July 25. 2018
Advertising, once a creative industry, is now a data-driven business reliant on algorithms. The implications are deeply sinister – not only for the consumer but for democracy itself.
The advertising industry is currently enthralled by a prophet of its imminent demise. Scott Galloway is a professor at New York University’s Stern School of Business, and founder of a marketing consultancy. In a much-shared YouTube video, he delivers a talk entitled “The Death of the Advertising-Industrial Complex” to an audience of young marketers. In it, he argues that businesses can no longer rely on advertising to compensate for mediocre products.Until the 1990s, says Galloway, the path to success lay in taking “an average beer, average car, or average suit” and wrapping it in appealing associations – this one makes you feel more elegant, this one makes you feel younger. Now, we live in an age in which the intangible haze of soft-sell is no longer necessary, and the battle for market share comes down to the raw strength of your product. “The sun has passed midday on brand,” he says.Galloway, lean of frame, dresses in the austerely casual manner of technology entrepreneurs. Glasses with thick black frames perch on his shaven head. He begins his lecture, disarmingly, by warning that he can get things wrong: he once predicted Amazon would decline in value right before its stock began a record-breaking ascent. But there is nothing equivocal about his presentation. Traditional advertising is unforgivably wasteful, he says. “Nothing resembling targeting takes place. Ninety-eight per cent of what you see in broadcast media is irrelevant to you as an individual. I find that the advertising on Facebook and Google sucks less.”These days, consumers are less likely to have favourite brands, since “their favourite brand is going to be whatever Google tells them at that moment is going to match their exact needs”. The brand getting the most buzz in the car industry is Tesla. “What’s different about them? No advertising. Innovation in the car industry is not about putting Cindy Crawford in a TV ad. It’s about building a better battery.”Galloway closes with a cruel assessment of the ad industry’s relevance. “When’s the last time you saw an ad agency executive on the cover of Business Week? No one cares what they think. Don Draper has been killed, drawn and quartered. The big idea in advertising is a small idea nobody cares about.”Until recently, it was possible to identify somewhere called “Adland” on a map. In New York, advertising agencies clustered on or around Madison Avenue, near the big department stores. In London, the action was in Soho, among the film and TV production houses. The industry was a small world, with all the collegiality and parochialism that implies. In both cities, ad agencies are now dispersed randomly around town, as if an earthquake had destroyed their habitat, forcing them to scatter in different directions. Once so sure of their place in the world, they now seem a little lost.
The earthquake, of course, was the internet, and the subsequent seizure of the ad business by technology companies. Between them, Google, Apple, Facebook and Amazon (about whom Galloway has written an acclaimed, critical book, The Four), have transformed advertising’s terms of trade. Clients pour billions into a digital ecosystem that revolves around Google and Facebook in particular. The ad industry, run by people who pride themselves on creativity, is being displaced by the ad business, which prides itself on efficiency. Clients are spending less on the kind of entertaining, seductive, fame-generating campaigns in which ad agencies specialise, and more on the ads that flash and wink on your smartphone screen.The ad industry views itself as a field of applied artistry, a next-door neighbour to the entertainment industry. Though it often fails, it aspires to surprise, charm, move and delight people on behalf of its clients. The ad business is obsessed with data science, and distrusts the messy stuff of story, image and idea. The ad industry thinks of itself as the custodian of a brand’s meaning in popular culture. The ad business could not care less about such fluff. Instead, it seeks to identify the precise moment that a consumer needs something so that it can trigger a sale. Shopping, on its model, is essentially an engineering problem to which a satisfyingly logical solution has finally been found.
The ad business is largely automated. Clients only have to decide how many people they want to reach, and how much they want to spend; algorithms do the rest. In the milliseconds before a page loads on to your screen, a virtual auction takes place. Advertisers bid for the chance to place their client’s ad on it, based on data about your online behaviour: where you live, whether you’re young or old, recently shopped for shoes or searched for a car brand. The advertiser might create multiple ads and serve different executions to different slices of its audience. Some companies, such as Cambridge Analytica, claim to be able to target personality types using this method. The more valuable your particular profile is to the advertiser, the higher price its algorithm will pay the publisher to get an ad in front of your eyes. In this way, every scintilla of attention is transformed into money.
