Buying a TV (channeling Joyce Grenfell)

Right kids. Me and your Mum have decided it’s time to buy a new TV. Exciting eh.

Yes, yes, it’ll be a good one, we’ve decided to get a good one. It might not be the biggest, it still has to fit in the corner, but it will be a good one, lots better than the one we’ve got now.

OK, but you know there are some decisions we have to make, right. We’re going to have to decide which channels we want.

Well, yes it would be nice if we could get them all, but different TV’s show different channels don’t they, you know that.

Why? Well that’s just the way it is.

What? Well yes we could just give them more money, you’d have thought so wouldn’t you, but actually we can’t. They don’t operate like that.

That doesn’t make sense? No, I guess it doesn’t does it.

Aren’t they trying to make money? Well yes they are. That’s why…. that’s why…

Look, you see, the TV people, they have deals with the people who make the programs, and the people who make the programs, well, they only want you to watch their programs on certain types of TV.

That doesn’t make sense either? …….No I guess it doesn’t does it.

Well yes, you would have thought that the people who make the programs want as many people as possible to watch.

Yes, if it was available on all the TV’s then more people could watch it. That’s true.

Look kids, you’re just going to have to trust me on this one. We just can’t get all the channels, it’s not possible, they won’t sell it to us like that. We’re going to have to choose which ones we want.

No, it doesn’t make sense. I agree.

Sorry, what was that, I didn’t hear you?

Please stop mumbling, say that again.

Adults are stupid. Ah…ok

 

CONTEXT: Please imagine this conversation happening anytime from 1980 up until 2003 (…or so). The link below describes the real situation as it occurs in today’s world (a very good read), and a Youtube clip to identify Joyce Grenfell for those who have never heard of her.

I still don’t want to be a part of your fucking ecosystem

 

 

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Cars, Cars, Washing Machines and Paxman

I can’t even start to understand how much time this must have taken. Really nice idea though.

Another video that must have taken some time to make. I can understand how this would have been easier to commit to, there’s a love of model racing cars in everyone (ok, mostly men). A nice juxtaposition with the stickbomb meme. This is good video content marketing. Not really suitable for a TV ad but 2.5 million views on Youtube is pretty good.

This film from the clever folks at Berg explores how we can make even the more mundane of modern appliances sharper and more intelligent by the, relatively, simple application of basic modern tech and a fresh angle on connectivity. Washing machines.

Finally, for no other reason than that it is TV gold and I recently stumbled across it, Paxman grilling Michael Howard and insisting (unsuccessfully) on getting an answer to his question. I imagine that on the day Howard thought he had won the exchange, but the permanence of modern media really leaves him with a legacy as the poster boy for politicians who refuse to answer questions.


Push to Window – 3 links

James Fallon is a neuroscientist. Once day while working on a project into Alzheimer’s, using his own family’s brain scans as raw data, he discovered that his own brain was, in clinical terms, the brain of a psychopath. That is to say, he quite accidentally, discovered that he was to all intents and purposes a psychopath. So he wrote a book about it. This link is an interview with him. Fascinating.

Again, I was joking around, but it was a real danger. The next day, we walked into the Kitum Caves and you could see where rocks had been knocked over by the elephants.  There was also the smell of all of this animal dung—and that’s where the guy got the Marburg [a fatal virus]; scientists didn’t know whether it was the dung or the bats.

A bit later, my brother read an article in The New Yorker about Marburg, which inspired the movie Outbreak. He asked me if I knew about it. I said, “Yeah. Wasn’t it exciting? Nobody gets to do this trip.” And he called me names and said, “Not exciting enough. We could’ve gotten Marburg; we could have gotten killed every two seconds.” All of my brothers have a lot of machismo and brio; you’ve got to be a tough guy in our family. But deep inside, I don’t think that my brother fundamentally trusts me after that. And why should he, right? To me, it was nothing.

http://www.theatlantic.com/health/print/2014/01/life-as-a-nonviolent-psychopath/282271/

 

This is the text of Maciej Ceglowski’s talk at this year’s Webstock. Under the guise of exploring the moments when the future makes itself known to us he treats us to the story of Lev Sergeyevich Termen. And it really is a treat. Termen was a soviet scientist, first under Lenin, then under Stalin. He also invented the Theremin, technology that was a distant precursor to the touch screens we all carry around today.

There’s a very important rant about 2/3rds of the way through about the centralisation of power, as a result of the current internet architecture. Its long but also very entertaining.

Why make such a big deal of electrification?

Well, Lenin had just led a Great Proletarian Revolution in a country without a proletariat, which is like making an omelette without any eggs. You can do it, but it raises questions. It’s awkward.

Lenin needed a proletariat in a hurry, and the fastest way to do that was to electrify and industrialize the country.

But there was another, unstated reason for the campaign. Over the centuries, Russian peasants had become experts at passively resisting central authority. They relied on the villages of their enormous country being backward, dispersed, and very hard to get to.

