Why You Hate It: Internet Advertising

A Familiar Tale

I have posted previously about the annoying tendency of ads for products we have already purchased to follow us around the internet. My favorite recent example is the ads I see for the hotel I frequently stay at. When I connect to the internet in my hotel, I am automatically routed to the hotel’s website. I quickly exit the site, so I probably look like someone that was considering booking a reservation, but didn’t. I cannot imagine that it is very difficult to segment out the visitors to the hotel’s website that occurred inside the hotel, but apparently it’s not worth this hotel’s time to avoid wasting money on me.

This problem is not unique. It happens frequently and is the subject of many complaints. The problem, I believe, is the result of an inefficient market for online advertising, and is exacerbated by the fact that marketers are trapped in a prisoners dilemma. Advertisers may not want to show us ads for products that we have already purchased, but since they don’t know what their competition will do, it is their best defensive move.

The financial model for most websites (especially free ones) is this: companies that collect data on us and sell ad space on the internet know that I have “expressed interest” in a given product. They then let marketers purchase my attention by showing me the same product I have viewed previously, when I visit various websites around the internet. If this works correctly, I will only see products that I have considered purchasing, but have not yet. However, as we all know, it is very common to see ads for the products we have purchased. The result is an inefficient marketplace with a poor user experience.

Setting The Stage

To help illustrate this scenario, let’s say that I have recently purchased Marmot Men’s Traverse Glove and that I purchased them through Backcountry.com. Purveyors of data recognize this and lump me in with a group of people that are “very interested” in this product or similar products. My attention is then put up for auction. To anyone. So when I traverse the web, ad tech companies let the entire business world know that someone who is very interested in Martmot Men’s Traverse Gloves is about to view a certain web page. Keep in mind that Backcountry is not the only retailer that offers these gloves, and that these gloves are not my only option to keep my hands warm. Backcountry has just become the prisoner in our example.

Now, let’s consider what happens from my side of things. One website I frequently visit is WGR550.com. When I visit, I often see the products I have either browsed or purchased recently. This is a local sports radio station’s website in Buffalo. Traffic to this site, compared to NYTimes.com or WSJ.com, is relatively low. So from an advertiser’s standpoint, it’s a pretty inexpensive way to get my attention.

Back to the dilemma facing Backcountry – our prisoner. They understand that I have been very far down their sales funnel. They just don’t realize that I have been all the way through the funnel. Sure, they have a general understanding that there is a chance that I have actually checked out (they probably even know the % likelihood that I have), but they aren’t able to connect the dots that the person that just checked out on their site is the same person that is now visiting WGR550.com, and whose attention is currently up for sale.

Think about his. They have put in all effort to merchandise their site with quality products, marketed it well enough to drive me to their website, designed a user experience that got me to check out, and worked out the logistics of shipping me the gloves. Yet, they don’t have the confidence in their marketing program to believe that they closed the sale. They keep marketing to me even though they executed everything to perfection.

It makes sense for them to want to close as  many sales as possible. So maybe they have made a conscious decision to lump in the people that have already purchased the gloves with their target audience of of people that are “very interested”. It may make sense for them to be a little overly aggressive with this group. However, they also need to consider that if they don’t continue to market to me, what if someone else does? This is why I consider this to be a type of prisoner’s dilemma.

Who else knows about me?

Based on my interactions with Backcountry’s (and other retailers’) various digital properties, ad tech firms have likely identified me as someone “highly likely to purchase outdoor apparel”. While Google and Facebook can’t sell the fact that I have bought the gloves to other advertisers, they could certainly slot me into a segment of consumers that would likely buy a similar product. And there is nothing preventing them from selling my attention to someone else that sells those same gloves.

In an efficient market, with rational actors, the prudent course of action for Backcountry would be to rely on the same marketing strategy that got me to their site in the first place. They should have confidence in their own metrics, which would tell them that at least some of the people that have been to the “view cart” page have continued to complete their order. The problem is that ad tech firms knows this too – maybe not to the degree that Backcountry does – but they know enough to be dangerous. And they are willing to sell this information to one of Backcountry’s competitors. So Backcountry has to swallow the cost of advertising the same gloves to me that I have just purchased to prevent their competition from having the opportunity to start a new relationship with me and win my next purchase. My guess is that this is cheaper than building an effective post-sale media campaign. After all, they have my email address now so they can worry about post-sale tactics via email.

