Plugging holes

Figure 1

Following the fairy tale about trolleys in the post at reference 7, what follows now is a fairy tale about third party advertising on computers; but a fairy tale in which I think there is more than a pinch of truth. A fairy tale which has emerged some time after reading a piece about Google, cookies and advertising in the Financial Times (reference 5), a piece which I think I first came across in March of this year, but which actually first appeared in November last year. On which more in due course.

So for now, let us suppose that I am using a computer running on software sold by Corporation X, perhaps registered in a proper country like the US or China, or perhaps, alternatively, in some puppet jurisdiction, aka flag of convenience, aka tax haven, aka very light on regulation. Perhaps the State of Delaware. Or those of Jersey. This software includes a web browser, perhaps something like Microsoft’s Edge or Google’s Chrome, access to a search engine and personal productivity tools which I can use to build my own web site. Let us suppose that millions and millions of other people use similar computers or other, comparable devices, like telephones.

Let us suppose further that the business model of Corporation X is two thirds web based advertising and one third product sales, roughly the same balance as a print newspaper of fifty years ago. So their products are subsidised first by selling spots on the hit lists built by the search engine associated with their browser and secondly by selling advertising on other peoples’ web sites, web sites which might have been found through that same search engine. Or looked at another way, their profits are inflated by advertising. In any event, advertising is very important to them; it is worth their putting in a lot of effort to get it right, to maximise that inflation.

Let us suppose now that I am an artisan baker producing a modest amount of bread in a small factory in a railway arch somewhere in Bermondsey, probably an arch carrying railway lines out of London Bridge. A small factory which I forgot to register with the appropriate authorities, but no-one seems to have noticed, no-one seems to be bothered. With an interesting second-hand timber yard to my right and an artisan gin operation to my left.

But I do need to sell my goods and so I do need a web site, preferably one which is visible on the devices used by all the fashionable and well-heeled young people likely to be mooching around London Bridge.

Corporation X has the products which can do the business for me in short order. Their productivity tools are indeed world class. With a deal along the following lines.

I get someone to build my web site, typically made up of a number of web pages, mostly large pages which do not fit in entirety on the target device, be that a regular computer or something more portable. Indeed, such a page might be a lot larger than can legibly, can decently be displayed in one go. So an antique device might come with scroll bars, a little clumsy on a telephone and a modern device might come with the more convenient touch sensitive screen: swipe the screen and the device moves across the page in the direction indicated. Or zoom in and out, depending on lighting conditions and eyesight. And such a page will probably contain links to other pages, and so on and so forth.

In so doing, Corporation X expects me to reserve Y% of the area of most of my pages for them, delivered in a number, say Z, of rectangular blocks. In the snap of one of my web pages above, Y might be around 40 and Z is 3. With Y and Z negotiable, naturally. With the blocked up page left and a mock up of the page itself right – with the similarity of this last to a page in a tabloid newspaper reflecting both the need for a page to glitter (something the people that do the ‘Sun’ are very good at) and the same dependence on advertising income.

Then, when someone is viewing one of my web pages, Corporation X’s high powered advertisement placement system decides in real time what advertisements to place in their blocks, for this viewer. A placement system which might know a great deal about the financial and domestic standing, the interests, preferences and habits of the viewer in question. Advertisements which might be video clips, which might include sound – and over which I have no control at all. Advertisements which will, by design, certainly distract my viewers from my artisan bread.

The business model

All this is summarised in the box diagram which follows.

Figure 2

Corporation X owns the world of computers. They might not own the cloud but they do own access to it: the construction of, access to and use of web sites. The red boxes.

Our baker – top left – generates his revenue through his web site. From that revenue, he pays Corporation X for services – payments for site construction and hosting services.

Similarly, third parties – top right – generate their revenue through their web sites. But additionally, they pay Corporation X for advertisements on the baker’s site. Advertisements which generate revenue for them by click through. Corporation X shares some of this revenue with the baker.

The members of the public – bottom – provide the revenue which drives this whole edifice. To Corporation X for their personal computers and access to the web. To the baker for their bread. To the third parties for the stuff that they buy from them.

The baker want to maximise his revenue.

The third parties want to maximise their revenues.

