Opinion

Doomed: Why the current model of online advertising can’t survive

Fraud, corruption and the abuse of consumer rights are just the tip of the iceberg when it comes to why online advertising can't survive, explains Bob Hoffman in this crossposting from his blog, The Ad Contrarian.

The current model of online advertising – based on the three-headed monster of tracking, surveillance marketing, and ad tech – is unsustainable and will not survive. The forces against it are building and will shake up the advertising and marketing industries.

Here is why it is doomed:

It is too abusive of consumer rights and personal privacy

As of today, most people are not aware of how effectively the online ad industry is using questionable technology (ad tech) to track their every move. They are not aware that they are the targets of constant and unrelenting surveillance by the advertising and marketing industries. But over time this will change. If nothing else, clever politicians will adopt this as a cause célèbre and, because it is a non-partisan issue (all sides of the political spectrum oppose erosion of privacy), it will resonate with the public.

Smart companies with corporate social responsibility initiatives will get ahead of this wave and insist that their media partners and agencies not utilize ad networks and publishers who secretly track their customers. They will promote this to the public and unlike so many corporate social responsibility initiatives that are tiresome clichés, it is one that will have traction.

It is too laden with fraud and corruption and too wasteful of advertising dollars

Ad fraud is currently responsible for many billions of dollars of criminal theft. The WFA (World Federation of Advertisers) says that within eight years ad fraud may become the second largest source of criminal revenue in the world, after drug trafficking. While naive marketers are being told that ad fraud is being controlled, knowledgeable insiders say it is metastasizing.

A large component of ad fraud is enabled by ad tech and programmatic buying. Every credible study I’ve seen demonstrates that programmatic ad buys (those powered by tracking and ad tech) are far more encumbered by traffic fraud and click fraud.

Sooner or later CFOs and CEOs will come to realize how much money they have lost to online ad fraud and will demand that asleep-at-the-wheel CMOs get off their asses and insist on a better model.

You can’t fool all of the people all of the time

The online ad industry has had a 10-year free ride in which its preposterous assertions and absurd metrics have been swallowed whole by a naive and enchanted advertising industry. Those days are coming to an end.

Although ad agencies are supposed to be protectors and defenders of their clients’ media dollars their venal malpractice in promoting and defending the corrupt and fraudulent practices of the online ad industry have been a disgrace. However, grown-ups on the client side are starting to ask the right questions and demand sensible answers.

All the powerful forces (Google, Facebook, Amazon, the 4As, the ANA, the IAB) are currently aligned in favor of tracking. But sooner or later someone with integrity will conclusively demonstrate to advertisers how insanely convoluted and immensely wasteful the current ad tech model is. They will show advertisers how little value they are getting for their ad tech dollar.

It is too dangerous to democratic societies

We were taught to fear totalitarian governments. We feared they would know everything about us, follow us everywhere, track our every move, and keep secret files about us which could be used to influence our lives in ways that were only vaguely visible to us.

We are well on our way to such a nightmare. Except it isn’t our government that knows everything about us, follows us everywhere, tracks our every move, and keeps secret files about us. It is the marketing industry.

“Today in the United States we have somewhere close to four or five thousand data points on every individual… So we model the personality of every adult across the United States, some 230 million people,” said Alexander Nix, chief executive, Cambridge Analytica in October 2016.

In May the GDPR regulations and perhaps the ePrivacy Regulation will go into effect in Europe. This will make it much more difficult for online advertisers and media entities to collect personal private information about people without their prior consent.

I expect this will create a period of chaos in Europe until the regulators figure out what is working and what isn’t and adjust the regulations accordingly. But in the long run it will set a precedent for balancing the privacy rights of individuals against the power of online media and marketers.

It may take a while to raise the consciousness of people here in the US about the dangers of the three-headed monster, but ultimately it will.

Like a stock market melt down, it’s easy to say it’s coming, but it’s impossible to say when. It could be five months or five years. One thing I’m certain of, however, the current idiotic, wasteful and corrupt model is doomed.

Bob Hoffman has been the CEO of two independent agencies and is the author of the Ad Contrarian blog. This article first appeared here.

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