You Will NEVER Replace This

Elon Musk is probably best-known as the founder of Tesla. When Elon isn’t re-inventing the automobile, he’s running SpaceX, a company that builds and launches rockets and spacecraft. To keep busy, he also runs The Boring Company that plans to tunnel highways under major cities to relieve traffic congestion (a company that also generated a reported $10 million selling flamethrowers to consumers – yes you read that correctly!). On the more esoteric end of the scale, he also founded Neuralink, a company focused on developing brain-computer interfaces. Love him or hate him, you can’t deny he’s brilliantly innovative.

Many people know that Elon Musk got rich as one of the founders of PayPal. Far fewer know that his initial business success came as the creator of an online yellow pages company called Zip2 way back in 1996. Seeking to partner with print yellow publishers, he and his brother visited a top executive at the largest yellow pages publisher in Canada. After pitching their vision, the executive responded by picking up one of his thickest directories off his desk, throwing it at them and saying, “You ever think you’re going to replace this?”

 Well, 25 years later, we know the answer to that one. Not only did the Internet replace the print yellow pages business, it largely destroyed the legacy yellow pages industry as well. Not surprisingly, the Musk brothers did well when Zip2 was ultimately sold for $300 million.

 But what caused the death of the huge and fabulously profitable yellow pages industry? At the time, a lot of people (including me) thought the Internet would herald a new era of growth for the industry. The answer, in large part, was hubris. 

Almost without exception, the big yellow pages publishers decided the fastest path to online riches was to take their regional products and go national. Overnight, these companies bought national business databases to roll out national yellow pages products. In doing so, they moved from having deep information on all the companies in their region, to having nothing more than name, address and telephone for all companies nationally. They vastly degraded the information value of their products in the belief that advertisers would flock to their doors. That’s critically important, because with yellow pages and buying guides, the advertising is the content.

That leads to the second miscalculation: these publishers all had regional rather than national salesforces. Good as these salespeople were, these publishers didn’t have the capability to sell nationally. This led to the third big miscalculation: the publishers all had regional brands and couldn’t come to grips with the fact that nobody had heard of them outside their regions. Without strong national brands, prospective advertisers yawned at these new national products that seemingly emerged out of nowhere.

Of course, the other big shift is that search engines got better. While still imperfect, in large part you now can find a plumber in your area with a simple search. And businesses flock to advertise on the search engines because with pay-per-click pricing, their advertising spend is now (at least in theory) more efficient.

The key take-away lessons for data publishers? First, a database that is a mile wide and an inch deep isn’t an effective product strategy these days. Far better to know a lot about a specific group than to know a little about everyone. Second, advertising-driven online data businesses are tougher than ever to pull off. Third, when you start believing your own press releases, things never end well. Fourth, when Elon Musk calls, listen before you throw something!

What Facebook Knows and Doesn’t Know

Privacy concerns have been in the forefront of the news lately, and no article discussing privacy is complete without mentioning Facebook. That’s because Facebook is considered to be the all-knowing machine that’s tirelessly collecting data about us and turning it into insights that can be used to better market things to us with extreme precision. Certainly Facebook isn’t the only online juggernaut with this strategy and sophisticated data collection capabilities, but in many ways it’s the poster child for our collective concerns and anxieties.

I joined Facebook in 2007. At the time, it was becoming the next big thing, and I wanted to see what it was all about. After some initial excitement, I noticed my usage dropping as the years went by. My usage massively dropped in 2019 when I somehow changed my default language settings to German and I didn’t feel any real urgency to figure out how to undo it, all this to say I am certainly not a typical Facebook user.

While not a high intensity Facebook user, I am a high intensity data nerd, so when I read an article that explained how to peek under the hood to see in detail what Facebook knows about you, and what it has learned about me from third parties, I of course could not resist. If your interest is equally high, start your journey here: https://www.facebook.com/off_facebook_activity/

I clicked all the options so that I could see everything Facebook knew about me. While not a heavy user, I was a long-term user, and I imagined Facebook had likely learned a lot about me in 13 years. In due course, Facebook presented me with a downloadable Zip file that contained a number of folders.

The folder “Ads and Businesses” turned out to be the money folder. This is where I learned my personal interests as divined by Facebook – all individual categories that can be selected by marketers. Here are some highlights of my interests:

• Cast iron (who doesn’t love cast iron?)

• Scratching (what can I say?)

• Tesla (Facebook helpfully clarified that my interest was not in the car, but rather the band … the band?)

