Endangered Species

Google Needs to Protect Its Ad Golden Goose

It can't afford to ignore the grumblings from its top customers.

I'm sure you've read Bloomberg's excellent coverage of the semi-boycott of Google ads over advertisements that are placed on offensive YouTube videos. Google is no stranger to controversy about the quality of content and where it serves ads, but this latest tempest exposes a deep problem.

This is what happens when Google, Facebook and the whole industry allow longstanding flaws with digital advertising to fester. Ads running next to objectionable or faked content, bogus measurement of ad views, creepy collection of personal information or downright annoying ads have been a problem for as long as the web has existed. Remember those pop-up mortgage ads from the 1990s? (Or am I too old?)

Ad Rules

Google and Facebook collected $106 billion in combined advertising revenue in 2016 -- equivalent to 22% of total ad spending in the world

Source: Magna Global (for industry ad spending), Facebook and Google

OK, so a few L'Oreal ads next to anti-Semitic videos is nothing new. And cynically, there is little for advertisers to lose by pulling money from Google. They haven't stopped spending on Google's web search ads, which would deliver an immediate hit to their sales. With safety in numbers, they can try to squeeze concessions or discounts from Google.

But there are three reasons not to dismiss the outrage bandwagon:

  1. The complaints this time aren't coming from regulators, privacy groups, competitors or other longstanding Google critics. They're coming from the advertisers who pay the bills. Google parent company Alphabet Inc. generates 88 percent of its annual revenue from ads.
  2. Digital advertising's longstanding problems aren't improving. Newly published research by a group of marketing firms found nearly 20 percent of digital ads were bogus -- that is, not seen by humans, or deliberately invisible on websites and apps. That's a lot of wasted ad spending. Again, bogus ads are a perennial problem, but they've been tolerated for too long.
  3. Advertising online is no longer a niche activity where some kinks can be tolerated. This year, internet ads are forecast to surpass TV commercials as the world's largest advertising category, according to Magna Global.

TV Loses Its Crown

Television has long been the dominant advertising medium, but this year online and mobile ads are expected to overtake TV

Source: Magna Global

The big risk for Google and Facebook is that this week's headlines will embolden advertisers to take a second look at whether their digital ad budgets are as effective as they think. They might not like what they find.

Marketing firm Adobe said this week that the costs of digital advertising were growing more quickly than the cost of TV ads and that the growth in spending on web search ads wasn't resulting in a commensurate increase in visits to the advertisers' websites. That echoes the disillusionment expressed by an executive at Procter & Gamble -- the world's biggest buyer of advertisements --who said big companies weren't seeing fast enough sales growth to justify the $500 billion spent annually on ads.

My Gadfly colleague Leila Abboud wrote this week about fixes Google should have made long ago, such as allowing independent software to verify where ad campaigns run and to measure the effectiveness of those ads. There's no time like the present, Google. Do it before the outrage cycle breaks the spell of digital advertising altogether.

A version of this column originally appeared in Bloomberg’s Fully Charged technology newsletter. You can sign up here.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Shira Ovide in New York at sovide@bloomberg.net

    To contact the editor responsible for this story:
    Daniel Niemi at dniemi1@bloomberg.net

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