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I think you misread the article, which is not about the segment of the ad market that wants to know so much about its audience.

Instead it’s about the ads that are currently on TV. The ads that are about broad brand recognition, not about microtargeting the audience. The point is that Google and Facebook already won the battle for their markets but they have no particular advantage over other media companies in competing for the rest of the ad market. In fact they are worse off because they have no existing brand of TV like content and they don’t have the cash reserves to buy their way in.

This article is a couple of years old but in the interim Facebook and Google have both had to back up and re-assess their media production strategies because so far they’ve been failing exactly as this article predicted.

Personally I didn't even know Google and Facebook tried to produce something. What was that? I've only heard about YouTube's programs for creators, with workshops, free studio time and such.

This article was from a little over a year ago, and detailed what Google and Facebook were producing.

I think your ignorance of their offerings (and I couldn't name anything either!) says what we need to know about their success.

I'm sorry, but by "this article" you mean ... ?

The submitted link. "Oct 16, 2017"

So Google have complety failed in producing popular content themselves, yet still managed to grow revenue at 22% per year. What does that say about Google's need to produce in-house content?

My point is that even without the brand-recognition TV-style ads, Google has six sources of growth which in aggregate refute the idea that "the math's not pretty on digital advertising's future revenues".

And even in brand advertising I'm skeptical of the idea that detailed knowledge of each viewer is not a significant advantage. When Mercedes advertises its brand, wouldn't it be prepared to pay more to target males older than 30 who last purchased a car more than 3 years ago? When McDonald's does brand advertising, shouldn't it prepared to pay more to show the ad to people who are overweight and pay less to show the ad to people who go to the gym 3 times a week and haven't been in a fast food restaurant in 6 months? And if the sales director of a large company has a wedding anniversary coming up, wouldn't a jeweller be willing to out-bid McDonald's for the right to place an ad in front of that sales director?

The content that Google and Facebook produce is garbage. It’s only barely better than nothing at all. Most people would not pay for the kind of content that shows up on Facebook and YouTube by so-called “content creators”.

Facebooks ads are garbage except in certain circumstances. Everyone knows this, including the big brands, but they continue to do it because it makes the board happy when they see their brand on FB.

AdWords is the only ad platform that works, works well, and is pretty universal.

Disney has a real good chance here though because Disney has actual valuable content. As in, literally valuable. You know, because people pay for Disney content with money.

> Most people would not pay for the kind of content that shows up on Facebook and YouTube by so-called “content creators”.

Are you sure? Why are you sure?

And as a corollary: even if most people won't pay for it, are you sure it won't still obtain a majority in its market? For any given successful product, most people don't buy it.

Yeah I’m sure.

Most of the content that gets views is click-baity garabage. Not all, just most. People watch it because they are conditioned to, not because they want to or even find it entertaining.

Some people can make it in a paid model—most can’t. Most of those who can graduate out being a “content creator” for a living.

The success many youtube creators have on Patreon demonstrates that many people would gladly pay for their content. Whether they'd pay google for the content instead of the creator themselves is another matter entirely... People like the content creators a lot more than they like google/youtube itself.

I believe your second sentence negates the first.

But even if it didn't, Patreon is a glorified busker's tip jar. There are only a small number of individuals on earth who can make a full-time living from it. There's no sign that this model could work at scale for a large corporation. Even if it theoretically could, in practice your second sentence would again come into play.

>There's no sign that this model could work at scale for a large corporation.

Why should it? Most of the content people are now enjoying day to day isn't coming from large corporations. What we're witnessing now is the infancy of a shift away from the centralization of entertainment started by the industrial revolution (with access to printing presses, radio broadcasting, etc being relatively limited by economies of scale or similar reasons) back to a more community focused model that provides greater diversity in content. Most are welcoming this change as it brings them access to media of the sort they've never before had access to, as well as closer two-way relationships with the producers of that content.

