It's de rigueur to say that if you don't pay for a product, then you are the product. Shoshana Zuboff's The Age of Surveillance Capitalism, a thick tome, has been an unlikely bestseller.
Together with former PayPal founders Peter Thiel and David Sachs, Elon Musk is part of an influential group of libertarians that has united conservatives and former leftists in Silicon Valley. If not using quite the same rhetoric, Musk is angling for war with the advertising establishment under the banner of free speech.
Musk’s thinking here as it relates to Twitter isn't difficult to picture. For him, Twitter is saddled with hundreds of unnecessary moderators, editors and ethicists, catering to easily offended liberal sensibilities. Musk has put the platform in debt, so getting rid of this expensive lot can help fill the hole in its books. Some advertising could be partly replaced by subscription fees.
Before making an offer for Twitter, Musk may not have understood advertising problem he'd face executing his vision. Or more specifically, "Brand Safety". For those that are unfamiliar, "Brand Safety" is the idea, widely held in marketing and advertising, that brands should not appear in "unsafe" environments.
Even though it is said that we live in an age of surveillance capitalism, it is curious that on social media or the media in general, there is comparatively little conversation and debate about the ads business (compare it with crypto).
Ben Evans (below) is right. Advertising, or online ads, in particular, is not well understood. Not in tech, not anywhere. How does the online ads business even work? And what are the finer points of how they operate on Twitter?
Ads is not a big industry, and it is becoming smaller
There is a lot of talk that “data is the new oil” lubricating the wheels of the advertising industry. In truth, if we make a crude comparison, advertising (including the sizeable part of it that does not use data much) is a much smaller sector than oil and gas, even in years when the latter did not do very well, and advertising boomed, like 2021 (see graph).
It is also a little remarked upon fact that since the year 2000, at least in the United States, advertising has been in decline as a share of the overall economy. From 1.5% of GDP to below 1%. Hardly a sign of raging surveillance capitalism. At the same time, advertising funds many of the services we rely on every day, and much of journalism, a vital public service.
Brand vs direct response advertising
A basic understanding of online advertising requires an overview of two forms of advertising that preceded online advertising but found their own unique expression in this interactive medium: brand and direct response ads.
In other mediums like print and TV, the kind of message but also the standards of accountability and brand safety, vary from one type of advertising to the other. In digital, the technology infrastructure and data that are required to deliver successful brand or direct response ads also differ.
Brand advertisers aim to get the public to recognise a product or, even better, have positive associations with it. Then when consumers walk into a store, they reflexively reach for the product they recognise.
Brand advertising dovetails well with the legacy mass media of the past and still typically serves mass-market products that do not require much by way of audience segmentation. Large audiences provide economies of scale. Big budgets are required, but audiences are cheap on a cost-per-thousand basis.
Direct response advertisers, in turn, want immediate results. That's hard to achieve cost effectively if your product is not quite differentiated and your ads targeted, so this form of advertising tends to cater for more niche products, small audiences and budgets. The more targeted the advertising, the fewer people they need to see their ads, and the more efficient and "cheaper" the campaign.
Brands are for normies?
Brand advertisers expect environments that are not violent or overtly sexual (it's what killed Tumblr and forced a clean-up of up-skirt sub-Reddits), even "positive". Think of the squeaky-clean corporate cliché. It's not far from the truth. Direct response advertising has fewer pretences. See, for example, how classifieds, even in respectable newspapers, used to allow advertisements for "massage" and other risqué services in many countries.
Ironically, in the past, criticism of such stuffy and vanilla mainstream corporate culture has been the domain of left counter-culture (See bell hooks's "Teaching to transgress", or De Sade, Bataille, Foucault) and the Bay area's own digirati (like Stuart Brand, Kevin Kelly) and their anti-corporate hippie ethos. Angela Nagel in "Kill all Normies" is excellent on this history.
The rise of direct response on the Internet
Traditionally brand (TV, Cinema, Billboards, Magazines) have been much larger in money terms and prestige and glamour. Brand celebrated higher aspirations like creativity (The Cannes Lions is a brand event). Its advertising’s poetry and speaks the language of emotion. Direct response was a place for bean counters, dour, mechanical and unimaginative in comparison. It is personified by its workhorses: classifieds, telemarketing, and direct mail.
But then the Internet happened. Search is clearly a form of direct response and not brand advertising, yet soon it became the biggest and most successful category in the nascent online ads industry.
In the early Dotcom boom, the rest of the web industry soothed themselves, "never-mind that we can't compete with Google". "Like direct response, elsewhere, search is for small businesses and niche products", was the argument. Getting brand advertising budgets to move online was where it was argued the real money was.
Yet the new Online “Display” ads were clickable, which meant they held the possibility of both brand and direct response. But very few people clicked. Thus, web portals like Yahoo! tried to sell banners in a similar way to how TV ads were sold (as a reach product), underselling clickability. The industry struggled.
The quest for targeted “Open” Display Ads
To be sure, a few did focus on transforming Online Display advertising into a data-driven direct response medium. After all, digital is an interactive medium. A cornucopia of data brokers, ad exchanges, and ad networks based on cookies sprung up. Some were cowboys. Data was handled fast and loose.