Lenin knew that if he could get the peasants on the grid, it would consolidate his power. The process of electrifying the countryside would create cities, factories, and concentrate people around large construction projects. And once the peasantry was dependent on electric power, there would be no going back.

https://static.pinboard.in/webstock_2014.htm

 

This last link is also a small trip back into recent history, telling the broad story of former congressman Otis Pike who died earlier this year. Pike was the unfortunate soul who in 1975 led the house committee investigating the American security apparatus, both the NSA and CIA, in the aftermath of the Watergate scandal. He was an earnest man and he tried to do the job properly, not that it did him any favours. If you have found yourself wondering why no American politicians are putting their neck on the line with regard to the problem’s with the NSA as revealed by Snowden, this piece may help explain why. Parts of the rhetoric read as if they are written about 2013 not 1972.

Meanwhile, an even more radical subcommittee on privacy in the House, headed by Bella Abzug, targeted the NSA’s domestic spying program, subpoenaing government officials and the heads of the major telecoms and cable telex firms—AT&T, ITT, Western Union and RCA. The more the House dug into the NSA’s foundations, the more they discovered about the murky extralegal arrangements and deals made between private telecom firms and the National Security State apparatus. In the late 1940s, as the NSA was being formed out of the Army Security Agency and other military signal intelligence branches, Truman’s top defense officials cajoled the major US cable telex firms to agree to let the nascent NSA tap into all international communications. Some of the firms were more reluctant than others; all asked for written legal assurances and legislative action, but were given less than they were promised

There was a price to pay, and Pike paid it.

American public opinion proved to be fickle and shallow, and the reactionaries in the intelligence community took advantage of this fickleness to destroy Pike and others like him. When in January 1976 the Pike Committee approved its draft report slamming the intelligence community as a dangerous boondoggle, calling for radical budget reductions, the abolition of the Defense Intelligence Agency, and other radical structural reforms, the special counsel to CIA director George H. W. Bush called Pike’s office and warned that if the report was approved, “we’ll destroy him for this.”…..And so they did

http://pando.com/2014/02/04/the-first-congressman-to-battle-the-nsa-is-dead-no-one-noticed-no-one-cares/


Disintermediation and the curious case of digital marketing – revisited

lumacape display

This essay is the follow up, long overdue, to this small observation, posted in February 2013.

The whole issue of disintermediation is one of the key phenomena of the internet age, yet for some reason digital advertising seems to have missed out. In fact, somewhat perversely, digital advertising has instead managed to go in entirely the other direction, filling up with a whole new class of mediators, the adtech companies.

I’m going to argue that this is a situation that cannot last long (years not months, probably at least 5). King Canute’s original command that the tide stop rising was never going to be a great business model.

Although the common telling of the Canute story has him drowning against the onslaught of the waves, there is evidence that he instead adapted to the new knowledge and changed his practices.

..he commanded that his chair should be set on the shore, when the tide began to rise. And then he spoke to the rising sea saying “You are part of my dominion, and the ground that I am seated upon is mine, nor has anyone disobeyed my orders with impunity. Therefore, I order you not to rise onto my land, nor to wet the clothes or body of your Lord”. But the sea carried on rising as usual without any reverence for his person, and soaked his feet and legs. Then he moving away said:  “All the inhabitants of the world should know that the power of kings is vain and trivial, and that none is worthy the name of king but He whose command the heaven, earth and sea obey by eternal laws”. Therefore King Cnut never afterwards placed the crown on his head, but above a picture of the Lord nailed to the cross, turning it forever into a means to praise God, the great king.

I will cover the detail in a separate post, but I also believe that this could be the moment when digital advertising and digital marketing is forced to make some short term and slightly painful changes that will eventually open up a whole new vista of opportunity and the chance to truly lead the media landscape.

Before going into the depth of the essay it might be worth taking a quick 2 minute look at this link which explains the core ideas behind how the adtech model works. It’s a clever and accurate explanation and is easy to digest, an informative visualisation of a highly complex system. It will also provide clarity regarding exactly which part of the adtech universe I am talking about.

Mediators and Disintermediators

Digital advertising hasn’t been disintermediated yet because firstly it is in and of itself, a mediator (all advertising is) and like all incumbent mediators, is not keen to be disintermediated. Simply moving advertising from the offline realm to the digital is not enough. It might seem that web platforms force disintermediation all on their own, but they don’t. Other factors need to align as well.

For a start there needs to be a new model that can replace the current one, and that new model also needs to deliver enough consumer/user  benefit to overcome the ever present inertias.

Amazon, for example, took the intermediation costs out of the book market but replaced the incumbent model with a different way to sell books. From the consumer perspective the loss of the mediators was painless, almost invisible, they just bought their books in a different shop that happened to be located on the internet instead of the high street, and for significant cost savings too.

That Amazon could offer digital shopping, that their technology existed and was functional, was the substantial factor that enabled the new market dynamics to take hold.

It’s not the same in advertising today.

With regard to advertising, the consumers in question are the advertisers, not the people who buy the advertised products.

Businesses buy their advertising from a large (and getting larger) ecosystem of multi-skilled providers. Very few businesses create their advertising in-house and generally do not own the resources required to do so (copywriters, art directors, studios, media planners, media buyers, systems, relationships….etc). As a result marketing services agencies and advertiser marketing teams are currently deeply co-dependent.