But the Corporation X game is more complicated because they get both direct and indirect revenues, direct and indirect taxes, as it were. To maximise their revenues, they can either maximise the revenues of the baker and the third parties – or maximise their share of those revenues. Maybe both? Maybe there is a lot more money to be made out of the latter than the former? Who knows?

Note that Corporation X does not care about whether the baker is taking market share from the third parties or vice-versa. It does not care if the advertisements on the baker’s web site are decreasing the baker’s revenue – provided that this decrease is more than compensated for by increases elsewhere. It does not care about the revenue of the baker or the revenue of the third parties, taken separately. All it cares about is the grand total.

And so we come to the big question: is Corporation X taking a fair slice of the public cake, given their contribution to the party?

Other points

And if instead of making bread, I was selling romantic weekends for the older couple, I might not be best pleased to have my web page sprinkled with advertisements for funeral plans, bath aids and mobility aids, the considerable overlap of these markets notwithstanding. I might not be best pleased anyway for the RSPCA, arms dealers or coal miners to be advertising under my name. To name but a few of my pet hates.

But it is not all bad. There is a sort of symbiosis going on here. Corporation X wants the advertising revenue, revenue which is geared to the number of clicks. The advertisement placement system has to strike a revenue maximising balance here – between pulling in the viewers who want to find out about my bread and putting those viewers off if there is too much badly targeted advertising. Viewers who have been sucked in by my wonderful website promoting my wonderful bread. I have done the heavy lifting, I have got the viewers there in the first place - and Corporation X is not going to kill off the goose generating the golden clicks. Indeed, Corporation X might well tweak the search rankings in their browser so that web pages carrying lots of their advertisements somehow seem to drift to the top of the heap. Indeed, given that Corporation X more or less own lots of the PCs or other devices that my viewers are using, and know everything there is to know about the action on them, there is all kinds of stuff that they could get up to.

They might also keep me sweet, by chucking me a few extra lollipops from time to time, paid for by their advertisers.

On the other hand, some advertisers will be big and important corporations in their own right, fully able to push back for a deal which suits them. And while Corporation X might, in principle, know everything about what is done on devices running their software, they might not actually know much about exactly what business is done with advertisers. So, for example, I often find lots of advertisements for the shoes that I buy from Cotswolds on my PC – just after I have made my purchase of those very same shoes. After that particular horse has bolted. More cooperation between Corporation X and its advertisers indicated.

So it is all very complicated. Maybe lawyers as well as accountants get to see a slice of the action.

Nevertheless, speaking as a man in the street, there do seem to be a lot of websites which work like this, with a significant proportion of their space rented out, in effect, to the Corporation X’s of this world. Websites which I find very irritating with all their flickering advertisements, which I need to work around in order to use the website for its intended purpose. So we have reference 1 telling me about company registration in China, a website which appears to be much more interested in selling its own products and services, rather than those of other people. Then we have reference 2 telling me about gardens, a website which, once you get below the home page, carries lots of advertisements for other people’s products and services. With both Google and Adobe being prominent for some reason. So maybe reference 2 really does operate along the lines suggested above.

Other ways of doing things

Renting space in other people’ websites is an important channel for advertisements and revenue generation. But there are plenty of other channels.

In the olden days, women’s magazines used to have lots of sponsored content, that is to say material which looked like it was magazine content, but which was actually written, paid for and published as an advertisement. At some point, the regulator (whoever that was) introduced rules about such content having to be flagged up as sponsored.

Nowadays, much the same sort of thing happens in Facebook and Twitter where public facing companies – such as Sainsbury’s (which are big) and family restaurants (which are small and don’t necessarily want the overheads of their own web site) – have accounts in the same way as the regular users. My understanding is that these companies can pay to have their content pushed out to those regular users. More pay, more push. But a downside is that such accounts need to be serviced: it you let people comment freely on your material in social products like Facebook, you have to be prepared to spend whatever it takes to field those comments. One more thing for the marketing people to worry about.

I don’t know whether either product takes display advertisements in the way of a newspaper. Where, the fifty years ago mentioned previously, there was a roughly fifty-fifty split between big display advertisements (say British Gas) and small classified advertisements (say houses, cars or jobs).

Contrariwise, my impression is that mainstream retail operations do not carry third party advertisements on their websites. They carry advertisements for their own products and they work hard to make it easy to shop, to spend money – and this does not include their customers being diverted by third party advertisements.

