The targeting game
We have an information gap for discussing the ad
targeting problem. There are papers that, if you
put them together, help substantiate the argument
that adtech is bogus. But they're behind paywalls.
Here's a good one. "I'm not a high-quality firm,
but I play one on TV" by Mark N. Hertzendorf.
RAND Journal of Economics, vol. 24, number 2,
summer 1991. $24 to download. I have a copy
because I helped Doc Searls with some research for his
book, The Intention Economy,
but you probably don't. (I promise I'll get
to the Open Access rant some other time. Yes, “closed
data means people die” but we'll talk about
Advertising is a form of signaling.
Rory Sutherland, vice-chairman of Ogilvy Group, said,
To a good decision scientist, a consumer
preference for buying advertised brands is perfectly
rational. The manufacturer knows more about his
product than you do, almost by definition. Therefore
the expensive act of advertising his own product is
a reliable sign of his own confidence in it. It
is like a racehorse owner betting heavily on
his own horse. Why would it be “rational” to
disregard valuable information of that kind?
But advertising can break down as a signaling
method when the medium is noisy enough that the
probability of an individual user seeing an ad is
low enough. Hertzendorf writes,
noise complicates the process of customer inference.
This enables a low-quality firm to take advantage of
consumer ignorance by partially mimicking the strategy
of the high-quality firm. That's in an environment
where the presence of many TV channels makes it harder
for the audience to figure out who's really trying
to signal. Noise helps deceptive sellers.
But what happens when we introduce targeting? Let's
give the low-quality seller the ability to split the
audience, without the audience members knowing, into
marks and bystanders, with marks receiving the ad at
higher probability. In that case, marks receive the
signal of a high-quality seller, and the bystanders
receive the signal of the low-quality seller.
Something that I just figured out from going over this
paper again is that the splitting of the audience
doesn't have to be accurate in order for adtech
to work. Rebecca Lieb, at iMediaConnection, points
out that her BlueKai profile is largely false, and writes,
If ad platforms aren't delivering the targeting
that advertisers are paying for, the emperor has
Au contraire. Ad platforms are doing their work
just fine. Targeting works even if it's inaccurate,
as long as it can reliably split the audience.
Even the most basic cookie scheme will do that.
An ad network can randomly call some users left-handed
and others right-handed, or divide them by height,
or whatever. The only important thing is to split
the audience persistently, so that some have a higher
probability of receiving an inaccurate "high-quality"
signal from a deceptive seller.
Where sellers in Hertzendorf's scenario must rely on
increasing noise in the medium in order to deceive,
targeting lets them make the first move.
We're still in the early stages of the game, though.
If an individual is aware that targeting is possible
and doesn't know if he or she is mark or bystander,
the signal is lost. So you get the effect that I
think is happening in web advertising, with the value
of the entire medium going down, even for advertisers
who do not target.
However, some buyers are still unaware of the
extent of targeting. One politician saw an ad for a
dating site on a political party press release
and attributed it to the party, not to the Google ad
service used on the site where he read it.
From my point of view inside the IT business,
a lot of the adtech stuff looks old and
obvious, but some of the audience is still
figuring it out. People already detest and block the
email spam that the Direct Marketing Association
worked so hard to protect, because that's
obviously "addressed to me." Understanding web
ad targeting is taking a lot longer, which is
understandable because it's so complex. (see bonus
links below for introductions to the current state
of the art.)
The signaling power of an ad campaign is the
seller's advertising expense as estimated by the
buyer. Advertising that is itself costly, such as
celebrity endorsements or signs in high-cost areas,
has what you might call "creative signaling power."
Advertising that is attached to a high-cost medium,
such as Vogue magazine or the Super Bowl, has "media
buying signaling power". And there's a multiplier
effect from the quality of the ad itself, since
some ads are more memorable than others and tend to
make people think that they've seen them more often.
(so quality does not map directly to "informative"
When an ad appears in a medium that facilitates
targeting, the media buying signaling power tends to
go away, depending on the accuracy of the targeting and
the audience member's knowledge of the extent of
Brand advertisers, who Doc
Searls splits out from direct
response advertisers, seem to have
an understanding of the targeting problem. John
Hegarty, founder of the ad agency Bartle Bogle
I'm not sure I want people to
know who I am. I find that slightly Orwellian and I
object to it. I don't want people to know what I drink
in the morning and what I drink at night. I think
there's a great problem here - throughout history
we have fought for our freedom to be an individual,
and you're taking it away from us. I think there'll
be a huge backlash to that and Nike will have to be
The great thing about advertising
is that no-one takes it personally.
On the audience side, we have the feeling of "creepy",
which is hard to pin down, but that I think is an
important notification from your inner economist
about an information imbalance, which you would be
mistaken to ignore.
So here, roughly, are the rounds of the adtech game.
It would have been an interesting experiment to play
them out in order, but this is a real-time strategy
game, not a turn-oriented game. Some players have
gotten to round 3, and others are still on round 1,
or think they're on round 1 and are getting beaten
at round 2.
Round 1: Targeting that partitions the audience
without the audience's knowledge. Need not
be accurate because a persistent split is
enough to attract low-quality sellers. I'm
using "low-quality" in the economics paper
sense, not the "haha your phone sux and mine
r00lz" sense. Most adtech people are not in it to deceive,
but from a misguided quest
for efficiency that follows from a lack of
understanding of signaling.
Round 2: Audience
begins to understand
targeting. Ad blocking increases, value
of web ads decreases. Increasingly crappy web
ads drive demand for privacy tech.
Round 3: Privacy tech, such as stricter
treatment of third-party cookies,
makes targeting more difficult and
less accurate. The value of advertising
across the entire medium rises, and the sites
that pay for original content are able to get more ad
revenue and control,
the expense of adtech middlemen.
Just as targeting didn't have to work with total
accuracy to give an advantage to deceptive signalers,
privacy tech doesn't have to be 100% to push things
back in the other direction.
Surveillance Is About To Make Your Online Targeting
Seem A Lot Less Creepy
NewsCred Blog: How magazines can stay relevant in the era of branded content and digital marketing
Jim Brock: Would Do-Not-Track lead to “data oligopolies”?
Adam Lehman: Just
Who Do The Data Paranoiacs Think We Are?
Scott Meyer: Why Is Another Browser Company Forcing Naive Decisions on the Internet?
Mike Daly: Today’s
Burning Question: Firefox to Block Third-Party Cookies
Doc Searls: How advertising can regulate itself
Advance look at post-adtech web ads: Village
Soup Shows ‘Native’ Ads Can Work on Local News
What everyone should know about ad serving
How and Why We Track: Confessions of an Ad "Tracking" Company
7 things you don't know about ad networks and are afraid to ask
Syndicated 2013-03-31 16:40:06 from Don Marti