Disintermediation, by definition would seek to weaken that relationship and few people, on either side, can see how that could function. In short the advertisers are not using their market position to force disintermediation in the marketing services ecosystem, and hence their access to customers remains firmly managed.

Part of the reason for this co-dependency is the burgeoning complexity in the use of data.

The second and more problematic reason that we have mediation instead of disintermediation therefore, is related to what’s happening with all this data. Or rather not so much what is happening with the data, but why so much effort is being concentrated on the data. The companies that do things with data are in the marketing services sector, for the reasons stated above and whereas advertisers’ markets grow if they sell their products or services (via marketing or sales initiatives, or whatever) the marketing services sector grows when they sell more services to the advertisers.

The most important, acknowledged, growth opportunity in the marketing services industry today, is in data management and data targeting…. the enabler of such things is adtech.

This is the prime economic incentive driving growth in advertising at large and it has the simultaneous benefit of minimising macro level change too, as the focus remains on trading eyeballs even while the industry appears to be innovating.

On the surface it seems that everyone is a winner. Even the publishers.

The short answer, then, is that digital advertising is currently avoiding disintermediation due to the absence of a plausible replacement and the dynamics/politics of the growth opportunities for marketing services. The advertisers, who could credibly drive the need for such a replacement, via market forces, are currently heavily co-dependent on a vibrant marketing services world, and in thrall to its innovations in data. As a result they are not putting any pressure on their suppliers for anything except more of the same.

But the short answer is deeply unsatisfying. If adtech was the correct way to go, then the adtech market itself would be consolidating not exploding.

As it happens there really is something deeply wrong with the adtech model.

It’s all about eyeballs (and data)

The publishing industry has always been about eyeballs, because eyeballs generate their revenue. Much of the tech sector is going the same way. In the absence of subscription revenue much technology innovation is built on ad supported models.

Google is eyeballs and data. Facebook is eyeballs and data. Everything is eyeballs and data.

But the traditional home of disruptive companies, the kind that have generated the internet’s reputation for disintermediation is the technology start up sector itself isn’t it? So what’s going on?

It’s not that the startup world has incomprehensibly passed on by in the world of digital advertising, it’s that in this particular sector the short term incentives have lined up to foster a glut of mediation instead of disintermediation.

Ironic certainly, but the question that needs to be answered is, at what point does it become a problem?

I think we are already there and the reason why I say that lies in the wider mechanics of today’s digital publishing business model.

It is worth pointing out that I do not intend to set out a vision here for the whole of the publishing industry’s business future. What I want to do instead is to pull on just one loose thread, one that hopefully might reveal a feasible possible future, as the cardigan it belongs to starts to disintegrate.

The loose thread is this.

As a publishing medium the web has no inventory limit that is effectively bounded by physics, cost or performance.

  • The cost of adding pages to a printed medium requires capacity at the printing press and the cost of adding relevant content that has commercial worth, to both consumers and advertisers
  • The number of worthwhile sites to place outdoor posters is limited and generally fully explored
  • TV is bounded by production and distribution costs and the fact that there are 24 hours in a day
  • Radio has a finite audience, as does cinema, which is not growing
  • Direct marketing messages are bounded by the size of target populations

The internet, on the other hand, offers trivial extension costs, a seemingly infinite audience and some unique content creation opportunities.

But what about worthwhile content, right? That surely establishes some kind of significant commercial boundary. Well, yes and no. Some parts of the publisher universe have to pay for their content, but the ability to originate all your own content is no longer an entry level requirement.

Take for example something like Buzzfeed, or the Huffington Post. Both very legitimate publications. Some of their content is provided free by the writers, some of it is given value by the quality of the data optimisation (multiple headlines, automatic analysis = loads of eyeballs, only one writer’s cheque and it’s a relatively small one, as the writer isn’t the most important part of the equation), and some of it, a small part of it, might be remunerated at traditional levels.

Some sites simply steal content, while generating ad revenues (whiffy publishers), and some sites use a variety of legitimate but infuriating tactics to up the impression count (3000 word articles split over 8 pages, for example), let alone the sites that stuff footers with 1×1 pixels.

These are all troubling practices but more worrisome is the rise of retargeting, via tracking technology and the buying of audience profiles through ad exchanges. Retargeting and profiling are more worrisome because they are totally legitimised by the industry at large, are vulnerable to significant fraud (the biggest problem) and are educating a generation of advertisers (client and agency) to disregard huge swathes of wisdom that we have, as an industry over many years, learned about advertising.

We have forgotten about the value of context and the quality of the ad environment.

This has happened because of the huge volume of useless inventory ‘magically’ masquerading as prime media, distorting the economics of the marketplace. It doesn’t help that misaligned incentives across the whole executional chain (publisher, agency, advertiser) are hampering the efforts to clean up the situation.

Useless Inventory

I should first explain why this inventory is useless and to be fair some of it isn’t totally useless (although it’s not far off).

Some of it is just low grade, being sold as something better because of the addition of insight from data analysis….this is the retargeting strategy. The idea that because I can track you from a  premium environment to a low grade environment there is no need to pay the higher cost of the quality placement. After all you’re the same person aren’t you, why wouldn’t you be just as persuaded consuming an advert on GQ.com compared to say, uselessshite.com?