This isn't limited to youtube/video content either by the way, it's happening in music and other forms of art/entertainment as well. The platforms used to provide the distribution of content and used to collect payment will prove to be interchangeable; they aren't the part of the picture that matters. What matters is the relationships creators and their patrons can now cultivate. Now that people know this model is possible, the cat's not going back into the bag. Even if youtube or patreon were to close up shop, the demand would still be there and new platforms would be adopted or created if necessary because now people have seen a glimpse of what's possible and don't want to go back.

Well, we are discussing if Google and Facebook's digital ad revenues will be able to continue to rise.

If Google is going to show ads on a content creator's channel because they map to the demographic I want to advertise to, what is stopping me from just cutting out Google and paying the content creator directly? That way I can exercise more fine-grained control over what my ads don't show up next to, the content creator gets more money, and everybody is happy except Google. But what is Youtube's value add other than as a commoditized video-hosting platform?

Because that doesn’t scale, that’s why

Then AI it to scale.

Do you need it to scale? People don't place ads on every website or every possible search query, why would you want an ad sprayed far and wide when most of your audience can be reached by targeting a few big creators?

Because scaling your ads is the a great way to sell more products!

So every advertiser is incentivized to scale their ad campaigns as much as possible.

And having to find creators yourself and negotiate deals one by one is inefficient in a world where Google and Facebook have build automated products to do so!

>what is stopping me from just cutting out Google and paying the content creator directly?

Nothing per-se, but if you talk to content creators they'll tell you that they prefer Patreon or youtube monetization or similar systems for at least one simple reason: their per-month income is more predictable, which provides them with a sense of financial stability. For many creators this isn't a full-time job, but rather a time intensive hobby that brings in enough money to pay for itself with maybe a little extra. But feeling confident that their expenses will be covered next month provides them with a necessary sense of security to keep doing what they do. If they were to rely on people mailing them cheques every month, many people would simply forget and creators could never be confident of approximately how much money they'll have next month. Patreon and youtube monetization don't provide any guarantees about future income, but in practice creators find that it typically doesn't change that much month from month.

This doesn't mean that youtube monetization or patreon have a permanent monopoly on the payment system for independent creators. Far from it actually, the fact that Patreon broke into the scene previously dominated by youtube monetization demonstrates that if your system provides relative stability to creators, they will be willing to adopt it.

We are still in the infancy of this social transformation, but already we see a clear picture starting to emerge of what creators and their viewers require to make it work.

Ad runs aren’t the same as a glorified internet tip jar. Those are contracts to buy ad space for a specified amount of time, way more reliable than a Youtube monetization policy that can change at any time or a fickle Patreon.

Anecdotally a lot of videos I see from creators and influencers are often sponsored either with a segment at the beginning or end, or with product placement. If this trend continues to take off, it’s hard to see long run ad growth on Google and Facebook.

> Most of the content people are now enjoying day to day isn't coming from large corporations.

Taking that at face value, it's still the Google vs Apple argument.

"The content people are enjoying" is not nearly as valuable as "the content people are willing to pay for." It's easy to get someone to watch free stuff.

And in terms of total revenue, I'm skeptical that quantity of free content + ads can beat quality paid content + ads over the long run.

Separately, the democratization of media doesn't mean we've improved the net quality. For every Groklaw PJ, there's 1,000 poorly-informed rants.

It's important we now have more outlets for people to express themselves, but professionalism = talent + dedication. And most people don't have both of those.

> "Separately, the democratization of media doesn't mean we've improved the net quality. For every Groklaw PJ, there's 1,000 poorly-informed rants."

Maybe part of the reason you're struggling with this concept is because your focus is too narrow. Look beyond political/legal commentary, where small creators are competing directly against international media corporations that provide content in the same category.