Why am I confident that this is the case? Because I see ads for products that I have bought. And it is also highly likely that the people that pay for these ads also have the same terrible experience shopping on the internet. They have to know what a horrible ad buy this is, and they still proceed.

Why don’t I ever see the competition’s ads? Well, to all other advertisers, I am much further up their sales funnel, and therefore my attention is worth less. Even if Backcountry figures out a lot of the people they are targeting with these ads have already purchased from them, they are still forced to buy my attention because ad tech firms are holding them captive. If they don’t pay for my attention, one of their competitors will.

A Terrible Experience

What we are left with is a terrible user experience on the internet. With the effectiveness of UX experts and Optimization teams today, this kind of efficiency should be eradicated from the internet. At least it would be if the inefficiency were plaguing the internet’s customers. We’ve all heard the cliche that if you aren’t paying for a service, you are the product, not the customer rings true here. With Facebook, Twitter, Google – we are certainly the product. When we are surfing the web, we are more of a hybrid. Content is crafted for us, in the form of video and text. However, for the advertiser’s whose money keeps the internet running, we are the product. I also find this problem to exist on sites I do pay to access content on.

UX and optimization won’t save us from this either. This is a fundamental flaw in how the economics of the internet work. Unless we all as a society reach a point where we are willing to pay for content on the internet with something other than a willingness to view ads, this problem won’t go away.

Economic Theory’s Blind Spot

Richard Thaler won a Nobel Prize in Economics for building the case that economists need to pay more attention to human behavior, and that we are not all rational actors. One of the foundations of economic theory had been that humans behave rationally and make decisions based on our best interests. This is what drives an efficient market. Thaler essentially proved this not to be the case.

I bring this up because it is doubtless that the ad tech marketplace has become extremely inefficient. My theory about the prisoner’s dilemma may border on conspiracy, but there is no denying that a lack of efficiency exists in this market. While it is unfortunate that marketers are wasting money, the real victims are consumers. Consuming content has become a headache of auto-play ads startling you at work and dynamic ads pushing text off the screen as you try to scroll through an article. We tolerate this because much of the content we consume on the internet is free. However, like with Spotify, consumers have shown a willingness to pay for something that provides value over a free alternative. Let’s just hope that some rationality finds its way to the ad tech marketplace soon.

 

 

Final Four on Cable

I was surprised on Saturday night to find that the Final Four was airing on TBS, rather than CBS as it has for most of my life. As a cord cutter with access to a login to get me TBS, this did not prevent me from watching the Final Four. I imagine that it did for many in the cord cutting generation, especially those for whom the Final Four is not particularly important.

I suspect that this recent channel switch is driven by cable companies. They either believe that the Final Four is a big enough event that people would find a way to watch on TBS; or cable companies are trying to migrate tent-pole events to cable stations, in an effort to stem the tide of cord cutting. After all, we are already accustomed to the NCAA Championship in football being aired on ESPN, why not have a similar arrangement with basketball?

I understand the motivations of TBS and its fellow basic cable friends. They need these kinds of events to ensure they solidify a place in our lives. They seem to be throwing enough money at the NCAA to let them air one of its pinnacle events on a station that not all that many of us pay for anymore.

This is very shortsighted from the NCAA’s standpoint. While CBS/TBS is probably paying them handsomely today, they risk losing an entire generation of fans. Surely, many Villanova students asked their parents for a log in on Saturday night, but what about the casual sports fans? Young people have plenty of entertainment options today – especially on a Saturday night – and it is likely that for many casual fans and non-fans, the Final Four will stop being a part of their lives. The ratings were unsurprisingly down from the 2017 Final Four, which aired on CBS. This is despite a Final Four consisting of a remarkable cinderella story featuring Loyola Chicago and Sister Jean, two number one seeds, and one of the largest and most loyal fan bases in Michigan.

The network executives that decided to air the games on TBS are probably ok with the drop off in ratings. It likely fits their broader strategy of TBS emerging as a place for quality sporting events to live. However, the NCAA needs to make sure they are not hurting their brand. For Americans over the age of 25, the Final Four is undoubtedly must-see television. March Madness is an American holiday on par with Thanksgiving. This used to be true of the World Series, now the average baseball fan is 53 years old. That is not a lucrative advertising market, and is further compounded by a decrease in interest of children to play baseball. The NCAA has enough problems on their plate, they don’t need to further complicate matters by ostracizing younger generations by airing the Final Four on a network none of them subscribe to.