To be fair the idea of buying an audience, which is what we are seeing here, is not alien to advertising, it is after all similar to the way we buy TV. However, it is not a good like for like comparison, however much we want it to be. This is, again, because one medium has a finite inventory (TV), while the other is not even close to finding its market defined ceiling.

In this case it changes the dynamics of verification.

A TV buyer is aware if the network is dumping its weak spots in one buy, while the digital buyer doesn’t know anything about the contextual quality of their purchase. In both circumstances the buyer will get the audience they purchased but the TV buyer can exercise more control over the environment, and hence the value, that their audience is delivered into.

I dislike retargeting strategies because I think they are theoretically weak. Environment quality is important and should not be disregarded. I don’t like retargeting but it is at least derived from a legitimate concept, they are trying to put the ad in front of the right person. If that seems like a low bar for acceptance, it is.

Sadly it gets a lot worse from here.

The second class of useless inventory, is the inventory that isn’t even human. This is the bigger issue. Bot traffic is running between 30% and 46% of online display impressions, depending on which set of stats you want to use.

You did read that right. Roughly 1 in 3 digital display impressions being bought today aren’t even human.

There is no argument that can possibly turn these into good media tactics. If no humans are seeing these adverts then it follows, without controversy, that they can’t influence a human to purchase a product. Yet the industry at large is making these buys, seemingly with full knowledge every day.

This is not an unreported phenomenon, by the way, I am not breaking news here.

It’s very important to understand that media planners and buyers aren’t idiots. Not by a long margin. There must, therefore, be reasons that can help explain this behaviour.

First as previously mentioned the commercial incentives really don’t help

These conditions might explain why some parts of the industry are making these mistakes, but they aren’t sufficient to explain why the whole industry is making these mistakes. If this was all that was going on the only brands doing this would be those in urgent need of cost control. The successful top quartile, at least, would still be executing against ‘premium’ inventory. But they aren’t, so something even more foundational must be at work.

To understand what that is we need to investigate how this inventory is getting into circulation. The question is a harsh one, how can an industry that has operated for so long suddenly be duped into buying campaigns on such a flawed basis?

This is where the impact of adtech becomes a nightmare.

Adtech has created automated networks that operate, in real time on either side of the publisher. Publishers can buy part of their audience from a network, and then they can sell advertising against that exact same purchased visitor, through another network.

If you can manage the money such that the buy costs less than the sell, even if that is a tiny amount, then over vast volumes of impressions, the riches await. Moreover, if 30-40% of the traffic being sold is created by bots, those costs can be incredibly low, which in turn reduces the price needed on the ad networks. Which means that the advertisers are picking up impressions at a stunning low price too.

And that’s what’s happening, no joke.

There is a veil of respectability in buying these cheap impressions because the kosher media properties, who are looking to establish high cpm’s in exchange for real advertising value (with their premium stock) are using these exchanges to generate incremental revenue on their remnant inventory too. Along with the impressions being sold in old traditional deals between humans this is what makes up the 60% of inventory that is actually put in front of real people.

Because there is too much inventory out there, as explained by the economics of digital real estate as already noted, this massive cost saving can be comfortably excused as simple supply and demand dynamics.

However, as also already noted all this is not a secret. The industry is aware. It’s therefore a very fair question to ask how this situation could possibly be tolerated let alone enthusiastically adopted.

Part of the question is answered by the intense fervour generated around the technology itself. This technology is clever and complex, there is much to be admired in engineering terms. However, this very complexity enables a troubling but comfortable ignorance. It means that the buyers can’t vouch for the veracity of their buys even if they wanted to. As things stand they can’t be held accountable.

If that sounds hyperbolic I must point out that this complex machinery isn’t lamented for the separation of knowledge it creates, at all, quite the opposite in fact.

John Battelle just loves adtech

To make my case I would point you towards the following 3 links. They are all connected to, or written by John Batelle, an important and intelligent champion of the adtech/digital advertising/digital landscape. An industry leader, he is no fool.

First up is the highly instructive visualisation I linked to in the first part of this essay, that shows the technology I have been talking about in action. It’s well constructed and explains better than a wall of text how this all works. If you haven’t already please do look at this link even if you look at none of the others, it shows how the modern digital market operates more clearly than anything else I have seen, Battelle is very proud of it as he should be.

I am keen to highlight this explanation of the adtech model because I don’t want anyone to think that I have misunderstood what is being sold. This explanation is provided not by sceptics like me, but by enthusiastic cheerleaders.

Near the end we are triumphantly told that,

Dozens of sophisticated servers can be involved in a single ad placement, which takes less than a quarter of a second.

I’m really not sure that that is something any media planner should be happy reading, to be honest, knowing as we do that at least 1/3 of impressions aren’t even human.

Secondly we have Battelle’s homage to the deep importance of adtech. He is almost universally positive about it, although I sense a few moments in this ‘love letter’ that suggest a few notes of caution have made themselves known to him. If you think I am being snarky in describing this link as an homage and a ‘love letter’ I would point out in riposte that the title (seemingly without irony) of the post is “Why the banner ad is heroic and adtech is our greatest technology artefact”.

