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Going to California: Meta Platforms headquarters in Menlo Park. Picture: Bloomberg/Nick Otto
Going to California: Meta Platforms headquarters in Menlo Park. Picture: Bloomberg/Nick Otto

How do you pump R4bn back into SA’s economy? Well, if everyone stopped advertising on Google, Facebook, YouTube and Instagram, that money could flow directly into the SA economy instead of into the bank accounts of foreign companies.

It’s a radical suggestion, and one that is unlikely to actually come about. However, it does give a sense of the cost to the SA economy for a service that is much less reliable than the advertising industry would have you believe.

For many, these tech giants are the face of the democratisation of information. Facebook connects you, for free, with the rest of the world; Google helps you find everything you could possibly want, for free; Instagram soothes the soul, for free.

Yet behind the scenes, nothing is free. The user is the product, and these tech giants are apparently manipulating the economics in an increasingly unethical way.

The US government, for example, recently alleged that Facebook and Google colluded in an "illegal price-fixing agreement" for advertising, in which Facebook would win the auction, no matter what anyone else had bid. Both companies dispute the claim of illegality. But if it’s shown to be true, it would mean other companies were duped into believing that by using Google’s Open Bidding platform, they were part of a legitimate economic transaction.

Don’t be fooled by Big Tech’s tagline of it all being free; there’s big money at stake. Consider, for instance, that when Apple introduced its App Tracking Transparency tool last year, which requires apps to ask users for permission to track their activity and share it, Facebook said it lost an estimated $10bn in revenue.

Facebook, whose business is premised on the ability to soak up people’s private information and sell it, lost $252bn from its market value in a single day in January, amid the wider slide in tech stocks.

All of this speaks to a bigger problem for Google and Facebook: abuse of their business model, it seems, is rife.

Respected US advertising figure Bob Hoffman has railed for years about how Facebook and Google hijacked the digital advertising industry, putting other local firms out of business in the process.

"Publishers shot themselves in the foot by not protecting their content like the music and movie industries did," he tells the FM. "The programmatic ecosystem is a disaster. Advertisers are getting cheated, fraud is rampant, and it is spewing personal private data all over the web."

With programmatic advertising, companies pay digital firms like Facebook and Google to place their adverts on various web pages, using an automated algorithm. Supposedly, it allows advertisers to reach more people, for less money — or, as Google tells the FM, the technology "helps websites and apps fund their content, and enables small businesses to reach customers around the world."

Critics, however, say it is the digital equivalent of throwing spaghetti on a wall and seeing what will stick.

CPM — or "cost per thousand" — is the default metric for measuring the cost of clicks. The language alone is a way to persuade would-be users that the only companies able to deliver on this impossible metric are these advertising giants.

Hoffman says: "Facebook metrics have been shown to be completely unreliable. Anyone who believes them is an idiot."

As much as $350bn a year is spent on digital advertising, by Hoffman’s count. But he says the online ad business is a disgrace. "It is corrupt, unreliable, and dangerous."

In 2019, Google and Facebook between them accounted for more than half of all digital advertising spend, using programmatic advertising. This automated system accounts for more than 60% of all online advertising, according to researchers.

Only, advertisers are being duped about how efficient this is. Hoffman describes a "programmatic poop funnel," which illustrates how much money is lost between someone buying digital ads and the amount of money received by the digital publisher.

"According to a two-year study by the [advertising body] ISBA, 51% of ad dollars actually get to a publisher; 49% don’t," he says.

That means half of a company’s digital advertising budget is simply being sucked up by friction in the system. In digital ad-speak, that is the cost of using the railway. And as one lawsuit suggests, Google’s own railway fees were 19%-22%. (The company disputes this, saying its "standard revenue share for Open Bidding is 5%-10%".)

Increasingly, advertisers are cottoning on to how they’re being conned.

Trusting the metrics trotted out by the tech giants is problematic for a number of reasons, says Nicholas Bednall, the former CEO of ad agency BBDO Cape Town and co-founder of digital agency Gloo.

"First, the metrics have been proven to be inflated, misrepresented and false. The US Association of National Advertisers estimates that 70% of programmatic media spend is unseen," he tells the FM.

"This, coupled with a high prevalence of fraudulent ‘clicks to download’ history, should make advertisers very cautious about where they spend their advertising budget. For example, app-tracking firm AppsFlyer claims that 28% of the African app marketing spend is fraudulent."

It’s clearly a global problem. Internationally, at least 20% of digital advertising is fraudulent, according to University of Baltimore professor Roberto Cavazos.

