The tech giants may appear to be vastly different in their offerings, but they are all bound by one common denominator: advertising. Advertising is referred to as the “dark beating heart of the internet” by author Tim Hwang in his book Subprime Attention Crisis. Google generates roughly 80 percent of its revenue from advertising, while Meta generates more than 90 percent of its revenue from the same source. Amazon has secured the third largest U.S. ad market share due to its charges for independent retailers for ad placement on their site. Moreover, although most people don’t tend to think of Microsoft as being a company that profits from digital advertising, the truth is that it also generates large sums of money from ads annually.
Even Apple, which emphasizes user privacy as its selling point, is also active in the advertising game. Nearly $4 billion of the company’s annual revenue comes from advertising, according to research firm, Insider Intelligence. Overall, outside of China, the online advertising industry was worth roughly $500 billion last year, and Google, Meta, Amazon, and Apple controlled around $340 billion of that. Even companies that historically shunned advertising are now looking for ways to enter the market, like Netflix, which introduced an ad-supported version of its streaming service last year, as did Disney+.
While so much of the internet landscape is shifting, digital advertising remains a constant source of profit. The issue, however, is that digital ads are unpleasant for most users, they are easily exploitable in fraud schemes, and they encourage dubious business practices, such as tracking. Moreover, most users essentially ignore them, and approximately one-third of display ad clicks are believed to be inadvertent.
To make matters worse, many publishers are motivated to generate a vast amount of low-quality content for the largest audience possible, often at a low cost. As a result, readers may need to wade through a sea of derivative fluff churned out by ChatGPT, as the future of algorithmically generated low-quality content is likely to dominate the ad-supported internet. This has resulted in the creation of an industry that is designed for algorithms and shunned by everyone with a pulse.
The online advertising industry urgently needs a solution. While the internet as we know it depends heavily on ads, most people feel shortchanged by the experience. The web is a crucial part of our infrastructure, but its financial underpinnings are alarmingly unstable. There are numerous article pages that bog down as multiple clashing ads load, videos that autoplay, and hard-to-dismiss pop-ups that result in accidental clicks. Moreover, only a tiny fraction of users actively look at, let alone click on online ads. Very few people who see a given ad beside content will click on it, on average, and about 40 percent of internet users in the U.S. employ ad blockers.
For the big tech companies, improved targeting seems to be one solution to the problem. They present this as a win-win-win situation, wherein we get advertisements that are more aligned with our interests, brands get better results from their campaigns, and both the website we visit and the ad network benefit. However, the reality is that targeting is not about creating a better ad experience for the user. It is more about showing users the highest-value ads that meet the advertiser’s criteria. This means that when you visit a site, that website searches for identifying information it has about you and determines which detail has the highest value.
This presents a conflict of interest between the Big Tech companies that operate the ad networks and their clients. The problem is further fueled by relentless tracking of users across the internet, with possibly dozens of different trackers on any site that seeks to make money from advertising. Artificial-intelligence search, powered by large language models like GPT-4, is likely to make that conflict even more intense.
Regulators are presently scrutinizing the digital-ad industry, with Google facing an antitrust lawsuit led by the Department of Justice and a coalition of 17 states. This is likely to change the calculus of tech’s business model as this is the first time in years a tech giant has faced such a lawsuit. The very existence of such a suit could potentially alter the financial underpinnings of the tech industry, particularly now that European regulators are taking a tougher stance on data privacy violations.
While there are indications that big tech is changing its model, the online advertising industry still requires a solution to its issues. It is a crucial part of our infrastructure, and while it depends on ads, most people feel shortchanged by the experience.
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