He proudly heralds the LUMAscapes as evidence of success rather than inane profligacy, champions the technology that allows “a pair of shoes to chase you across the web” as heroic, instead of creepy, but pays nothing but dismissive lip service to the deep seated concerns raised by several respected leaders of today’s digital world such as Lawrence Lessig, Jonathan Zittrain and Tim Wu, none of whom are uninformed luddites.

OK. Let’s step back for a second. When you think of this infrastructure, are  you concerned? Good. Because it’s imperative that we consider the choices we make as we engage with such a portentous creation…..

What are the architectural constraints of the infrastructure which processes that information? What values do we build into it? Can it be audited? Is it based on principles of openness, or is it driven by business rules and data-structures which favor closed platforms?

These questions have been raised, and continue to be well articulated, by LessigZittrainWu, and many others. But we’re entering a new, more urgent era of this conversation. Many of these authors’ works warned of a world where code will eventually augur early lock down in political and social conventions. That time is no longer in the future. It’s now. And I believe as goes adtech, so goes our social code.

My emphasis added. He acknowledges concerns, big concerns, but is alarmingly sanguine about trying to solve them. If adtech is our social code as he suggests, then our future is damningly bleak.

However the 3rd link is the one I struggle with the most.

This is where we learn that Battelle has been appointed as co-chair, by the IAB, of the “traffic of good intent” task force. Good intent in this context means traffic that is actually worth buying. In their words….to,

more effectively address the negative impacts” of bots and other “non-intentional” traffic.

Which quite frankly is a weak mission statement when the actual job required is the eradication of the massive fraud at the heart of digital advertising.

Still what can we expect, the co-chair of this task force is the same man who believes that

Every retail store you visit, every automobile you drive (or are driven by), every single interaction of value in this world can and will become data that interacts with this programmatic infrastructure.

Right. Time to step back and return to my narrative. I need to explain why Battelle cannot idolise this technology and also solve the fraud problem without destroying privacy.

[I must state, at this juncture, that my concerns, the reason I am writing this, are not rooted in a fear of a world with no privacy, although I do not wish to live in that world. In truth my concerns are for the veracity of my trade, I work in advertising, it’s what I do, I would prefer it be intelligent and effective not automated and fraudulent.]

Battelle does a great job of demonstrating and lauding the very complexity that totally obfuscates the ability to examine the veracity of the media buys. It is this complexity that forces a critical compromise on us.

Pick two

Don Marti lays the compromises bare, as a 3 way play. “Ad tech, privacy, fraud control: pick two?”

He makes a strong case.

Remember ad tech is being gamed by big volumes of fraudulent non-human ad traffic, being passed off as the real thing. As Battelle’s graphic has pointed out the data work that fuels this market is all profile based and anonymous. No-one is following around named individuals, instead they are following a 35yr old, male, that plays golf and was recently browsing for a new pair of shoes. They know a lot about you as it goes, but not your name (apparently).

Under this system there is enough space for 40% of the traffic to be spoofed without getting caught.

The only way to resolve the fraud then, and maintain the adtech structure is to deliver complete visibility of who is who, where and when.

Or to put it another way to answer the question of whether or not that impression, that was just purchased, is a bot, or a human requires that you the human forgoe your desire, your right, to remain an anonymous data point. There is nothing partial about this solution, the only way to really kill the fraud is to always identify the humans. But not in a binary, human/not human way, a simple flag is too easy for a bot to overcome or to spoof. To really kill fraud, and maintain the adtech structure we will have to relinquish our digital privacy in totality.

All of a sudden this line from Battelle becomes more worryingly profound,

Every retail store you visit, every automobile you drive (or are driven by), every single interaction of value in this world can and will become data that interacts with this programmatic infrastructure.

The italic emphasis in that quote is his by the way, not mine.

So, which couplet do you fancy most?

  1. Ad tech + privacy = lots of fraud
  2. Ad tech + fraud control = no privacy
  3. Fraud control + privacy = no ad tech

Option 1 should be totally unacceptable to the whole advertising industry (publishers, agencies and advertisers) but it’s actually where we find ourselves today.

Option 2 is, ultimately, in my opinion outside of the influence of the advertising industry. Even though Facebook has revealed significant comfort with the idea of hugely reduced digital privacy, among great swathes of the population, there are big signs that this trend is not fully supportable long into the future. Natives are aware of the role of online personas and spend as much time spoofing the ‘correct’ image on the mainstream tools, as they do behaving like teenagers on the networks that Mum, Dad, aunty Glad and uncle Bill don’t know about. The Snowden/NSA revelations are not going to help reverse that trend.

Moreover the world at large needs a level of achievable anonymity to function. Cities were the first such artefact, providing the young with an arena within which to grow and find themselves, outside of the gaze of those who ‘know’ them best. There is a reason much innovation is rooted in the city, not the farm.

Option 3, on the other hand, makes sense for a lot of reasons, not just in terms of privacy. For a start it would force digital advertising to re-assess some of the more human aspects of driving useful commercial interactions instead of ceding more and more decision making to misunderstood algorithms. We might even start to understand how best to use the digital medium as a branding channel, something that has been glossed over in the data revolution.