But a lot of news and information providers do not charge for their news and information but do carry third party advertisements – with this being what pays for that news and information. This includes most newspaper sites, with some of them being so thick with advertisements that they are difficult to use for their ostensible purpose, with the ‘Daily Mail’ site being one such. But this excludes Wikipedia and most public institutions – such as the Digital Public Library of America – which are advertisement free – although many public institutions – such as the National Gallery in London – do run online shops. Which slightly blurs things. As does the fact that the ‘Financial Times’ web site, which you certainly do pay for, is not completely advertisement free. For a different take on all this, see reference 8.

There is also the consideration that the man in the street loves freebies. So many of them are happy to consume freebies – particularly things like the online versions of newspapers – on the web and are not greatly troubled by the volume of advertisements which they are taking down with said freebies. Few of them are prepared to pay while there is this apparently free alternative  and they probably don’t realise that the cost of their freebies has simply been transferred into the prices of stuff which they do buy. Maybe the advertisements are more entertaining than the content – which I understand to be a consideration with those placing advertisements on television. While the more sophisticated do so realise, but pretend to themselves that they are unaffected by all these advertisements and, anyway, rarely buy the sort of products so advertised. In which there may be some truth.

And there are plenty of advertisements turned up by Chrome/Google or by Edge/Bing, including a ‘Shopping’ tab which is useful when you are looking to buy something, say a wheelbarrow. Otherwise, the hit list in ‘All’ is likely to include lots of people selling whatever it is that Google or Bing thinks you might want to buy. And, as already noted, you can pay both Google and Microsoft to get your product pushed higher up the hit list. All of which is more or less fair enough – someone has to pay for all that clever search technology – and one can usually find what one wants – although it does raise the entry bar for the smaller operator.

Conclusions

The bottom line for me is that a Corporation X as outlined earlier would be too powerful and there would need to be a better division of powers. With division of powers in government being something that the founding fathers of the US put a lot of thought into when they wrote the constitution, in the context of wanting a strong grip on the powers of government generally. No taxation without representation and all that. A written constitution which is more than a touch out of date now, just as our oral constitution, such as it is, is here in the UK. Sadly, the founding fathers did not get around to division of powers in the market place, and such trust busting as there is only came later.

I associate to the Irish barman in a small bar in a parade in Oxford Road in Reading who, maybe fifteen years ago now, explained to me at some length, over the odd pint of plain (of reference 6), that search engines and browsers were too important to be left to the private sector and they ought to be a nationalised industry. Sober, I can still see his point, although one might doubt whether the civil servants staffing up such a nationalised industry would have either the freedom or the drive to build the products we now have from the likes of Google.

PS: when I was young I thought advertising was bad, maybe evil. If you had a decent product you did not need to work at persuading people to buy it. I like to think I have a more nuanced view now, seeing the value add in advertising – for example telling potential customers about a useful product which they would not otherwise get to know about – without going the whole hog, and still rather disapproving of the huge amount of money which is poured into the advertising industry, money which has to be recovered in the prices of the products so advertised. Rather disapproving of a world in which we are always encouraging people to do more stuff. The planet can’t take it any more! Extinction rebellion!

References

Figure 3

Reference 1: https://www.chinacheckup.com/. An example of a middle sized company which does not rent out space on its web site. Just makes space in the useful free offering to sell its own products.

Reference 2: https://www.gardenguides.com/. An example of a middle sized company renting out space on its web site.

Reference 3: https://dictionary.cambridge.org/. Another example of a middle sized company renting out space on its web site.

Reference 4: https://www.facebook.com/Carlos-Trattoria-115634381849324/. An example of a family restaurant on Facebook.

Reference 5: Google plan to lock down user data draws fire from advertisers: publishers warn ‘self-serving’ move could entrench search group’s dominance - Madhumita Murgia and Alex Barker – 2019.

Reference 6: The Workman’s Friend – Flann O’Brien – 1939.

Reference 7: http://psmv4.blogspot.com/2020/05/a-shopping-fantasy.html.

Reference 8: https://psmv4.blogspot.com/2020/04/the-future-of-news.html. For a different take on the newspaper end of things.