"For 2020, across the various platforms, our fraud estimates are conservatively $28bn. Potentially, it could be upwards of $50bn," he tells the FM.

It’s more than just leakage in the programmatic advertising model, Cavazos says. For instance, a publisher may be getting lots of clicks — and paying for them — but this doesn’t necessarily translate into real people seeing adverts.

"There could be a competitor who’s fairly unscrupulous, who has a bot click on your app. And so, you are paying dollar upon dollar, rand upon rand, for clicks that are going nowhere, that your competitor is using to basically draw down your advertising budget," he explains. "It’s actually more common than people realise, especially for small to medium businesses."

Like many observers, Cavazos highlights the often-cited 2%-3% conversion metric used by advertisers, which supposedly suggests that this percentage of customers will ultimately click on an advert. But this, he says, is just "a legacy or vanity metric". Even though "clicks are important, it does not lead to conversions or to customers".

In SA, it is estimated that R4bn is spent on all digital advertising with the tech giants, including Google and Facebook. This is actually a conservative estimate by World Wide Worx CEO Arthur Goldstuck, based on close industry observations.

It’s suboptimal for a number of reasons, not least of which is that an estimated 70% of programmatic advertising is ignored by weary web users.

Google headquarters in Mountain View. Picture: Bloomberg/David Paul Morris
Google headquarters in Mountain View. Picture: Bloomberg/David Paul Morris

Stifling the flow of information

One of the biggest ironies about the business models of Google and Facebook is that while they talk of "democratising information", their monopoly over digital advertising has taken revenue from genuine news organisations, causing thousands to close.

As the media industry struggles around the globe, Facebook clocked up $54bn in revenue in the first half of 2021 alone — many times the GDP of countries like Eswatini and Lesotho, for example.

"For the past five to 10 years publishers have spent a lot of time trying to unwind the mistake of basically allowing third-party ad-tech to take over their business agendas without necessarily sharing their values," says Aram Zucker-Scharff, the engineering lead for privacy at The Washington Post.

In 2018, Facebook was accused in court of inflating its video view numbers by 900%. In 2016, its definition of a "watched view" was 10 seconds, according to the filing. That’s less time than it takes to ignore the adverts at the beginning of a YouTube video. The average time a Facebook video was watched was 10 seconds.

It’s another example of how the group seems to have inflated its figures.

Now, given the evidence suggesting deception, various state attorneys-general and US government agencies, including the Federal Trade Commission, are taking on Google, Facebook, Amazon and Apple over their apparently anticompetitive behaviour.

Texas attorney-general Ken Paxton, for example, is leading a multi-state lawsuit against Facebook and Google for an alleged "illegal price-fixing agreement", the details of which were unredacted in January.

Though it has yet to be tested in court, much of the evidence in the case seems to be based on leaked e-mails from the two companies.

In what would seem to be a smoking gun, a recently unredacted part of the suit includes a 2018 e-mail that Facebook COO Sheryl Sandberg apparently wrote to CEO Mark Zuckerberg about this deal, in which she says: "We’re nearly ready to sign and need your approval to move forward."

Paxton claims that Google CEO Sundar Pichai and Zuckerberg personally signed off on this "illegal price-fixing agreement".

"Google is a company standing at the apex of power in media and advertising, earning revenue over $65bn per quarter, or $712m per day, almost all from advertising," Paxton says in his lawsuit.

Google, of course, disputes the merits of the case. "Despite attorney-general Paxton’s three attempts to rewrite his complaint, it is still full of inaccuracies and lacks legal merit," the company tells the FM, adding that it will continue to fight this case in court.

Still, the lawsuit is clear that nearly all of today’s online publishers depend on one company — Google — as the middleman to sell their online ad space in ad exchanges, the centralised electronic place where display ads are bought and sold.

Nearly every consumer goods company, e-commerce entity and small business "now depends on Google as their respective middleman to purchase display ads" through exchanges to market to consumers. In effect, it means Google represents both the buyers and the sellers of online display ads.

"Google operates the largest electronic trading market in existence [AdX]. Whereas financial exchanges such as the NYSE [New York stock exchange] and Nasdaq match millions of trades to thousands of company symbols daily, Google’s exchange processes about 11-billion online ad spaces each day."

The case quotes Google itself: "Hundreds of thousands of publishers and advertisers use [Google’s] AdX to transact inventory, and more daily transactions are made on AdX than on the NYSE and Nasdaq combined."

Google also owns the largest buy-side and sell-side brokers. As one senior Google employee admitted: "The analogy would be if Goldman or Citibank owned the NYSE."