Now sometimes referred to as "Open Display" ads, they are the bread and butter for 95% of ad businesses (including most former newspapers online) that depend on them.
Why "Open"? Most websites (or apps) are only occasionally visited, let alone once a day. They don't have much data on who their users are. Thus, the purveyors of Open Display Ads banded together, using data brokers to share data via cookies. And these brokers use machine learning in an attempt to make their predictions of who users are better.
But how effective are Open Display Ads? We now have very thorough research on that. Professor Christine Tucker of MIT researched and tested the data held the world's largest data brokers in 2019. After all the hype about data and oil and Open Display ads being sold as direct response, professor Tucker expected "finely tuned and intrusive data about what she was thinking that day".
Below you can see some of the most common categories of data sold. It's pretty basic. The top two are age and gender. Yet Data brokers averaged about 50% accuracy for gender data, not much better than a random guess! And there was no correlation between the amount of data a broker held and the accuracy of their predictions about users.
Tucker's research also shows that the poorer you are, the worse the prediction - because poorer people's data is so fragmented. The lack of data on the less privileged she calls "data deserts". "Surveillance capitalism" as we imagine it with respect to ads, appears to be the worry of the relatively well-to-do.
The arrival of “On Platform” Display Ads
A different category of ads, sometimes now referred to as "On Platform Display", has emerged in recent years. For a while, only one company personified it. When Facebook came along, Display ads performed noticeably better, but without relying on data brokers and operating in a closed system. Why did they perform better?
Facebook's ads appeared in users' feeds, exactly where their attention was focused, and in the same format as the content they consumed. Ads could have an element of social proof: people (even your friends) could like, comment, and even share them. This adds a potential for organic distribution and also potentially makes these ads cheaper, encouraging advertiser creativity. The line between direct response and brand advertising got even more blurry.
But Facebook also had massive reach (millions of users) who spent a lot of time on the platform and as a result — far more data. Not data Facebook specifically asked for. Behavioural data like who people followed and what they liked.
Machine learning comes to Facebook
But like Twitter's ads, who also appeared in the feed, Facebook ads did not perform that much better than Open Display Ads. 2013 marked another step change. Facebook introduced a new ad feature called "Lookalike Audiences" that employs machine learning. Using it, you can target audiences in a sophisticated and deep manner.
Say a business had a Facebook page that had 10,000 Likes. They could tell Facebook's algorithm to find 300,000 people to target with ads on Facebook that are most similar to those users that Liked their page. The advertiser would not know who was included in this audience, or indeed their salient demographics or characteristics.
In 2015 they enhanced their advertising capability further with the ability to track behaviour on third-party sites and apps. Combined with Lookalike audiences, it was really powerful and drove a lot of Direct response advertising.
Not because it added much to the volume or breath of data Facebook held. Often it only added one data field. But rather like an effective Stable Diffusion image generation prompt, it allowed Facebook to hone in statistically on the most vivid picture of which users in its database was most similar to those that have done something off its platform.
It allowed a retailer to tell Facebook which of its customers were buying a particular product, and Facebook could link these customers with actual Facebook users. Then, when they had enough of these Facebook could use Lookalike audiences to create an audience of Facebook users with similar traits, which the retailer could target with advertising.
This kind of advertising proved spectacularly effective. Having Direct response advertising that is this targeted has been extremely profitable for Meta, allowing it to start competing with Google. Advertising is not that big of a sector, but Alphabet and Meta dominated it to such an extent that for a while, both companies were in the top 5 most valuable ones in the world. Today Meta has over 10 million advertisers, many of whom are small to medium-sized enterprises.
Twitter, actually does not do too badly as an ad platform when you compare them against anybody but Meta in social. This graph (below) by digital ad expert Eric Seuifert shows it comfortably outperforms Pinterest and Snap. And Twitter's revenue growth is not to be scoffed at, particularly from the vantage point of legacy media.
Yet, in 2020 Twitter revealed that 85% of their advertisers were pure brand advertisers, and more recently that they only have around 3,000 advertisers overall per month. It has not been able to match Meta in terms of targeting. If you ever looked inside your Twitter dashboard (when you still could), you would have seen how little Twitter knows about you.
Does Twitter not have enough or the right kind of data to be able to do direct response well? Or have they just been slow to build the required tech? Recent Regardless, Twitter, to this day, is primarily known as a place for brand ads.
While doing better than most with its brand advertising, Twitter has been a bit stuck, never making the leap to direct response, while Twitter also does not have the reach that brand advertisers typically desire.
It's an Open question whether having thousands of primarily direct-response advertisers will necessarily save Elon's bacon. The lines between brand and other forms of advertising have blurred somewhat online. If Twitter descended into a free for all, it would probably have even fewer female users than it has even today. But many smaller businesses are less concerned with their public reputation.
It won’t be easy. But to be fair to Twitter, only Amazon has managed to join the eye-watering profitable club of highly targeted direct response that includes Alphabet (Google) and Meta (Facebook, Instagram) so far. The irony is that instead of selling data, these companies guard it jealously.
With its push into ads coupled with the hobbling of its competitors via App Tracking Transparency (ATT), it will make Elon’s life even harder. And perhaps Apple itself will join this exclusive club of three, cynically remaking the whole ads landscape and, indeed, the Internet economy in the name of "privacy".