Google, Ebay, Steve Levitt discussed on Heartland Newsfeed Radio Network
So what happened next. You might think what with capitalism being the hyper competitive market optimizing perfect information ecosystem. It's supposed to be you might think that other companies once they learned about this ebay research would cut their online ad spending or at least commission their own research. Test the theories. So did they excellent question. There was a lot of chatter on line after our experiments became public suggesting. That folks ebbe don't what they're doing and paid search advertising works wonderfully if you know how to do it but of course that was backed with no data and no analysis in other words the digital ad community did not rush to replicate the results now given the opportunity to save millions of dollars that the ebay research showed was being wasted. Why wouldn't other companies at least poke their own data a little harder. Well i think there are many reasons. Let's start with the way in which this industry is structured. You could think of four different actors. Here there's the customer which is the company or the person who wants to advertise in order to get business and then you have three players sitting on the other side of this market was the publishers. That would be google. That would be the new york times or any other place where the ad appears in front of people the other are the people who create ads and then finally a smaller part of the industry are these analytics. Companies that like that company ebay hired are trying to help companies. Spend this money and if you think of all these three players on the other side of the fence. No-one there has an incentive to basically open this pandora's box even within the company. That's buying the ads. The incentives can be complicated. Steve levitt again. If you think about it no chief. Marketing officer is ever going to say. Hey i don't know don't work. It's not do umn and see what happens. Don't get me wrong. I'm not implying that advertising doesn't work plan that we don't have a very good idea about how well it works. Steve to dallas agrees. The potential for digital advertising would seem especially large given its ability to micro target consumers and targeting really is key because one of the lessons. We learned from the experiments at ebay. Was that people who never shopped on. They were very much influenced by having ebay ads for non brand keywords. You know guitar share studio microphone and if ebay would be able to better target ads to customers that are not frequent customers. That's where you would get the real bang for the buck. So as companies become more sophisticated. They could try to engage in these kinds of experiments to focus attention on different customer segments in order to see where they get the highest returns on advertising by in large. I don't see that happening. A big part of it is the naivety on the side of these customers customers. Meaning the companies who are buying these keyword ads. The one actor sitting alone on their side of the fence across from the agencies the publishers the ad tech firms and one of the things that i try hard to do is to give people enough information so that they wouldn't be able to do the job themselves but if someone is to sell them snake oil. They'll smells something is not working here. Coming up after the break is the digital advertising economy a bubble. I do think this is very parallel to the kind of psychology that had driven bubbles in the past. Also if you like freakonomics and you've gotten this far so presumably you don't hate it. You may also lake. The two other shows that recently launched within the freakonomics radio network. One is called stupid questions. The other people i mostly admire. I am proud to say that new stupid questions which launched in may is already coming up on five million downloads and people. I mostly admire which launched only at the end of summer is coming up on. Its first million so go. Listen and subscribe new stupid questions and people mostly admire. You can find them wherever you listen to podcasts. And now here's an ad that somebody probably cooked up. Just for you We reached out to facebook and google with some questions about their ad business and to get a response to the research. We've been discussing today. Which argues that paid. Search advertising is substantially less effective than the conventional wisdom holtz. We got no reply from facebook. The google representatives wrote back to say quote advertisers invest money in search ads. Because they work. They also sent some internal google researched backup their claim separately. We received an unsolicited email from. How variant the chief economist at google. He attached a long list of research. Papers that assert the efficacy of search advertising as well as advertising on youtube which is owned by google. Much of the research vary incent was done by google analysts it offers a robust defense of the status quo the online ad ecosystem. Google has built off of there. Search capability is quite literally a license to print money alphabet. Google's parent company has a market capitalization of nearly one point two trillion dollars last year. Eighty three percent of their revenue came from advertising so it would probably behoove all of us to know a little bit more about how this ecosystem functions whether it's as effective as google says it is or as ineffective as researchers like steve to dallas told us earlier about his research at ebay. Ebay believed that for every dollar. They're spending they're getting fifty cents net profits and what we showed. Is that on average. They're losing more than sixty cents on every dollar so okay. let's try to understand this ecosystem better. I we will need a guide. Sure my name is tim. Wong h. w. a. n. g. day job is. I'm a research fellow at the center for security and emerging technology at georgetown and before that i was previously global head of public policy for a and machine learning at google one recently published book called subprime attention crisis advertising in the time bomb at the heart of the internet. It's about how big tech monetizes our attention. When i started to research by very naturally started to talk to a couple of friends who work at these big tech companies and it was a little bit like talking to someone who works in national security or the intelligence community or something like that because they would be like. Oh adds definitely work. But we can't tell you.