Look beyond that, because most of what's out there doesn't fall into that category. There is a LONG tail of independent content being produced that has no competition at all from corporate media. Name any narrow interest or hobby and you can almost certainly find independent creators online that are collectively producing far more content in that topic every week than the corporate media has produced in the past century. Take for instance woodworking. To be sure, there have been TV shows about woodworking, The New Yankee Workshop (Norm Abram) and The Woodwright's Shop (Roy Underhill), both on PBS (which is probably notable, can we expect Disney to produce and commercialize a woodworking TV show?), are very notable excellent examples. But there is so much more content on youtube, the woodworking content on youtube is more diverse, and those independent online creators typically have a closer relationship with their viewers.

Woodworking is a generous example because it's actually a case where traditional media can marginally compete. But change the topic slightly and traditional media leaves you completely out in the cold. What if instead of cutting and joining wood, you're interested in metal? Where is the PBS show for hobby metal working? Would Disney ever give Adam Booth his own machining show? I don't think so.

This is a small list: https://en.wikipedia.org/wiki/Category:Arts_and_crafts_telev...

I am seeing this as well. I think the big platforms like ran by alphabet/facebook/etc have been a boon in showing people what's possible and helping to grow the market, but I cant be bullish on them in the long term as the medium people exchange content and attention on becomes interchangeable and cheaper for individual and small orgs to deploy (as well having more control in aligning their incentives with their own goals rather than mega platforms goals and incentives).

I'm not ready to take a position in the markets against them yet (but I dont know when, also there's alot cheaper weaker companies out there now to take positions against), but it would probably be something like buying the stock, selling long dated ITM calls, buying medium dated slightly to deep otm puts.

I think what you are articulating is half true, or more so, half of the picture. People love big blockbusters more than ever. Game of thrones, The Avengers, etc. really show that it is a bifurcated market. I think the full effects of globalization have caused part of this (people around the world are less interested in the coming of age Boston story), so the studio pushes something with universal appeal. No one man band can compete with this. On the other side of the equation, I won’t be surprised if Joe Rogan gets a similar amount of views as Fox News. Ad spend seems to be significantly lagging viewership at the moment.

>"I think what you are articulating is half true, or more so, half of the picture. People love big blockbusters more than ever. Game of thrones, The Avengers, etc. really show that it is a bifurcated market."

People still consume that sort of media, but the amount of time they spend consuming media like that is small compared to the amount of time they spend consuming independently produced media. Compare how many hours a month they spend watching Hollywood blockbusters and how many hours a month they spend watching independent creators on youtube or listening to independent creators music on soundcloud.

Some people, mostly older people are still stuck in the past. They avoid specialized independent content and instead consume corporate entertainment (engineered for 'universal appeal' by finding an LCD) with netflix, hulu, or even with cable subscriptions(!). But it's clear that times are changing. There was once a time when corporate media had a near total monopoly on people's attention, but those days are now long gone and will never come back.

Most of the content people enjoy still comes from big corporations.

Much of the content people consume now comes from random people, but they don’t actually enjoy it. You ever watch someone use Instagram? It’s just conditioning. Scroll, tap tap, scroll, tap tap, scroll, tap tap.

When people enjoy content they pay for it with money. When people mindlessly consume content whose value approaches zero, but isn’t quite zero because zero would be nothing at all, they pay for it with “likes.”

Much of that "garbage" content is remarkably successful at capturing attention.

I would pay to use Google. Especially if it meant they would remove the tracker from out of my ass.

Pay me and I'll lie to you about what Google will do if that's what will make you happy. No sillier than paying Google given their credibility is zero and there are so consequences to them for lying.

What are you referring to? I can't think of one incident where Google straight lied to the customer about what they do. They also remove tracking and ads from certain partner websites if you do decide to pay for it: https://contributor.google.com/v/beta

Do you really, honestly, truly believe they don't track you if you pay them not to? Genuine question.

Um, yeah, I do, unless there's evidence to the contrary. Do you really honestly truly believe Google is outright lying?

Absolutely.

I wouldn't. Google search is garbage these days (if only because it's pretty much a monoculture, and that leads to SEO arms races) and their other services can easily be replaced by paid equivalents that are far less likely to be a single point of failure.

