It’s fascinating to see Facebook‘s rapid diversification, first into fee-based services, via WhatsApp, and now into virtual reality. Google too is establishing the new American conglomerate, spread across smartphones, medicine, finance, fiber and more. Two companies highly dependent on advertising and data, hedging their bets.
The reason, surely, is that smartphones – where web traffic is increasingly coming from – have turned out to be unkind to marketers. Remember a few years back we were told the smartphone would create all kinds of contextual ad possibilities. Someday, maybe.
And then there’s the trust issue – how much longer will the exchange of free services (Facebook’s social network and Google’s search services) for private data wash with the public? Less time than we think (see more below).
The advertising industry is probably at its most vexed right now because of the smartphone. This will get a worse before it stands a chance of getting any better, threatening the capacity of America’s biggest tech companies to continue using the web as an ocean of near-free data.
The problem, at least one problem, lies in the death of the cookie, the small tool used to track people around the web and then deliver relevant ads to them.
Cookies don’t function well on smartphones where people prefer apps to web content, already by 2012 Comscore revealed that app-usage by smartphone owners was approaching the same level as TV watching, and where they are more likely to ignore ads, anyway.
At the same time smartphones are eroding content producer revenues by at least 80% per ad, even though they increase the extent to which people access online content. That is putting pressure on content sites to further commoditize advertising and increase ad inventory.
- English: Mark Zuckerberg, Facebook founder and CEO, during his European Tour. (Photo credit: Wikipedia)
Yes but only to a point and only temporarily. And that point is new European legislation.
Earlier this month the European Parliament voted by 620 votes to 10 for a new data protection regulation, an EU way of saying new data protection legislation. that will be a tectonic shift for advertisers.
At a recent conference in London, The Personal Data Economy, organized by personal data analyst firm Ctrl_Shift, plenty of people were saying that change is inevitable and that maybe Google and Facebook, thought to be beneficiaries of the cookie’s decline, will be among the casualties of legislators who had Edward Snowden‘s revelations fresh in their minds as they voted in early March to curb data usage significantly.
But, going back to that 2012 Comscore analysis, it showed:
37% of online minutes now come from mobile devices. Furthermore, four out of every five mobile minutes are spent on an app.
A week ago Facebook acknowledged that cookies don’t cut it any more as an ad strategy, Writing in Ad Age, Facebook’s Brian Boland said:
It’s imperative that we move toward people-based measurement — and soon. People-based measurement gives marketers both accuracy and transparency, and has the added benefit of eliminating wasteful spending.
That is, we have to move away from cookies, towards what Facebook seems to be very well positioned to do. Allow advertisers to build relationships with real people.
The problem with Facebook’s position is that much of its ad proposition is based around collecting data on individuals and then inferring what they might want.
It’s that element of collecting data for broadly defined purposes that European legislators are attacking. Its proposed Regulation would put an onus on national data authorities to ensure that anyone holding data makes it clear to consumers exactly what use they are making of it. Imagine Facebook having to give you the skinny on who it sells its data to?
Will the legislation change the data environment? I asked analyst Alan Mitchell, a founder at Ctrl_Shift.
“….immediately speaking its impact may be limited, especially outside of Europe. Long term, strategically, speaking by placing issues of data minimisation and informed consent at the heart of the debate, as well as at the heart of legislation, it will be critical in determining the ‘norms’ environment in which companies operate. When it comes to norms around personal data, Google and Facebook are losing the argument. Long term, that is decisive.
The Regulation also allows for a fine of up to $150 million or 5% of global turnover.
It’s likely those kinds of conditions will be watered down in the next phase of approval but there is also a phase change in the cost base of data.
Mitchell explains it like this – if you look at the decline in cost of data, storage and processing, over the past twenty years you would be looking at a 15 cent Rolls Royce were you to apply the same cost reductions to autos.
There is also a growing community of companies looking at practical ways to reverse today’s data paradigm. Companies like Allfiled store data on the user’s behalf.
Allfiled currently provides the infrastructure for consumers who want to save money on energy. The cheap energy club, one million users strong, alerts users to any price reductions among the UK’s 12 energy suppliers, allowing them to switch to new tariffs at short notice. It’s only a step away from automatic switching and a kind of spot market run by consumers, though the service operator, moneysupermarket.com, currently has no plans to go that route. Nonetheless the reverse data community is growing:
“Using personal data to provide utility to individuals is a new growth market,” argues Mitchell. “But it will take time to mature because so many ‘moving parts’ need to be put in place. Our latest research, conducted over the last two weeks with 50 players in the market, shows most of them thinking the market will begin to gain critical mass in 2-3 years time.”
The potential is obvious but so too is the level of disruption when data is put in the hands of consumer groups. When data is no longer the preserve of large companies, and big business is becoming increasingly data-centric then there are clear risks to all those business models built on an asymmetrical view of the web.
Big data companies happen to be the major players right now, but that could be a historical quirk. Just as a start-up like WhatsApp can blindside all the global telecoms carriers with a simplified offer around messaging, so too any one of a number of start-ups can now blindside Google or Facebook with new personal data initiatives. At least Google and Facebook seem to be laying the groundwork for business models where the ad is less central to their health.