The ad business is insanely profitable. It has turned Google (worth $750bn) and Facebook ($600bn) into bloated zeppelins of cash. It is also the engine of the free internet, providing the funds for most of what you read and watch online. But the ad business has problems. Algorithms are poor at making judgements that seem obvious to humans, like whether or not a soap brand will be happy having its ads run next to an Isis recruitment video. Consumers have proved ungrateful for the increased “relevance” of the ads that pop up on their screens, partly because so many of them are bafflingly irrelevant. Tiring of the aggressiveness with which online ads insert themselves between them and the content they wish to see, more and more people are using ad-blockers to combat what they regard as infestation.
Clients have even started to question the ad business’s claim to efficiency. The model I described above is a simplified version of a dizzyingly complex system whose details few can fathom, involving multiple companies taking multiple fees. Unsurprisingly, fraud is rampant. It is estimated that at least a third of the audience for online ads are bots: criminal groups make millions of dollars selling fake clicks to advertisers and their agencies. Nobody can say for sure how well advertising on Facebook works, since Facebook refuses to share data with industry bodies. Because of concerns such as these, the world’s biggest advertiser, Procter & Gamble (P&G), cut its digital marketing budget by $200m in 2017 and reallocated the money to other media, including television.
Rather than recovering lost ground, the ad industry is paralysed by an identity crisis. Most agencies are owned by a handful of global advertising groups, such as Omnicom or WPP, founded by Martin Sorrell, which have moved their operating firms out of homes in expensive parts of town and into anonymous office blocks, partly to disguise the deterioration of their core business. The groups have made a half-hearted attempt to transform themselves into data-driven technology companies, but have succeeded only in legitimating the overblown claims of their competitors, and disappointing the stock market.Ad agencies no longer seem to know what they are for. Their executives like to declare that they don’t work in advertising, since “ads” are associated with a pre-internet world. Yet when asked to say what it is they actually do, they become vague (“communication”) or grandiose (“create culture”). The industry is Balkanised, the engineers talking a different language to the storytellers. Scott Galloway’s lecture articulates the worst fear of the latter: that there is no need for them any more. Yet not everyone is ready to accept redundancy.****“Flowers are ads. Peacocks’ tails are ads.” Rory Sutherland, vice-chairman of Ogilvy & Mather, and the ad industry’s most vigorous defender, is in full flow over lunch at his agency’s offices in Blackfriars. “One reason I’m not predicting the death of advertising any time soon is that you can see how important it is in nature. A flower is basically a weed with an advertising budget.”
Sutherland believes that something in the mindset of technologists makes it hard for them to see or admit the value of advertising. Peter Thiel, one of Silicon Valley’s more unconventional thinkers, once observed that “nerds are sceptical of advertising, marketing and sales because they seem superficial and irrational. But advertising matters because it works. It works on nerds, and it works on you.” Engineers tend to conceive of advertising – insofar as they think about it at all – as a mere conduit for information about the product, which in their mind should speak for itself, without the superfluous operating system of a brand. Rory Sutherland argues that efficiency is overrated, and that excess and superfluity are weapons that marketers surrender at their peril....MUCH MOREMr. Sutherland is himself a bit of a nerd with expertise in behavioral science and finance. Here he is with Stephen Dubner at Freakonomics:
The Maddest Men of All (Ep. 198)
Our previous Freakonomics Radio episode, “Hacking the World Bank,” discussed how Jim Yong Kim, president of the World Bank, is using the insights of behavioral economics to fight poverty. Kim acknowledged that non-profits like the World Bank are playing catch-up:And here he is with Daniel Kahneman via the Imaginarium channel:
KIM: If you were to go to Ogilvy or any of the big public-relations companies and give them this [new World Bank report on behavioralism], I think they would laugh at us in the sense that they would have been utilizing these insights very aggressively for a very long time.This week — voila! — we have a story about how Ogilvy (& Mather), the global marketing and advertising giant, is indeed pushing the limits on how behavioral insights can be applied in the real world. The episode is called “The Maddest Men of All.” (You can subscribe to the podcast at iTunes or elsewhere, get the RSS feed, or listen via the media player above. You can also read the transcript, which includes credits for the music you’ll hear in the episode.)
The star of the show is Rory Sutherland, the voluble and iconoclastic vice chairman of Ogilvy & Mather in the U.K. (If you’ve never read David Ogilvy’s Confessions of an Advertising Man, do yourself a favor and do so immediately.) I met him last year in London and was nearly overwhelmed by his passion and knowledge of behavioral economics....MORE
Prof. Daniel Kahneman talks Behavioural Economics with Rory Sutherland.