More accurately, says Paxton, "the analogy would be if Goldman or Citibank were a monopoly financial broker and owned the NYSE, which was a monopoly stock exchange".

To cement its dominance across online display markets, "Google has repeatedly and brazenly violated antitrust and consumer protection laws," Paxton alleges in his suit.

"Its modus operandi is to monopolise and misrepresent. Google uses its powerful position on every side of online display markets to unlawfully exclude competition. It also deceptively claims that ‘we’ll never sell your personal information to anyone’, but its entire business model centres on successfully leveraging users’ personal information through targeted advertising."

As the attorneys-general argue: "In this electronically traded market, Google is pitcher, batter and umpire, all at the same time."

Google’s fightback

Programmatic advertising lies at the heart of this beast, as advertisers bid to win a publishing slot on a web publisher’s site. In the space of milliseconds, multiple exchanges participate in the auction, and theoretically the highest bid wins.

But the system lacks transparency and accountability, so as publishers got more tech-savvy about what was happening, Google tried to wrest control back.

When web publishers, wary of the advertising giant’s opaque systems, set up their own auction system (called header bidding) Google apparently colluded with Facebook to bypass them.

"Google quickly realised that this innovation substantially threatened its exchange’s ability to demand a very large — 19%-22% — cut on all advertising transactions," Paxton’s filing reads.

And so Google is said to have got Facebook to agree to use its system — called Open Bidding — and in return gave Facebook a set number of "automatic wins".

"Unbeknown to other market participants, no matter how high others might bid, the parties have agreed that the gavel will come down in Facebook’s favour a set number of times," says a draft version of the complaint published by The New York Times.

To add insult to injury, Google then apparently "pocketed the difference between what it told publishers and advertisers that an ad cost, and used the pool of money to manipulate future auctions to expand its digital monopoly".

Asked for comment, Google says Paxton is making "misleading claims" about Facebook’s participation in its Open Bidding programme. "Facebook Audience Network’s [FAN’s] involvement isn’t a secret," a Google spokesperson tells the FM. "In fact, it was well-publicised and FAN is one of over 25 partners participating in Open Bidding."

In any event, the company adds, Open Bidding is an "extremely small" part of Google’s ad-tech business — less than 4% of the display ads the company places. And it’s drawing down 5%-10% revenue share — not the 19%-20% Paxton claims.

As for the allegations that Google has manipulated the auction in Facebook’s favour, the spokesperson says this is "absolutely" not so. "FAN must make the highest bid to win an impression."

Asked about Facebook’s position, a spokesperson for Facebook parent company Meta ignored many of the specific questions.

However, they do say that while the group will "co-operate" with the investigations into its advertising practices, "Meta’s nonexclusive bidding agreement with Google, and the similar agreements we have with other bidding platforms, have helped to increase competition for ad placements".

This has allowed Facebook to "deliver more value to advertisers and publishers, resulting in better outcomes for all". But the company refuses to reveal how much Facebook makes from advertising in SA.

If, however, the attorneys-general are right, Google and Facebook will have undermined the transparent process publishers created.

The deal would have given Facebook such an advantage that it would be like allowing the social network to "start every tournament in the finals", says Adam Heimlich, CEO of Chalice Custom Algorithms, a data science and market agency in the US.

The problem, says marketing guru Heidi Brauer, is that programmatic advertising is technical and complex, and marketers allowed themselves to be manipulated.

"The minute any kind of new thing arrives ... it gets a lot of attention," says Brauer, the chief marketing officer of Hollard. "With digital, agencies came along and put a flag on that mountain to own it, to the exclusion of everybody else."

However, she says, "most marketing is not measurable or attributable. The minute you get something that purports to be, everybody believes it".

And they believe it to their detriment — especially given how much money is sucked up by the numerous middlemen in the programmatic advertising ecosystem.

"People don’t know a million from a billion," Brauer says of the widely used metric of cost-per-thousand. "They don’t know how many zeroes to put on it. The marketers know that the accountants, who are really running the business, are so happy [with the] big numbers, they don’t question its effectiveness."

There is now a more disturbing trend, she argues, because the industry believes in this muddled logic and inaccessible complexity.

"For marketers the wool has been pulled over their eyes for so long, they don’t know what they don’t know any more."

Cutting through the toxic deception

Jarred Cinman, CEO of ad agency VMLY&R, has been trying for years to get his clients to see how toxic Facebook, Google, YouTube and Twitter are — and why they aren’t a good environment for advertising.

"Brands need to take a stand not against evil corporations, but against junk content and valueless audiences," he tells the FM.