It could also be part of the evolution of digital publishing into a fiscally secure enterprise. Rampant content theft by rogue commercial entities and the eroding of premium rates for quality placements would by definition be somewhat stymied. It would also start to create an economic boundary for the quasi infinite inventory problem by reintroducing meaningful performance limitations.

A good result all round no?

So how do we get there?

If we want to clean up this situation it is painfully obvious what needs to happen, we simply take adtech out of the picture and in its absence return to first principles. The reasons why advertising works, why it sells products, haven’t changed because of the internet, we can still function without adtech.

The trickier part of the equation is getting to this inflection point, getting the industry, at large, to choose to move past adtech. That’s a lot harder and the nature of that journey will be influenced by whose outrage is powerful enough to drive change, consumer outrage, advertiser outrage or a bit of both.

It’s true that the consumer is concerned about privacy today in ways that have been lacking in recent years. This is inspired by Snowden and the NSA, as opposed to creepy adtech. Yet here in the UK there still doesn’t seem to be a huge concern. This strange silence, this peculiar lack of British outrage, is not mirrored across the Atlantic though, and what is finally adopted in the States will soon become the standard here too. Similarly our European neighbours seem to have more concerns in this regard than we do, certainly the EU seems more committed to consumer protections in this area than the British government or population. So, even if the US doesn’t move I suspect the EU will.

The connection between commercial surveillance and state surveillance is robust and real, there can be no reform in the one without the other. So I fully imagine that regulatory responses to the Snowden scandal will impact on commercial data practice.

Finally there is the influence through market forces of consumers seeking privacy friendly solutions to account for, although the scale of such influence is not likely to prove substantial in the shorter term, in my opinion.

These factors, stemming from consumer outrage are actually relatively weak as agents of the kind of change I’m advocating. However they do suggest that the commercial surveillance machinery, adtech, will struggle to deliver the total surveillance advocated by Battelle. And if that is true then the ability to stem the tide of impression fraud is severely compromised.

The real force for change will likely be advertiser outrage and that will come from a different direction.

If total digital transparency doesn’t arrive to solve the fraud issue, then it will not take long for advertisers to start asking the hard questions that they should really be asking today. Eventually they will refuse to pay a 40% surcharge for their media. The pervasive reality of useless inventory is not a secret, it can only become knowledge to a wider audience not a smaller one. Soon enough the advertisers’ CFOs will cotton on.

At that point the advertisers will have to insist on fraud control, and the only option that will be able to deliver it, is turning off the adtech machine. You can imagine a discussion between the CMO and the CFO that goes a little bit like this.

CFO: Why are you buying inventory that you can’t verify?

CMO: Well if we stop using exchanges we won’t be able to hit our reach and cost targets

CFO: But you aren’t hitting them today. 40% of your traffic is robots!

CMO: Well, that’s true but the only way to buy volume that cheaply is via exchanges. We can’t ignore digital advertising, we have to be there, it’s a cost of doing business

CFO: OK, well can you show me data that proves that these buys are effective? That it’s a cost of business worth paying?

CMO: ah, no not really. You’ll have to trust me.

And here we come to one of the genuinely hidden aspects of all this, the effectiveness question. It’s very important and is a big part of the reason why this situation persists. You see, both the CFO and the CMO are talking some sense here, as strange as that sounds.

Measurement and Effectiveness – the Great Big Stinky Elephant in the Room

If you don’t work in advertising or marketing it might seem crazy but it has long been difficult to conclusively prove which sections of an ad campaign were successful. Analysis is conducted mostly at the level of the media channels that were used, chiefly because this is how the money is committed.

So, for example, the CMO wants to know if £10 million is best spent on print or TV or radio or digital. More precisely actually, she wants to know what the optimal mix of those channels should be, the way channels work together is crucial, particularly with respect to digital. It’s not easy to do, and in some cases not possible at all.

Direct marketing, the stuff that asks you to phone up and buy something (or visit a website) was always more measurable. Should the call centre get 1000 calls tonight? What is the target conversion rate, 15%? Did it happen? Both the calls and the sales can be counted so that question can be answered.

That worked well enough for a long while but it wasn’t perfect. Direct marketers would always like to send out their ads while there was a peak in brand awareness (often coinciding with the big TV campaign), even though the cost of that brand campaign was rarely incorporated into their ROI analysis.

Most ad spend wasn’t in direct marketing though, it was in brand marketing. If you only go back even just 20 years the media landscape was more concentrated and more innately understandable and a big chunk of the advertising dollars were intended to push shoppers to retail outlets. As a result proxy metrics like brand awareness were the best we had, technology simply couldn’t follow you from the ad to the purchase. These proxy metrics favoured big spends in the classic mass mediums, with TV considered king of the hill.

Although it is an oversimplification there is some truth to the idea that whether or not you advertised on TV was mostly a factor of the size of your overall budget. If you could afford to do TV accepted wisdom was that you should. TV has a low cost in terms of cost per thousand impressions, but there was a substantial cost of entry, it is both cheap (relative cost per thousand) and expensive (total capital outlay). To shift brand metrics costs millions of pounds. There were lots of exceptions of course, but the general principle stood up to an intuitive examination, and when good econometric studies were done (not often enough) these big spends were usually identified as most likely to shift the metrics. TV still dominates media spends today by the way. This accepted wisdom has not yet been supplanted.