• Oysters (I don’t eat them)

• Skiing (I don’t ski)

• Star Trek (absolutely true – when I was about 14 years old)

 There were about 50 interest categories in all; not all wrong, but overall far from an accurate picture. What I infer by looking at these interest categories is that they are keywords crudely extracted from various ads I had clicked on over the years. I say “crudely” because these interest tags don’t represent an organized taxonomy; there is no hierarchy, and there is only a lackluster attempt to disambiguate. For example, one of my interests is “online.” Without any context, this is useless information. And if Facebook assesses the recency of my interests, or the intensity of my interest (how many times, for example, did I look at things relating to cast iron?), it is not sharing these data with its users.

If Facebook underwhelmed me with its insights into my interests, the listing of “Advertisers who uploaded a contact list with my information” totally confused me. I was presented with a list of literally hundreds of businesses that ostensibly had my contact information and had tried to match it to my Facebook data. What I saw on this list were probably close to a hundred local car dealerships from all over the country, followed by almost as many local real estate agencies. I feel certain, for example, that I have never visited the website of, much less interacted with, International Honda of Sheboygan, WI. But this car dealership – reportedly – has my contact information and is matching it to Facebook.

There are a few possible explanations for this. The one I find most likely is that in the case of automobiles, some unscrupulous middlemen are selling the same file of “leads” to unsuspecting car dealers nationwide. It could also be inexperienced or bad marketers or marketing agencies. Some free advice to Toledo Edison, Maybelline, The Property Girls of Michigan, Bank Midwest and Choctaw Casinos and Resorts – take a look at your list sources and maybe even your marketing strategies, because something seems broken.

Looking at your own Facebook data gives you a rare opportunity to see and evaluate what’s going on behind the curtain. To me, Facebook’s secret sauce really doesn’t appear to be its technology. Grabbing keywords from ads I have clicked is utterly banal. Offering marketers hundreds of thousands of interest tags does in fact allows for extreme microtargeting, but in the sloppiest, laziest possible way. Capturing all my ad clicks is useful and valuable, but hardly cutting edge. What appears to make Facebook so valuable seems not to be the data it has collected, but the fact it has collected data on a hitherto unknown scale. Knowing that I have an interest in flax (yes, this is really one of my reputed interests!) even if true is pretty useless until you get enough scale to identify thousands of people interested in flax, at which point this obscure data point suddenly acquires monetary value.

What my Facebook  data suggest is that while it may not be good enough to deliver the precision and accuracy many marketers have bought into, what it has done is create “good enough” data at extreme scale. And that is proving to be even better than good enough. 

Is Time Up for 230?

In 1996, several Internet lifetimes ago, Congress passed a bill called the Communications Decency Act (officially, it is Title V of the Telecommunications Act of 1996). The law was a somewhat ham-handed attempt at prohibiting the posting of indecent material online (big chunks of the law were ultimately ruled unconstitutional by the Supreme Court). But one of the sections of the law that remained in force was Section 230. In many ways, Section 230 is the basis for the modern Internet.

Section 230 is short – only 26 words – but those 26 words are so important there has even been an entire book written about their implications. Section 230 says the following: 

“No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another content provider.”

 The impetus for Section 230 was a string of court decisions where the owners of websites were being held liable for things posted by users of their websites. Section 230 stepped in to provide near-absolute immunity for website owners. Think of it as the “don’t shoot the messenger” defense. Without Section 230, websites like Facebook, Twitter and YouTube probably wouldn’t exist. And most newspapers and online publications probably wouldn’t let users post comments. Without Section 230, the Internet would look very different. Some might argue we’d be better off without it. But the protections of Section 230 extend to many information companies as well.

 That’s because Section 230 also provides strong legal protection for online ratings and reviews. Without Section 230, sites as varied as Yelp, TripAdvisor and even Wikipedia might find it difficult to operate. Indeed, all crowdsourced data sites would instantly become very risky to operate.

 The reason that Section 230 is in the news right now is that it also provides strong protection to sites that traffic in hateful and violent speech. That’s why there are moves afoot to change or even repeal Section 230. Some of these actions are well intentioned. Others are blatantly political. But regardless of intent, these are actions that publishers need to watch, because if it becomes too risky to publish third-party content, the unintended consequences will be huge indeed.

ADS.DATA

It’s not news that fraud is rampant in online advertising. It turns out that one of the biggest reasons is the fact that the buyers and sellers of online advertising in large part do not deal directly. They transact through third party brokers and marketplaces. Increasingly, it’s now computers ordering through third party brokers and marketplaces – the wonderful world we call programmatic. With no humans watching, much less policing the buying process, it is notsurprising that crooks and thieves have rushed in.