"It is possible to reach most of the economically viable South Africans with content that is resonant and valuable, not cynically assembled by a machine to stimulate our amygdalas."

This is how it was done in the "old media" world of print. "But we have all undergone a collective digital amnesia," he says. "The answer is not to be found in the dying embers of print, radio and TV. It’s in a version of the digital world in which quality means something again."

Part of the problem is that Google and Facebook have convinced the market that they are the only companies that can supply digital advertising.

"And it is not only clicks per thousand," says Bednall, "it is the range and depth of the software tools they offer brands and advertisers to slice and dice audiences, plan and implement campaigns and report on metrics which mostly benefit Google/Facebook rather than the brands that patronise them."

But, he adds, as Google and Facebook became the largest advertising companies in the world, their core product suffered. "Think how poor a Google search result is these days and how Facebook is just a complex birthday calendar for most people.

"Yet their revenues are spectacularly large and have been compounding for a decade or more.

"The reality is their greatest product is their [business-to-business] products, the ability to absorb an enormous amount of data, package it and sell it back to brands and advertisers, who bid against each other, driving up price."

Bednall says this omnipotence has put money into their coffers and consumer data into their virtual vaults — but it has come at the expense of fact-checked independent media publications.

For example, some advertisers were shocked to discover their adverts appearing on YouTube next to beheading videos — which Google addressed only after an outcry and advertising boycott in 2017.

"On top of that, brands find themselves in an unenviable position of unintentionally placing ads next to hate speech videos and paying for it," says Bednall.

Paxton’s case seeks to rubbish Google’s own narrative that it has grown to become the giant it is through innovation.

"Google’s rise to dominance in display advertising markets began not with its own innovation, but with the acquisition of existing companies. Google continued to grow and shield this power by choosing deceit over honesty and exclusionary tactics over competition on the merits," he says in legal papers.

The deeper question is: how do you fix it?

Brauer believes marketers need to use their own best weapon: an intuitive understanding of what really works.

"The answer is to diversify your media spend," she says. "Meet your market where it is, not where some big number makes you think it is. Humans aren’t only staring at YouTube or Facebook."

Though the widely held belief is that you can’t manage what you can’t measure, her flipside is: you can’t only do what you can measure. "You have to do other stuff that your gut and experience as a marketer tell you to do. Size doesn’t always count."

This is precisely why Cinman tells his clients they should advertise directly with publishers. He suggests SA firms allocate "not everything, just 5%" to this direct marketing, known as native advertising. "This immediately gives SA media owners a bite of a larger pie."

And, he adds, "local relevance, cultural resonance, and great quality content are a viable alternative to the hit-and-miss nature of algorithms".

Yet Bednall and Cinman both believe Google and Facebook — by virtue of their size — do have a role to play in our society.

"Because of their enormous reach and their prominence, it is unlikely they can be dumped initially," says Bednall. "But smart marketers are already weaning themselves off these platforms, and encouraging their consumers to interact directly."

And, adds industry analyst Benedict Evans, an avowed critic of programmatic advertising, there are thousands of companies measuring their own traffic, "and they can see perfectly well whether they get a [return on investment] on their ad spend".

The buck stops here

Arguably the media industry is its own worst enemy. It often accuses Facebook and Google of being its biggest threat, but the real hazard is that media companies don’t try to understand the digital world.

It’s a logic you can apply across all industries, as the rapid digitisation of just about everything has radically changed how we work and live.

Clearly, the era in which Big Tech was allowed to do whatever it wanted, without consequence, is coming to an end.

In February, US President Joe Biden acknowledged Facebook whistleblower Frances Haugen’s revelations in his first state of the union address.

"We must hold social media platforms accountable for the national experiment they’re conducting on our children for profit," he said. "It’s time to strengthen privacy protections, ban targeted advertising to children, demand tech companies stop collecting personal data on our children."

At the core of the problem, as Haugen famously explained, is that Facebook "prioritised growth over safety" as its algorithms displayed increasingly contentious, controversial or outrageous content.

Facebook’s main aim was to keep people on Facebook, where it could show its users more advertising.

"If it’s enraging, it’s engaging," says Johann Hari, author of Stolen Focus: Why You Can’t Pay Attention – And How to Think Deeply Again.

Facebook’s business model relies on increased polarisation, he says, citing its own internal data scientists’ research. "A third of all people in Germany who joined neo-Nazi groups did so because Facebook recommended it to them," says Hari.

New York University professor Scott Galloway is perhaps even more cynical. His book, The Four, charts how Amazon, Apple, Facebook and Google arguably became the world’s most influential companies.

