Tim Wong, Google, Ebay discussed on Freakonomics Radio

Automatic TRANSCRIPT

Lot of explanations for why this might be or For why there's a lot of value and advertising beyond short term sales figures. But Proctor and Gamble is a big player. Even if they're wrong, even to a small degree. They're the ones whose money drives the advertising ecosystem. What would happen if this turned into a mass movement among advertisers, when shouldn't underestimate the size and reach of the advertising ecosystem? The sports you watch on TV. Supported by ads journalism you consume, supported by ads, at least much of them. Google maps and Google Drive and, well, Google. Supported by as as well as Facebook and Instagram and Twitter, nearly everything else you consume online and don't pay for Advertising is also important for Tim Wong, whose day job is researching artificial intelligence and machine learning. Some of the most cutting edge research in the world is being funded by ads, right if you think machine learning an AI is gonna have a huge impact, a huge impact in the world that is from autonomous travel to Medical research and diagnosis. You may want to think about what it means that most of it is subsidized through this add infrastructure, so there's lots and lots of links to the economy that are not always obvious, but I think are worth thinking through because it points out how widespread it downturn could be. So if there is an advertising bubble, can it be deflated in a slow controlled way to avoid a massive economic unraveling? Tim Wong thinks so. But change won't come from the industry players. They have too much incentive to keep selling. It's got to be driven by the buyer's one of the groups that has the most to lose our people who theoretically might be wasting a lot of money on advertising. But one does not think the buy side pressure will be enough. Because I think one of the biggest problems in the spaces that there's no objective Third party evaluator. Some of these claims claims that is about ad efficacy. And so what I advise is kind of a punk rock and the ER. N b E R is the National Bureau of Economic Research. What does Wong's punk rock version look like? It's basically a research group that is willing to be a little bit of a troll to the advertising industry. And so again, How do we throw off the veil? Reduce the opacity in the marketplace. You really need a dedicated group of people who are doing good research on this front. What you want is a handbrake weaken slowly bring down the momentum in the market so that it could deflate without exploding. There are, of course, many people and institutions already doing research on advertising spending, But Let's be honest. Most of them have someone's thumb on the scale. And conventional wisdom isn't the only thing that someone like Tim Wong is challenging. It's also the billions of advertising dollars that Dr trillions of dollars of market value, so it takes some courage to suggest that those billions and trillions may not be kosher. One of my favorite arguments that people are using right now is you know companies wouldn't put money into this if it didn't work. So isn't that proof that the ads actually work? That, in fact is exactly what we heard earlier from the Unilever veteran Keith Weed. The fact that Coke and Dove on Ford have been around for decades on the fact that companies like Unilever spend billions suggests that maybe advertising does work, which is kind of just crazy Circular mind knees if you think about it, But I do think that again. This is very parallel to the kinds of psychology that have driven market bubbles in the past. One reason to suspect that adds do work well is the underlying assumption that firms like Unilever who buy so much advertising are as Econoline one textbooks tell us Profit maximized hers. So why would they waste so much money? Any economist who tells you that firms air profit maximizing Is not ever worked with firms that is Steve Leavitt. The realistic picture of his that firms are composed of people and all of the foibles and shortcomings that people exhibit in their everyday life. They bring those to work with them. We asked Steve to Dallas, the Berkeley economist who worked for a time at eBay what he thought of Levitz take on the non profit maximizing behavior of allegedly profit maximizing firms. As an economist, hearing. You say that causes my stomach to hurt but at the same time, I know that you are absolutely correct today. Ellis by the end of his time at eBay Come to think that his cynical view of advertising didn't go far enough. He recalls the time eBay asked him to measure the efficacy of affiliate advertising. Think of bloggers who put in links to say company websites. Well, we worked closely with the senior director in charge of spending the money on that. And after a two hour intensive meeting, we figured out a way to do that. To do that meaning to measure whether these affiliate links were really worth buying. He turned to me and said, You know, Steve, if your results look as bad as they did for paid search, I'm not going to believe your numbers. Now. I was obviously shocked because it made me realize that religion and not science is what's winning this battle. Then I realize that it's something a lot more profound and for which I actually have a lot of compassion. If you're working on something for 10 2025 years This is part of your identity. And this is part of what you believe in. And if I'm going to prove that what you thought works so well in ways that you don't quite understand, because you're not a statistician or in a kind of attrition, and you have to take it at face value. What are you going to believe your gut That tells you that what you've been doing for the last 20 years is really influential or some egghead academic. That's showing you a bunch of equations that you don't understand and is claiming that you're wrong. This digital advertising issue is just part of a bigger conversation about the power of modern technology companies. For their first few decades, they were pretty much given free rein. But now they're facing scrutiny over the breadth and depth of their power power, both seen and unseen. The U. S government has recently brought major cases against Google and Facebook to end what they consider anti competitive tactics. YouTube, Twitter and, frankly, thousands of digital platforms and repositories stand accused of promoting misinformation and or mishandling user information. Even all that society probably deserves a better answer. Then a lot of companies pay a lot of money for advertising, so it must work. I think the question isn't necessarily do you want it Internet with ads or without ads. That again is Tim long. The question is, Do you want an Internet that's just based on a huge monoculture that's largely funded through ads were the most powerful companies use ads and where veces.

Coming up next