> other services can easily be replaced

I agree with you regarding services that are entirely technology-based (GDocs, Drive, etc.) but so much of Google is the definition of a monopoly (in the sense of "hard to enter the market"):

- You can't replace Gmail without keeping your Google account open so that any old emails get forwarded to your new address (although this is a problem with any old mail server)

- Google Maps is by far the most dominant maps service, besides Apple Maps (but only on iOS) and I don't see OpenStreetMap implementing turn-by-turn directions.

- Youtube content creators already have dedicated fanbases on Youtube, and the vast majority of those subscribers don't care enough about the content creator to download another app just to watch their content.

Also:

> easily be replaced by paid equivalents

There's a reason Google is so big right now: everything is free. If you had to pay for any of Google's services I can guarantee they would have a small fraction of the usage they do today.

> don't care enough about the content creator to download another app just to watch their content.

The HTML5 video tag exists - you don't need "another app", though you might need another video host. There's very little inherent difference between YT and any other popular, large site. They host videos? Video is not that much more bulky than other website content anyway. (At least if you avoid gold-plating the service with 720p, 1080p, even 4K video streaming, which is just silly when the "content" is some cats doing whatever.) Websites come and go.

(And of course OSM data can be used to provide turn-by-turn routes, even with on-device processing. What makes you assume that this is not a thing?)

This is such bullshit!

YouTube’s video streaming infra is a masterpiece of engineering and magnitudes of order better than a vanilla streaming setup!

You might not notice because you live in a place with great internet...but most people don’t!

To provide people with poor internet connections with effective access to videos, youtube transcodes videos to various qualities. That's not cheap, but neither is it magic.

That’s a simplification of what’s actually happening and how well their implementation works though.

Just travel to a third world country and look at how poorly other video services like Facebook, Vimeo, etc perform in comparison.

There is some good posts from John Harding out there that get into the details

> "Most people would not pay for the kind of content..."

I'm fairly certain an economist would tell you they are paying now. That is, in simple layperson's terms: "Time is money." All that time on FB - contributing and consuming - is being paid for. AND FB gets to serve them ads as well.

It's hard to believe it's legal ;)

Finally, I know the workings of the mythical exposure.

I'm so happy now for all the people who made the hundreds of films I've watched for free on the web.

99% of YouTube may be garbage but there’s still some great content in there

Exactly, the same is said about TV / cable / satellite and those have infinitely less content.

Anyone can upload to YouTube, of course most of it sucks!

Agreed. I once bought something I saw on a Facebook ad and it was such terrible quality and took so long to be delivered that I'm extremely sceptical of anything else I see advertised there now and don't think I'll ever order anything from an unknown company from there again.

It doesn't matter whether people will pay for content. If that content can be monetised through advertising then it's valuable.

The thing about unpaid content is that you have no market signal about its true value.

We know Avengers can bring in X ticket sales + Y movie purchases + etc. But what's a million YouTube view video worth?

The actual content value is important because it tells you what people are willing to do to watch it.

If you over-ad something that people are only watching because it's free and doesn't have ads? I'm guessing that doesn't end well.

I read it more that growth percentage won't be as high in the future. Not that there won't be growth.

That makes sense to me for Google. They have played out most of their bag of tricks to get more ad impressions. Everything above the fold is an ad, or a link to a Google owned property for any query you can monetize now. And any video on YouTube with revenue potential has a forced ad view.

That wasn't true in the past, so they could turn the dial to turn up revenue. That dial is all the way to the right now.

So, revenue growth will now match eyeball growth instead of exceeding it.

The difference is that Google’s profit can easily be cut off by an ad blocker.

Facebook’s ads are “organic” and are viewed mostly on mobile within an app - meaning harder to block.

Google controls search, Android, the Play store and Chrome. The most popular search engine, the most popular mobile OS, the most popular app store and the most popular browser.