One of the easiest types of fraud is simply to misrepresent yourself online. You can tell an online marketplace that you represent the CNN website, collect the revenue, then run the ads you sold on some other website, often one that gets lots of bot traffic and other fake clicks in order to show performance.

To fight this type of misrepresentation, the Internet Advertising Bureau (IAB) created a new standard called ADS.TXT. It’s a small standardized format file that a website owner creates and places on the website that lists all the website’s authorized sellers. If you’re familiar with ROBOTS.TXT, it is exactly analogous.

The idea is that programmatic advertising buyers can easily and confidently check a website’s list of authorized resellers. It’s a full, workable solution to a significant problem, but it comes with one big catch: the ADS.TXT file is necessarily open to everyone who wants to view it. And a lot of publishers and other website owners aren’t thrilled about exposing what they consider proprietary information.

The solution? In my view, it’s a central database, operated by an independent third party. The same information can be placed in the database, but access can be easily restricted to those who “need to know” the information. I’ve always liked opportunities where an industry needs to share information but at the same time doesn’t want to make that information public. A neutral data provider is most times the perfect answer, as I think it is in this case.

Moreover, a central database can add additional value, because it can track what is happening. It can automatically nag website owners who don’t update their reseller lists regularly. It can check which advertising marketplaces are using the service. In these and many other ways, it can actively work to keep all players engaged and honest.

And of course, data being data, there’s an easy opportunity to aggregate this reseller data to look for sales trends and market share. This information can be given or sold back to the industry without any privacy concerns.

ADS.TXT is just one example of a good idea that could be a much better idea if there was a trusted data provider in the middle, protecting privacy while mediating and recording access to insure compliance and data accuracy. I’d like to see ADS.TXT as what you might call ADS.DATA. You’d be wise to look for analogous opportunities in your own market.

Don't Turn Strength Into Weakness

For some time now, the publishing world has been crying foul over the growing power of ad blocking software products. Several studies suggest that as many as 50% of all online users have some ad blocking software installed. Some see this as a death knell for the industry, which is already struggling to maintain viability living off so-called “digital dimes,” a term to describe how much less lucrative online advertising is compared to traditional print advertising which is in decline.

One of the more prominent ad blocking software tools, Adblock Plus, which is published by a German company called Eyeo GmbH, is somewhat less militant than some its competitors, and has come up with a concept called “acceptable ads” that allows specific advertisements to be whitelisted. Some third-party research has concluded that nearly one-third of all U.S. Internet users may be using AdBlock Plus.

Ad blocking software that allows some ads to appear? It may seem odd, but that’s what Adblock Plus does. And how does Eyeo decide what ads are acceptable? Well, that’s where things get really strange. You see, Eyeo will accept payment from “larger organizations” in exchange for whitelisting their advertising. Don’t ask about the specifics of these deals because they are not disclosed. Not surprisingly, some publishers refer to this as a “protection racket.”

If you’re starting to see that Eyeo is compromising its entire brand promise, hold onto your seat. That’s because Eyeo has just rolled out its own real time bidding platform for whitelisted ads. Yes, the company that built its business blocking ads is now in the business of selling ads!

Eyeo justifies all this is by allowing users to click on any of the ads Eyeo serves to them to rate them. How users rate various ads will determine what ads they see in the future. This ostensible innovation is supposed to make this initiative palatable to Adblock plus users.

You probably already see the issue. Having built a popular tool to block ads that may be used by as many as a third of all Internet users, Eyeo has a chokehold on almost every ad-supported website, giving it tremendous market power. And it exercised that power by accepting payments to allow ads to slip through its blocking software. It’s an approach that isn’t totally satisfactory to either Adblock Plus users or website owners. My experience has been that when you are not absolutely clear who your customer is, things end badly. It’s one thing to be a marketplace where you match buyers and sellers for a fee. It’s entirely another thing to try to get paid to match reluctant sellers to reluctant buyers. Indeed, it’s not even clear that what Eyeo has is even a marketplace at all.

The object lesson here is that having tremendous market power is always a two-edged sword and thus must be handled with extreme care. The more greedily and ruthlessly you wield your market power, the more likely you will ultimately lose it as you offend all the various constituents in your market. Through its actions, Eyeo may be sowing the seeds of its own demise. There’s a lesson here for data publishers.