Late last month, the Wall Street Journal reported that Amazon plans to roll out its own online advertising platform, transforming it from a major customer for Google’s advertising services to a competitor. The news highlighted the massive growth of the online advertising industry in recent years. In the U.S., online ads produced more revenue than TV commercials for the first time last year, and they’re pretty much guaranteed to continue gaining market share for the foreseeable future.
Online advertising is different from the traditional sort in a few ways, notably the ease of targeting messages to particular consumers and the relatively low costs of online ads. As it continues to gain ground, those differences translate into the potential for some serious changes in how advertisers and media-makers treat people.
According to economist David S. Evans, writing for the Journal of Economic Perspectives in 2009, “The essence of the advertising industry is to solve a massive matching problem: a large number of advertisers want to deliver multiple messages to a large number of consumers. Indeed, advertising agencies were formed in the mid nineteenth century to deal with the coordination of supply and demand among businesses wanting to advertise outside their locality and the daily and weekly newspapers.”
Online advertising brings the possibility of far more efficient matching between advertisers and the particular audience they want to reach. Newspapers and television stations sell ad space based broadly on geography and demographics. Websites can get much more specific, taking into account the wealth of information gleaned from browsing history.
At the same time, Evans notes, online advertising means there are far, far more places for ads to go: Facebook and the rest of the social media world, video sites like YouTube, and the zillions of blogs, news sites, and miscellaneous stuff that lives on the internet. That wealth of opportunity puts downward pressure on advertising rates.
Here are a few of the many ways these shifts may be changing our world, online and off:
- Privacy invasion. Evans notes that recording of internet users’ browsing patterns can create privacy concerns, particularly when that data is sold to companies that can tie it to personal information like names, addresses and phone numbers.
- Reduced stereotyping. Writing in Women’s Studies Quarterly in 2012, media researcher Johanna Blakley argues that traditional advertising depends on demographic generalizations, and that online models could break them apart. “The content that we hear on the radio, read in magazines, and see on screens large and small has been carefully crafted to deliver certain demographics to advertisers,” she writes. “The presumptions made about demographic preferences—what women want, what Hispanics like, what poor people prefer—comprise the underlying DNA of global popular culture.” In contrast, online advertising, particularly on social media, can rely on targets’ actual, demonstrated interests.
- More brand engagement with customers. In a 2009 paper in Tobacco Control, authors B. Freeman and S. Chapman detailed RJ Reynolds’ use of the web to engage customers in helping to design packaging for a new type of Camels cigarettes. Evangelists of Web 2.0 often point to this sort of “open source marketing” as a way of increasing both individuals’ brand loyalty and companies’ responsiveness to their customers. In this case, it arguably also provided a way for the company to circumvent rules against tobacco advertising and target young women.
- Erosion of traditional media. Evans writes that the high supply of online advertising space pushes ad rates down, reducing funding for the media, including news reporting. “One can argue that the news media provides an important public service in a democratic society and that its value exceeds what individuals or advertisers may pay for it,” he writes.
- Much more relevant ads. The point of better matching is that people see ads for things that actually interest them, and that could reduce the annoyance of irrelevant advertising.
- Slightly more relevant ads. In a 2010 paper in The American Economic Review Jonathan Levin and Paul Milgrom argue that while some data about customers is likely to be useful to advertisers, the advisability of using super-specific information is often overstated: “Many display advertisers are interested in reach and repetition, aiming to advertise to a large number of the customers in their target groups and to reach each a certain minimum number of times.” Hyper-targeted ads, they write, “are not the obvious way to accomplish such goals.”
- Less relevant ads. In some forms, spreading messages online can be so cheap that advertisers can present them to a huge swath of internet users in the hopes of getting just a few clicks. In a 2012 paper titled “The Economics of Spam” in the Journal of Economic Perspectives, Justin M. Rao and David H. Reiley write that sending unsolicited email through the black market is “at least a thousand times less than that to send bulk postal mail.” That means American firms and individuals end up spending almost $20 billion a year in wasted time and spam prevention, while spammers and spam-advertised merchants pull in only around $200 million per year.
As Amazon moves forward with its advertising platform, and as the market for online ads continues its relentless growth, it will become clearer which of these effects will make real changes in all of our lives.