No, its profit can't be easily cut off. They control the environment in all regards and have the leverage to dictate terms to nearly everyone. That's why they'll do ~$130 billion in sales this year, despite the popularity of ad blockers.

A tiny percentage of users will evade Google's moves to ensure its advertising survival? Sure, and it won't matter in the least.

1. Search - doesn’t make any money if people aren’t viewing ads.

2. Chrome - doesn’t make any money except for having Google as the home page - see #1

3. Android is the “most popular” but Android users are far less affluent and valuable to advertisers than iOS. On top of that, the largest market in the world is China and Google has no presence.

And according to information that came out during the Oracle lawsuit (that Google didn’t dispute), Android has only made Google $31 billion since its inception.

https://www.reuters.com/article/us-oracle-google-lawsuit-idU...

4. Play Store - even though the Play Store is on more phones. Again, Android users are not as affluent on average and spend much less than iOS users

https://techcrunch.com/2018/07/16/apples-app-store-revenue-n...

5. As far as ad blockers - again since the most affluent users in development countries are using iOS devices where there is a native ad blocking framework, ad blocking is being used by the most coveted demographics.

https://martechtoday.com/state-mobile-ad-blocking-200622

I own shares of Facebook and even I see that 'amount of advertising you CAN show' is not the amount of advertising people will be okay with, we're getting close to saturation before people realize they're being exposed to constant bullshit. At this point, I am so frustrated with ads that I'm willing to pay $10/mo for ad-free social media.

How does anything you just said justify a higher multiple on earnings for Google and Facebook?

Earnings multiples reflect the amount of future earnings growth. He laid out an argument for larger future earnings growth.

None of the growth oriented items he listed are even remotely capable of justifying 2x the multiple of other media companies.

Why do you say that?

Where's it going to come from? Here's the options I see:

1. More users. This is pretty tapped out for Google. Yes, more people will come online in developing countries, but those people will also gain access to say Disney content. So, world GDP growth is already largely priced into the multiple's of other companies too.

2. Higher ad density. I don't see a lot of opportunity for Google to substantially increase it's ad density. Reasonable people might differ here, but I think they're already fairly dense.

3. Higher ad quality / spend efficiency. This cuts both ways for them. Right now advertisers spend a lot of money on AdWords inefficiently. If Google can optimize their spend, they'll pay less in aggregate, but they may be willing to pay more per ad. Which, in turn, will allow the ad density to be more globally efficient, if Google can replace the lost volume with other advertisers who will also pay more. There is probably room here, but it's speculative, and I don't think the growth potential is enormous.

4. Reducing costs. Google's gross margins are already tremendous (63%), you could cut their costs to zero and you wouldn't even double their profit.

I'm not too familiar with other media companies so I don't know what the correct multiple should be, but here's my math on Google:

1. Over the past 13 years world GDP per capita has grown about 3% per year. So it's reasonable to think that the people who are currently connected to the internet will on average be 30% richer in 10 years

2. The average amount of time that people spend on the internet could grow 20% in 10 years

3. The amount of advertising Google can show per hour might be 20% higher in 10 years

4. Google might improve its ad algorithm 10% per year - ie. 160% over 10 years.

5. Having more personal data might improve Google's ad algorithm by a further 10% over 10 years

6. Most extra people connected to the internet over the next 10 years will be much poorer than existing users, so let's say that this growth only contributes 10% to revenue over 10 years

Estimated revenue growth is therefore: 1.3 * 1.2 * 1.2 * 2.6 * 1.1 * 1.1 = 5.9

But there is also the chance of significant regulation and other risk factors so let's cut that revenue growth estimate in half to 3.

Google won't need 3 times the number of engineers or data centers to service that growth, so Google might be reasonably expected to quadruple its profit in 10 years.

> 1. Over the past 13 years world GDP per capita has grown about 3% per year. So it's reasonable to think that the people who are currently connected to the internet will on average be 30% richer in 10 years

A bit more from compounding, but ya. However, that's priced into every company's multiple.

