The crisis in internet advertising

Big names pulled the plug on online advertising when they realised their ads were appearing next to jihadist preachers. That’s a problem for media giant Google, says Simon Wilson.


Google has sworn to do better
(Image credit: © 2017 Bloomberg Finance LP)

Big names pulled the plug on online advertising when they realised their ads were appearing next to jihadist preachers. That's a problem for media giant Google, says Simon Wilson.

What's happened?

Revelations that advertisements from such respectable outfits as the UK government, Sainsbury's and L'Oral were featured alongside inappropriate YouTube content including white supremacist groups and jihadist preachers have caused a host of firms and organisations to pull their digital advertising from the Google-owned video site.

Among the 250-and-counting organisations to suspend their advertisements include the BBC, The Guardian newspaper, Marks & Spencer, McDonald's, Channel 4, Tesco, Audi and several banks. Many of the companies boycotting Google had discovered only by reading The Times's investigation that their advertising budget was being used to place banner advertisements over these videos, thus indirectly funding extremists and damaging the prestige of their brands.

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What was Google thinking?

It wasn't. Like much of the digital advertising industry, Google uses "programmatic advertising". When you buy advertising space on TV, radio or in a print publication, a representative of the firm, such as a media buyer working on behalf of an advertising agency, will negotiate with the media outlet's advertising team specifying where and when it will run and the cost. In digital advertising, digital trading desks at media buying agencies still plan, book and execute campaigns on behalf of clients, but the specific slots where advertisements appear are allocated by computer algorithms and a complex automated auction-style clearing system.

How does that work?

When you click on a webpage, advertisers in effect bid for space on that page based on cookies and other tags tracking your online activities with the aim of serving you advertisements you'll want to see. An auction is held and the "winning" advertisement is transmitted in milliseconds. All this is "as complex as it is... fast", says The Economist.

"Thousands of firms jostle to analyse consumer data and buy, sell and monitor" advertisements, and an advertising impression sold programmatically can change hands 15 times before being bought by an advertiser and served. That brings both thrilling innovation, and massive headaches, like this incident.

Will the publicity damage Google?

Google has apologised and sworn to do better, but it's too early to say how serious the fallout will be. Given that print publishers have seen their advertising earnings collapse due to the advance of Google and Facebook, newpapers have every interest in keeping the story running.

On the other hand, for advertisers keen to reach digital audiences, Google and Facebook have huge power, accounting for almost 60% of the £11bn UK digital advertising market and 90% of new spending, says market research firm eMarketer. Michael Roth, CEO of global advertising giant Interpublic, told the FT that the scandal is unlikely to presage a collapse in Google revenues, but that it would lose business if it can't fix the issue of extremist content. It doesn't help that the scandal is just one of the issues now facing the digital advertising sector.

What are the others?

Integrity and trust. Digital should help make advertising more effective, with more personalised and targeted advertisements. The problem is that while advertisers have gained in some ways (the ability to personalise) they've lost in others (the certainty that a claimed viewer has seen their advertisement).

There are no agreed standards and metrics for what counts as a "view", how much of the advertisement has to be visible on the screen and for how long, or on how these metrics should be verified by third parties (in the way that has been standard in the TV industry for decades). Worse, an advertiser can't even be sure that their advertisement, if it hasn't been prevented from appearing by blocking technology, was viewed by a human as opposed to a "bot" (see below).

Are advertisers restive?

The rumblings coming from the biggest global advertiser of all Procter & Gamble (P&G), which shelled out $10bn in 2015 on advertising its consumer brands are ominous. Back in 2012, P&G was full of the joys of the newish technology, telling Wall Street it expected to make $1bn in savings by targeting customers through digital advertising and social media. But now it's a different story.

At a recent advertising jamboree, P&G's chief brand officer, Marc Pritchard, attacked what he called the "exponential increase in crap" associated with online marketing, and the "even crappier" viewing experience. "Together [as advertisers] we're now spending $70bn on digital adverts", he noted, but complained that "we serve advertisements to consumers through a non-transparent media supply chain with spotty compliance to common standards, unreliable measurements, hidden rebates, and new inventions like bots driving fraud". His message was clear: "frankly, the jig is up" and the days of "giving digital a pass are over".

How big a problem is fraud?

Global spending on web advertisements will surpassexpenditure on TV advertising for the first time thisyear. TV spending has remained steady for the past five years, at around $170bn. Web spending has more thandoubled, from $80bn in 2012 to a forecast $200bn in 2017,says ZenithOptimedia, a media agency.

Yet an industryinvestigation last year found that up to 37% of online impressions are made by bots ie, programmes that "visit"sites to drive up traffic metrics and fraudulently enticemore advertising. That's not a sustainable position, saysLeila Abboud of Bloomberg. "The flow of money from TVand print to the web could slow or reverse." If advertisingand media agencies can't be transparent about how theyspend money, "contracts will be cancelled or revised".

Simon Wilson’s first career was in book publishing, as an economics editor at Routledge, and as a publisher of non-fiction at Random House, specialising in popular business and management books. While there, he published, a bestselling classic of the early days of e-commerce, and The Money or Your Life: Reuniting Work and Joy, an inspirational book that helped inspire its publisher towards a post-corporate, portfolio life.   

Since 2001, he has been a writer for MoneyWeek, a financial copywriter, and a long-time contributing editor at The Week. Simon also works as an actor and corporate trainer; current and past clients include investment banks, the Bank of England, the UK government, several Magic Circle law firms and all of the Big Four accountancy firms. He has a degree in languages (German and Spanish) and social and political sciences from the University of Cambridge.