Nonetheless when digital advertising came of age it was thought that we might be entering an era of eminently more measurable advertising. As it turned out nothing could have been further form the truth.

Digital is an innately direct medium. Every interaction can be counted, if your computer sees my ad I am made aware of that by the ad serving tools. If you click on my ad, then similarly this is a solid data point that can be collected.

Even though digital was a direct media it was never really ceded to the direct marketers, instead it became a part of the brand marketers playbook.

The resulting problem wasn’t one of competence, the counting methods at the heart of direct response were only ever a challenge of the ego (spreadsheets, moi?) and easily overcome, the problem was one of competing evaluation methodologies.

To fit digital into econometrics (the method of choice for evaluating brand campaigns) it needed to be assessed against the same cost metrics as the other channels, which is cost per rating point (a coarse profiled audience buying metric) and reach and frequency. This wasn’t possible as the volatile digital landscape debarred effective reach and frequency measurement (a % based metric) while absolute cost metrics (price per point) were replaced with performance metrics (cost per click). The absolute cost metrics existed of course, but they weren’t driving buying decisions.

There is nothing wrong with either body of cost management, but you simply cannot use them interchangeably, and facilitate a meaningful analysis. This is evidenced by the ongoing inability of the industry to effectively quantify the effect of TV aircover on digital acquisition campaigns. It stands to reason that there will be a relationship but quickly measuring and quantifying that effect after the adverts have run and the business results are in….we haven’t got there yet.

The real takeout here? If you manage a reasonably sized advertising media budget, you still can’t accurately and quickly understand which part of your spend works well and which part doesn’t.

That was a long explanation of the vagaries of measurement, and do I apologise, but it is this inability to measure that is the reason why the CFO and the CMO can both be partially right.

It’s a madness to willingly spend 40% of your digital budget serving ads to robots. The CFO is therefore right to ask why.

But it’s also true that an advertiser with a decent budget these days is likely to be best served by a multi-channel strategy and that digital display should almost certainly be a part of that. And while the industry at large is accessing the remnant market (via exchanges) It would be a very brave CMO who decided to take a stand, all on their lonesome.

In truth the CMO probably should stop buying on the network exchanges, but her costs will rise significantly as most advertisers very sensibly take advantage of remnant markets to control costs (in most channels not just digital) and whereas that might well be the right thing to do academically, there are few finance departments that would be comfortable with such an overnight increase in relative cost.

So change will likely only come when the CFO gets wind of the adtech fraud. Money talks and the CFO is the ultimate money man. Until then the CMO is unlikely to highlight the issue, and subsequently will be unable to explain the increase in media costs and the reduction in reach.

The pressures that will lead to a solution are therefore essentially political. Both the politics between CFOs and CMOs and between digital tech evangelists and more widely obligated marketers (client side and agency side), while the regulatory politics that will play out in response to the NSA debacle and consumer privacy concerns will also play their part.

When your ability to understand what is working is impaired you must return to first principles. So, we kill the adtech, and we once again plan ad campaigns according to the hard won knowledge of 100 years of advertising experience.

Easy….(sarcasm).

Back to disintermediation?

You might have noted that I still haven’t explained why there is no disintermediation in digital advertising. What I have done, instead, is show why the sector has been flooded with surplus mediation and proposed a sequence of events that might lead us to a position where digital mediates between advertisers and customers in the same way that offline advertising does.

However, the possibility that the internet can do to advertising what it did to book selling is more than a pipe dream. There is a lot of work being done to deliver what is called vendor relationship management, whereby the innate value of data insight is harnessed to bring efficiency to the commercial marketplace. But that data will be controlled by the consumer, not mediators.

More to follow in another post.


6 speculations on the next financial crash

There has been a small spate of articles in the last 3 months or so suggesting that we might be in for another horrible global financial shock this year. I’m in no position to judge these opinions with any certainty, but do note that they are coming from both the right and left flanks of modern political discourse. Recently I have increasingly taken the position that economists, when considered as a singular group, are in general no better at such predictions than almost any other group of people, economics being, chiefly, an ideology masquerading as a science in its common usage (to be clear economic thought could/should be scientifically applied, but in most expositions isn’t). So, when I see the right and the left making similar claims I take notice.

Causing some jitters

Causing some jitters

First up we have the Wall Street Journal’s Marketwatch relaying the eery similarities between the movement of the Dow Jones Industrial Average (DIJA) in 1928/29 and the movements of the DIJA today. To my untrained eye it certainly does look very similar, however, of more concern is the evolution of how Wall street traders are commenting. No-one is panicking but, as is noted, the level of concern is rising the longer the similarities continue. The chart was first circulated in November 2013, and wasn’t taken too seriously  by seemingly anyone. Now, the rhetoric is more cautious.

