week 22 - Bad news for online advertisers – you’ve been ’ad, John Naughton

Precision marketing through digital and social media aims to open our hearts and wallets.
There is, alas, no such thing as a free lunch. The trouble with digital technology, though, is that for a long time it encouraged us to believe that this law of nature had been suspended. Take email as an example. In the old days, if you wanted to send a friend a postcard saying: “Just thinking of you”, you had to find a postcard and a pen, write the message, find a stamp and walk to a postbox. 
Two days later – if you were lucky – your card reached its destination. But with email you just type the message, press “send” and in an instant it is delivered to your friend’s inbox, sometimes at the other end of the world. No stamp, no expense, no hassle.

It is the same with using the cloud to store our digital photographs, browse the web, download podcasts, watch YouTube Lolcats, look up Wikipedia and check our Facebook newsfeeds. All free.Well, up to a point. Most of us eventually tumbled to the realisation that if the service is free, we are the product. Or, rather, our personal data and the digital trails we leave on the web are the product. The data is sliced, diced and sold to advertisers in a vast, hidden – and totally unregulated – system of high-speed, computerised auctions that ensure each user can be exposed to ads that precisely match their interests, demographics and gender identity.

And this is done with amazing, fine-grained resolution: Facebook, for example, holds 98 data points on every user. Welcome to the world of “surveillance capitalism”.

Still, consider the benefits for advertisers. Once upon a time, advertising was like carpet bombing. You paid a lot of money to put ads in newspapers and magazines or on television and billboards, but it was all hit and miss: you could never be sure what worked. As a US department store magnate, John Wanamaker, once said: “Half the money I spend on advertising is wasted; the trouble is, I don’t know which half.”

They might. But eventually people will ask: what’s the rate of return of online advertising? Who’s benefiting from this vast, opaque, unregulated, unmonitored and ultimately user-hostile online auction system? Part of the answer may be glimpsed in the share prices of Google and Facebook. But mostly it’s to be found in the profits of the data-brokers, cookie monsters, trackers and other corporate creatures that lurk in the shadows cast by the internet giants. And they’re not talking.