Young Adult (18-35)
North American (General)
Note: Transcripts are generated using speech recognition software and may contain errors.
the new dot com bubble is here. It's called online advertising by Jesse Frederick and Markets Martin, narrated by Andy Cowl. Sometime in June 2003 Mel Karmazin, the president of Viacom, one of the largest media conglomerates in the world, walked into the Google offices in Mountain View, California. Google was a hip, young tech company that made money actual money off the Internet. Karmazin was there to find out how Larry Page and Eric Schmidt, Google's founder and its CEO, respectively, were already seated in the conference room. When co founder Sergey Brin came in out of breath, he was wearing shorts and roller skates. The Google guys told Karma. Seen that the search engines earnings came from selling advertisements. Companies could buy paid links to websites that would appear at the top of users, search results and Google worked as a middleman, connecting websites with ad space to advertisers eager to get their banners scene, Schmidt continued. Our business is highly measurable. We know that if you spend X dollars on ads, you'll get why dollars in revenues at Google, Schmidt maintained, you pay only for what works. Karmazin was horrified. He was an old fashioned advertising man and where he came from, a Super Bowl ad? A cost $3 million. Why? Because that's how much it cost. What is it? Yield? Who knows? I'm selling $25 billion of advertising a year, Karmazin said. Why would I want anyone to know what works and what doesn't? Leaning on the table, hands folded, he gazed at his hosts and told them, You're ******* with the magic. For more than a century, advertising was an art, not a science. Hard data didn't exist. An advertising guru of the Don Draper type proclaimed What you call love was invented by guys like me to sell nylons, and advertisers could only hope it was true. You put your commercials on the air, you put your brand in the paper and you started praying. Would anyone see the ad? Would anyone act on it? Nobody knew. In the early 19 nineties, the Internet sounded the death. Now, for that era of advertising, today we no longer live in the age of madmen but of math. Men looking for customers clicks, conversions, Google and Facebook know where to find them. With unprecedented precision, these data giants will get the right message delivered to the right people at the right time. Unassuming Internet users are lured into online shops. Undecided voters are informed about the evils of US presidential candidate Elizabeth Warren, and cars zip by on the screens of potential buyers. A test drive is only a click away. But is any of it riel? What do we really know about the effectiveness of digital advertising, our advertising platforms? Any good at manipulating us? You'd be forgiven for thinking The answer to that last question is yes, extremely good. After all, the market is huge. The amount of money spent on Internet ads goes up each year. In 2018 more than $273 billion was spent on digital ads globally, according to the research firm eMarketer. Most of those ads were purchased from two companies. Google 116 billion in 2018 and Facebook, 54.5 billion in 2018. Newspapers are teeming with treatises about these tech giants saturnine activities. An essay by best selling author Yuval Noah Harari on the end of free will exemplifies the genre. According to the Israeli thinker, it's only a matter of time before big data systems understand humans much better than we understand ourselves. In ah, highly acclaimed new book, Harvard professor Shoshana Zuba off predicts 1/7 extinction wave where human beings lose the will to will. Cunning marketers can predict and manipulate our behavior. Facebook knows your soul. Google is hacking your brain. I, too, used to believe that these tech giants were all knowing entities. But while writing this story, I have come to realize that this belief is as wrong as it is popular, a former Facebook engineer once said. And he's been quoted 1000 times over. The best minds of my generation are thinking about how to make people click on ads. I spoke to some of those best minds economists employed and formerly employed by the most powerful companies in Silicon Valley. Yahoo, Google, Microsoft, eBay, Facebook, Netflix, Pandora and Amazon. They weren't always easy to get a hold of. I'd send an email in late October, and perhaps they would have an hour in January at some ungodly hour in Europe. And then there was the language barrier. These guys did not speak English but fluent economies. My economies is not all bad. But two hours of Housman tests, incremental bidding and exogenous variation is too much even for an enthusiast such as myself. Still mixed in with the jargon, there were enough anecdotes to make your head spin. They would utter one line in plain English that I'd end up mulling over the rest of the day. The story that emerged from these conversations is about much more than just online advertising. It's about a market of 1/4 of a trillion dollars governed by irrationality. It's about nobles about how even the biggest data sets don't always provide insight. It's about organizations and why they are so hard to change. And it's about us and how easy we are to manipulate. One thing was gradually becoming clear. These guys are ******* with the magic, and nobody knows it. Or as Gary Johnson, who used to work for Yahoo, told me, I don't have anybody pounding down my door telling me I'm ******* with their magic because, well, they don't even know who I am. Steve to Dellis was the most accessible of the bunch. He instantly replied to my email. I would be delighted to talk. Did Ellis told me about his work for eBay, a broad grin lining his face. It all started with a surrealistic phone call to a data consultant did. Ellis was a professor of economics at the University of California, Berkeley, when he went and spent a year at eBay. In August 2011 during one of his first conversations with eBay's marketing team, they invited him to sit down with their consultants. The consultants could tell him how profitable each of eBay's ad campaigns had been, and since did. Ellis was an economist. Maybe he'd like to quiz them about their methods. Proprietary transformation functions, one of the consultants had said on the phone went to Dallas, reached out. They used proprietary transformation functions, had 25 years of experience and a long list of prominent clients. Wednesday, Del is pressed them. He realized that proprietary transformation functions was only a clever disguise. For your garden variety statistics. You take the weekly expenditure on ads, combine it with the weekly sales and voila, fold the mixture into a scatter plot and see what happens. Easy is that this is garbage to Dallas, thought correlation. As any statistics one a one class will inform you is not causation. What did these impressive numbers mean if the people who see your ad are the exact same people who were going to use eBay anyway? EBay is no small fry. Surely lots of people looking for shoes end up on the online auction site all by themselves. Whether they see an ad or not. Picture this. Luigi's Pizzeria hires three teenagers to hand out to bonds to passer by. After a few weeks of flyer ing, one of the three turns out to be a marketing genius. Customers keep showing up with coupons distributed by this particular kid. The other two can't make any sense of it. How does he do it? When they asked him, he explains, I stand in the waiting area of the pizzeria. It's plain to see that Junior's no marketing wiz pizzerias do not attract more customers by giving coupons to people already planning to order a Quattro stategy only five minutes from now. Economists refer to this as a selection effect. It is crucial for advertisers to distinguish such a selection effect. People see your ad, but we're already going to click by register or download from the advertising effect. People see your ad, and that's why they start clicking, buying, registering, downloading today, Ellis asked how exactly the consultants made this distinction. We use LaGrange multipliers, one of them said, and for a second to Dallas, was astounded. What LaGrange multipliers. But LaGrange multipliers don't have anything to do with. Then it hit me, the Dallas recalled. This guy's trying to out jargon me. I resisted the temptation to say, I'm sorry, you're ******. I actually teach this stuff instead. Did Ellis decided to continue the conversation in economies? LaGrange multipliers. That's fascinating, he replied. So now I know you have a constrained optimization model. And as we all know, the LaGrange multipliers are the shadow values of the constraints in the objective function. We all know this right? The line went silent. So what is your objective function and what are your constraints? Steve, are you on a cell phone because you're breaking up and I can't hear you