One of the market gurus responsible for widely publicizing this chart is hedge-fund manager Doug Kass, of Seabreeze Partners and CNBC fame. In an email earlier this week, Kass wrote of the parallels with 1928-29: “While investment history doesn’t necessarily repeat itself, it does rhyme.”

http://www.marketwatch.com/story/scary-1929-market-chart-gains-traction-2014-02-11

 

From the Guardian we have Ha-Joon Chang, currently Reader in the Political Economy of Development at the University of Cambridge and author of “23 Things They Don’t Tell You About Capitalism”.

His point is quite succinct. In the UK and the US we are currently seeing stock markets at record marks, despite the underlying economies performing at levels that have not recovered to 2007 levels. Chang’s key point of reference is the growth in per capita growth in income, a data point that speaks to the underlying real economy (I find it strange that economists of all stripes talk of the real economy as an aside, surely it should be the main focus). More scarily he makes the observation that at this point no-one is offering any kind of narrative to explain these huge performance numbers. This differs starkly from the dot com bubble, explained away by tech innovation, and the 2008 crash, financial innovation leading to better risk management. The commenters were wrong in 2000 and in 2008, as the bubbles burst causing great losses, but at least someone believed in the market movements. This time is seems that no-one does.

http://www.theguardian.com/commentisfree/2014/feb/24/recovery-bubble-crash-uk-us-investors

 

David Cay Johnston, writing for Aljazeera, takes a stab at some of the crazy changes in valuation metrics that have become prevalent over the last 15 years or so. In short this is an intelligent and in depth (although very accessible – not too long) look at the tendency to massively value tech stocks that seemingly turn over no profits. Superficially this seems similar to what happened in 2000, however he also shows that there is some deep complicity between the journalistic sector and the speculative elements of today’s trading universe allied to a degradation of traditional measures of value, such as price/earnings ratios being superceded by price to revenue. For example, Facebook’s traditional PE is currently around 113, against a century long S&P500 average of 15, but its PR is 26 ($5bn revenue to market cap of $132bn), which is seemingly more palatable to speculators.

PE ten year average profits

The article makes the point that investors that push money into stocks like Twitter, that has yet to book a red cent in profit are speculators.

Would that we could bring back Benjamin Graham, whose 1949 book, “The Intelligent Investor,” explains how to value stocks. Warren Buffett calls it “by far the best book on investing ever written.”

Graham looked at the profits companies earned, not the promises of what they might someday make. That is, he was an investor.

Markets can benefit from speculators, who take risks that prudent people and institutions should avoid, but speculators should represent the edges, not the core of the market.

http://america.aljazeera.com/opinions/2013/12/stock-market-techbubble.html

 

Back to the WSJ’s Marketwatch. This post is a little strange, almost an homage to the deep fallibility of the human animal in totality, not just in regard to the prediction of financial crashes. The premise is very straightforward, there are always warnings, there have always been warnings, before the 1929 crash, 2000, 2008 the same. And they were all ignored. All of them. And it will be the same this time. It’s a heartfelt characterisation of a human process that will play out against pre-ordained personal prejudice and bias (naturally a bull, naturally a bear), regardless of what the rational analysis tells us.

Yes, you will read new warnings, like “ Soros doubles a bearish bet on the S&P 500, to the tune of $1.3 billion.” You may double down too. Or do nothing. You may listen to Hulbert, Gross, Gundlach, Ellis, Shilling, Roubini and Schiff. And still do nothing. Or something. You will listen, take it all in, and do what you always do. Your way, based not so much on all the warnings, the facts, evidence, predictions. Rather you’ll make your own decisions based on some inner consensus of voices that always guides you from deep inside your brain.

http://www.marketwatch.com/story/crash-of-2014-like-1929-youll-never-hear-it-coming-2014-02-19?dist=tbeforebell

 

Talking of George Soros and his $1.3billion Put, here are 2 opinions, first from the WSJ again and secondly from the strange folk at zerohedge (a site that is popular with aggressive opinion. Nearly all columns are written by “Tyler Durden” a nom de plume designed, with a somewhat wicked sense of humour, to enable industry insiders to pontificate anonymously without fear of jeopardising their employment). Both articles are strangely inconclusive actually, it may be a hedge, or it may be a sign that Soros is concerned about China and is anticipating a big fall. Still, an interesting marker to keep an eye on, Soros, after all, has a history of getting big bets right.

The Soros Put

The Soros Put

http://blogs.marketwatch.com/thetell/2014/02/17/soros-doubles-a-bearish-bet-on-the-sp-500-to-the-tune-of-1-3-billion/

http://www.zerohedge.com/news/2014-02-17/soros-put-hits-record-billionaires-downside-hedge-rises-154-q4-13-billion

 

Finally a somewhat left field and unscientific historical observation from David Brin.

His suggestion is that 1914 and 1814 were the real starting points of their respective centuries, with the Concert of Vienna 1814 leading to an extended era of peace on the European continent, shattered rudely by the horror of WW1 in 1914. As a thought experiment, and Brin is clear that this whole exercise is almost an amusing aside, we can speculate what might be brought forward from 2014. It could go both ways. Let’s hope common sense prevails.

http://www.bloombergview.com/articles/2013-12-31/what-if-the-21st-century-begins-in-2014-


r/pics March 2014