"Zuckerberg is the biggest oligarch in the history of mankind, and … is leveraging his proximity to power … just to increase his wealth," he says.

If companies are able to do business because they’re effectively given a "social licence", the near-universal dislike for the company must be pretty close to putting this in jeopardy.

Last year, The Atlantic’s executive editor Adrienne LaFrance wrote that Facebook has become an "instrument of civilisational collapse". In her view, the social media network is now designed for blunt-force emotional reaction, reducing human interaction to the clicking of buttons.

"The algorithm guides users inexorably towards less nuanced, more extreme material, because that’s what most efficiently elicits a reaction … Facebook executives have tolerated the promotion on their platform of propaganda, terrorist recruitment, and genocide. They point to democratic virtues like free speech to defend themselves, while dismantling democracy itself."

She says it’s time people began treating Facebook like the largest autocracy on Earth.

With regulators now paying attention, the game may be up for tech companies that spy on their users and sell their information.

Asked about the notion that Facebook’s primary goal has become harvesting user information to sell, a Meta spokesperson tells the FM that there have been greater restrictions imposed on the way businesses are able to use data to target customers.

"This is not just a Meta issue — the entire industry has been thinking about how we can address this evolving ads ecosystem while preserving the benefits of personalised services," the company says.

Hoffman says he hopes the era of surveillance capitalism may be drawing to an end — but he’s sceptical.

"The regulators here in the US, and in most of the world, have been timid and irresponsible in enforcing privacy regulations. The ad-tech industry just ignores regulators, pays whatever meagre fines they are assessed, and continues doing as they wish."

It’s a dangerous approach, since the convenience of marketers should never be allowed to trump "the privacy rights of individuals and the integrity of democratic institutions", he says.

But if the regulators are too timid, it’s up to individuals and attentive companies to turn the tide. As Hari puts it: "No attention messiah is going to come and save us — we have to do this ourselves."

A deliberate step to starve Google and Facebook of the advertising money they use to sustain these apparently harmful business models would be a solid step in the right direction.

What it means:

Behind the scenes, nothing is free. The user is the product and the giant tech companies are raking in billions

Ad-tech and the dark arts

Are state-sanctioned hackers funding themselves by hacking advertising systems instead of government agencies? US marketing guru Bob Hoffman certainly believes so.

After the stunning hack of US federal agencies in December 2020 by suspected Russian perpetrators, Hoffman said the marketing business needs to re-evaluate its thinking around ad fraud.

“It is folly to believe that hackers who can penetrate systems protected by the US military’s cyber command, the National Security Agency, and the department of homeland security without detection could not easily penetrate ad-tech systems without detection,” he wrote on his popular blog, The Ad Contrarian.

If all these agencies could be fooled, he added, “I don’t think it’s a stretch to assume that fraud-detection software can also be fooled. Consequently, if state-sponsored hackers are fiddling the ad-tech ecosystem, it’s likely that ad fraud detection systems aren’t seeing it.”

He adds: “It would be amazing if state-sponsored cybercriminals didn’t view the ad-tech marketplace as ridiculously easy pickings and even more delicious since there are no consequences for being discovered.”

The online advertising marketplace is worth more than $300bn a year, traded via computer systems, Hoffman says. “Gaming the programmatic ecosystem [which transacts about 80% of online ad activity] has been shown to be astoundingly simple. There is no international governing authority, and consequently there are no cross-border penalties, for committing online ad fraud.”

It’s hard to argue against his logic. Hoffman’s conclusion boils down to two simple questions: “If you were a bad guy, and you could easily steal billions of dollars with a tiny possibility of detection and no possibility of consequences even if you were detected, why wouldn’t you?”

And: “If you are a marketer spending substantially on digital advertising, what reason do you have for believing the metrics you’re getting?”

Inside Apple’s black box

One of the ways app developers make money is to track users’ online movements, and on-sell that information to advertisers. But with its App Tracking Transparency (ATT) feature, tech giant Apple has effectively shut this most valuable ecosystem to programmatic snoops. Even though tracking apps will still be able to determine some user information, this is 50% less effective from the outset, simply because it is impossible with ATT to tell the user’s gender.

That’s got to bite. There are more than 1-billion users of the iOS operating system, and its tablet counterpart iPadOS. But it’s not just the size of that market that’s so attractive to advertisers; it’s the relative wealth, too. Because iPhones (with the exception of the SE model) are deemed luxury items, the industry widely considers Apple owners to be better high-end targets for advertising.

As the saying goes, Apple users are happy to buy apps; Android users tend to use free apps, or those with advertising support. With the rise of ATT, it’s the Apple users having the last laugh.

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