The Advertising Triopoly
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The press has come to rely on a very wide net when describing “tech” companies. Some of this is to be expected as tech continues to invade new industries. However, there is something wrong found with using “tech” to describe any company making money one way or another from software and data. My stance on “tech” is that it has lost much of its descriptive meaning when it comes to business models and product strategies.
Instead of lumping today’s corporate giants into one massive “tech” bucket, a different categorization based around advertising is more valuable. For the first time, a retailer, social media company, and information services company are grabbing more than half of all advertising spending in the U.S. The pandemic was the catalyst responsible for pushing the three over the 50% mark.
Wall Street doesn’t see any end in sight when it comes to Amazon, Facebook, and Google and their advertising prowess. Accordingly, the press has taken it upon themselves to be the last remaining force of resistance to the three. It is not a coincidence that massive media campaigns have been waged against Amazon, Facebook, and Google. All three have awful narratives and perceptions if going by press coverage. From my position, much of the press outcry and criticism has become too stretched to be any good. The press made one giant mistake in their quest to go after these advertising giants. By turning every little thing into a massive crisis that supposedly was going to bring their downfall, the press cried wolf too much. The end result was valid criticism being watered down to such a degree that readers and listeners became tired with it all. In a way, the press’ attacks have helped strengthen Facebook, Google, and Amazon.
That’s not to say that there isn’t controversy found with the advertising triopoly. Instead, few are able to correctly point out the actual issues. Another way of describing the advertising triopoly is the data triopoly. Consumer-friendly services, most of which are free, are offered with the goal of grabbing consumers’ attention, and by extension, their data. This data is then used to both enhance the underlying services, which results in better and stronger engagement, and attract brands, which have a never-ending craving to get in front of consumers.
There is nothing inherently wrong with the triopoly giving away services (email accounts, cloud storage, video streaming, music streaming, messaging, reviews, business solutions) for free just as there is nothing wrong or evil found with leveraging customer data to enhance or better the service over time. However, there are two primary problems found with the dynamic:
Companies are not being clear and up front with their customers as to what kind of data is being collected and how the collection process works. The average consumer would be shocked to learn how much of their data is actually being collected. It is no longer good enough to collect data about what consumers’ are doing on your own online property. The goal is now to track customers while they are on other online properties.
Companies are building detailed customer profiles in an effort to better compete against other companies.
A good argument can be made that the two preceding problems end up being byproducts of giving services away for free. If services weren’t free but instead paid, the companies offering such services wouldn’t be in as much of a need to build detailed customer profiles or hide their true data collection intentions. However, this view comes across to me as being a bit too cynical. We have not seen what would happen if the advertiser triopoly was actually up front with customers about data collection while making a concerted effort to curtail data collection in an attempt to enhance customer privacy. It is not a guarantee that their advertising grip would actually weaken in such a scenario. Instead, we are left with a company like Apple, sensing no viable solution to the two preceding problems, taking it upon themselves to address the underlying issues.
As for who stands to be the largest business losers from the advertising triopoly, industries that have essentially become commoditized are high on the list. The demise of local newspapers has been well telegraphed. Less focus has been put on how the advertising triopoly holds complete and total responsibility for its destruction and broader problems found with the entire news industry. It is ironic that two of the three advertising companies that make up the triopoly have been trying to “save” the news industry by throwing money at publishers. Unfortunately, such efforts are too little and too late. The simple presence of the advertising triopoly leaves little to no room for a news industry long supported by advertising. (We are going to see continued consolidation in the news industry, including the online space, which should leave enough room for a pretty decent niche publication scene.)
The music industry has similarly come under pressure from the advertising triopoly, not due to declining revenues from streaming but rather from the art form being used and taken advantage of in pursuit of building up ecosystems. Fears of podcasting and video not being too far behind music are valid. There are then niche industries, or at least industries that would seem to be niche, such as restaurant and product reviews, that have been decimated by the advertising triopoly. While an enduring entrepreneur can take a swing or two at these troubled industries, it will likely take massive capital in an effort to grab users and only then would consolidation seem like the inevitable conclusion.
Turning to the government for help with taming the advertising triopoly is easier said than done. The regulatory issue isn’t actually found with what companies are doing with customer data once it is collected, but rather it’s found with the collection of the data in the first place. Examining data collection practices would then unveil a systemic problem found throughout the corporate world with very few exceptions. Breaking up the advertising giants won’t accomplish as much as regulators think. Instead, competition can be intensified by giving customers more control over their data and the collection process. Focusing on the data itself will end up being the best way of equalizing the situation as it was data that gave power to today’s advertising triopoly.
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