Advertising

Advertising

by Chand Rajendra-Nicolucci and Ethan Zuckerman

Over the course of the next few months we’ll be treating this newsletter more like a Substack, sharing drafts from Chand and Ethan’s forthcoming book “A Field Guide to Social Media,” coming next year with MIT Press.

Do you have thoughts about this chapter? We’d love to hear your feedback in the comments.

Advertising, the dominant business model for social media, is lucrative for platforms and enables users to access services for free. However, left unregulated, it often places platforms’ interests at odds with users and the public.

When the Web first emerged, it wasn’t clear how services would make money. Dozens of business models were tried and discarded until the industry mostly settled on advertising. Ethan explains in an article about Tripod, an early “webpage-hosting provider and proto-social network,” where he was one of the first employees: 

Over the course of five years, we tried dozens of revenue models, printing out shiny new business plans to sell each one. We’d run as a subscription service! Take a share of revenue when our users bought mutual funds after reading our investment advice! Get paid to bundle a magazine with textbook publishers! Sell T-shirts and other branded merch! At the end of the day, the business model that got us funded was advertising. 

Advertising is a good fit for social media: platforms, thanks to network effects, usually get more useful as more people join. Offering services for free, subsidized by ads, makes it easier for people to join. Additionally, because platforms capture people’s attention and have access to rich datasets about their users, they are naturally attractive to advertisers. When users create and consume content, they reveal information advertisers can use for targeting.

Advertising seems like a win-win for everyone—users get services for free, platforms make money, and advertisers reach the people they want to reach. However, there’s a catch: because of the incentives advertising introduces, platforms often find their interests in conflict with the interests of users and the public.

There’s two types of advertising models for social media. Surveillant advertising and non-surveillant advertising.

Surveillant advertising is the primary model. Surveillant advertising consists of collecting hyperspecific information about users, particularly their behavior, and analyzing it in order to target advertising to them. In contrast, non-surveillant advertising consists of using readily available information like context to target ads, not information gleaned from pervasive tracking. In practice, the line between non-surveillant and surveillant advertising is blurry—the distinction ultimately boils down to the scale of the data infrastructure and the explicitness of the information. Non-surveillant platforms lack the extensive data infrastructure that’s required for the intense tracking and analysis found on surveillant platforms. And non-surveillant platforms rely more on information that’s readily available—explicit—to target ads (e.g., self-described interests) and less on implicit information obtained by tracking users and making predictions (e.g., demonstrated impulse control). Non-surveillant advertising is usually less lucrative and less effective than surveillant advertising, though it can be quite lucrative and effective for platforms with high engagement in specific communities, like a profession. 

Surveillant or non-surveillant, advertising has three important effects on the platforms that adopt it as their business model. First, it encourages them to collect information about their users in order to increase the effectiveness of their ad targeting. Second, it encourages them to capture their users’ attention, in order to collect more data and serve more ads. Third, it makes platforms directly accountable to advertisers, which means they’re more likely to prioritize advertisers when making decisions.

That last point is key—barring regulation or other sources of revenue that introduce additional forms of accountability, advertising based platforms are directly accountable solely to advertisers and shareholders. So, when the interests of advertisers and shareholders don’t align with the interests of other stakeholders, like users or the public, platforms are incentivized to prioritize the interests of advertisers and shareholders because that’s ultimately who they’re accountable to. Many of social media’s problems can be traced to this misalignment—optimizing for engagement at all costs, neglecting trust & safety, and locking users into walled gardens are all tradeoffs that benefit advertisers and shareholders at the expense of users and the public.

These dynamics are most intense for big platforms who as large, often public companies face intense profit pressures that make them extremely sensitive to the interests of shareholders and advertisers.

Addressing the misaligned incentives of advertising-based platforms is key to building a healthy digital public sphere. Regulations that introduce additional forms of accountability for platforms, or require platforms to do things that aren’t in the interests of shareholders or advertisers but are in the interests of users and the public, are critical to ensuring advertising is a true win-win for the digital public sphere.

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See Business Models, Popularity, Privacy, Regulation