> 2. The average amount of time that people spend on the internet could grow 20% in 10 years

And you think Google will capture all of that?

> 3. The amount of advertising Google can show per hour might be 20% higher in 10 years

Why?

> 4. Google might improve its ad algorithm 10% per year - ie. 160% over 10 years.

10% more profitable every year for 10 years? I'm not going to say that can't possibly happen, but you'd have to walk me through the physics of exactly how you think that's possible. Do keep in mind that Google makes money by showing people ads. They can increase their profits by:

1. Showing more ads per user

2. Getting more users

3. Charging more for ads (to do this, they'd have to improve efficacy, which, by the way, they don't capture all of because part of the surplus efficiency the advertisers will want for themselves)

4. Reducing their costs

I don't really see room for 160% growth no matter how you divide it amongst these things, unless, as the author of the original article pointed out, Google captures brand advertisers.

>> 2. The average amount of time that people spend on the internet could grow 20% in 10 years

> And you think Google will capture all of that?

No, but it's reasonable to think that Google will capture a share of that growth in proportion to their current share.

>> 3. The amount of advertising Google can show per hour might be 20% higher in 10 years

> Why?

See my earlier comment about Youtube and The Economist. There's also the chance that Twitter decides to outsource their ads to Google.

> > 4. Google might improve its ad algorithm 10% per year - ie. 160% over 10 years.

> 10% more profitable every year for 10 years? I'm not going to say that can't possibly happen, but you'd have to walk me through the physics of exactly how you think that's possible. Do keep in mind that Google makes money by showing people ads. They can increase their profits by:

> 1. Showing more ads per user

> 2. Getting more users

> 3. Charging more for ads (to do this, they'd have to improve efficacy, which, by the way, they don't capture all of because part of the surplus efficiency the advertisers will want for themselves)

> 4. Reducing their costs

When I say "improve its ad algorithm" I'm talking about improving the match between the viewer and the advertiser - and therefore being able to charge more for ads. Based on my personal experience with Google ads I think there's a lot of room for improvement. Here are some examples in addition to the cat food example I gave earlier:

(a) Last year I demonstrated interested in buying a Pixel 2 phone, so Google started showing me Pixel 2 ads. Fair enough. But then it kept showing me the ads even after I had purchased the phone and was viewing the ads on a Pixel 2 phone

(b) Last year I wanted to buy a Macbook Pro, and I went as far as configuring it on the Apple website and putting it in my shopping cart. But then I got cold feet and didn't buy it for 6 months. In that time I never once saw an ad on Facebook or Google for Macbook Pros. Apple were leaving a lot of money on the table by not hooking up with Google.

(c) Google shows me sports betting ads all the time, despite the fact that I've never been in a betting shop or placed an online bet. (Google has 4 years of my location history and 14 years worth of my email history)

(d) Earlier this year I was shown an ad for Audible every single time I opened YouTube. I must have seen 20 ads per day for the same product. It was very annoying and I suspect Google would make more money by showing a variety of ads

(e) When I buy an airline flight Google adds it to my calendar but still shows me ads for that flight.

(f) Browsing the New York Times app just now I'm shown a "Quit Smoking" ad despite the fact that I've never smoked in my life.

(g) I read about a Facebook user who is vegan but saw in her Facebook profile that one of the advertisers specifically targeting her was KFC.

What do you think is going to happen if Google starts showing more ads?

Hint: I haven’t seen a Google ad when browsing on my iPhone since iOS 9.

>Google and Facebook have enormous advantages over Disney

The big advantage is that Google and Facebook have monopolies.

The moment you owe the stocks thats the moment your view will be biased. Anyways Google search is most likely at its peak because next evolution of internet is voice control. And take it from horse mouth - Google CEO on shareholders call said he is most concern about voice controlled search. Because you know, its hard to show people ads when they use voice to get search result.

And we move nearly full circle back to radio-style ads.

drink your ovaltine.