journal
reporter, e-mailed: “It works like this: We go to news organization X and say hey, we would like you to come up with some ideas to enhance interest in show Y. They come back with themes and constituent elements in support of those and we decide which ones we like. . . . At Netflix at least, I have insisted when the marketing folks embark on this type of thing, they give the news organization complete freedom.” This is but one example of how the traditional wall between the business and the news side was lowered.

Another prominent native campaign occurred in November 2015 when the
New York Times
teamed up with Google and General Electric and paid for one million Google Cardboard virtual reality plastic lenses to view a GE video produced in-house by the
Times
, “How Nature Is Inspiring Our Industrial Future.” The viewer is drawn into an animated world where animals and butterflies alchemize into GE wind turbines and a city. This campaign, like many native ad campaigns, bypassed the agency middleman. “A lot of clients are frustrated,” vice chair Beth Comstock says of GE and others. “We want more media properties to come to us like the
New York Times
did.”

Inevitably, native ads create a tension between the interests of journalism and the interests of the advertiser. As the
Washington Post
's Margaret Sullivan, onetime public editor of the
Times
put it: “If native ads look too much like journalism, they damage credibility; if they look nothing like journalism, they lose their appeal to advertisers. A fine line, indeed.” A vocal minority of those in the advertising industry assail native ads for crossing a line because they undermine trust. “Native advertising is not new,” the chairman emeritus of DDB Worldwide, Keith Reinhard, says. “We used to call it advertorials.
And it will not be around because it compromises both the media and the brand.”

Trying to draw a line, the Federal Trade Commission in November 2015 did issue guidelines for native advertising. The FTC's aim was to prohibit native ads that “mask the signals consumers customarily have relied upon to recognize an advertising or promotional message.” Although the FTC acknowledged that deception was not always clear cut, they insisted there was a line. Yet many publishers reacted as if the guidelines were invisible. MediaRadar, a cloud-based ad sales platform utilized by 1600 publishers, issued a study in 2016 revealing that nearly 40 percent of publishers did not comply with FTC guidelines. Surveys revealed that native ads tricked consumers because they did not notice the difference between a news story and a native ad; a nonprofit organization, the Online Trust Alliance, reported in 2016 that 71 percent of consumers were successfully tricked.

The introduction of ad blockers
and native ads is a symptom of two much larger disruptive forces. First, of course, the surge of the mobile phone platform. Second, in addition to the advent of the mobile phone, we have two generations of computer-literate citizens who have grown up with access to ad-free options like Netflix, HBO, and to DVRs that enable ad skipping.