Google, ad world and making sense of Twitter, Medium shifts
There were 5 interesting pieces of news I wanted to talk about this week -
- The UK government pulled ads from YouTube after their ads were shown to be displayed alongside videos with extremist, white supremacist content. Havas UK (a large ad agency) followed suit.
- Google immediately responded with a blog post announcing plans to enable advertisers to have more control over where their ads are shown. However, this didn’t stop the exodus. Large corporations on both sides of the Atlantic ocean pulled ads from YouTube.
- Twitter is testing customer appetite for a subscription service for its power users
- Medium, the blogging service founded by Evan Williams, announced a subscription service after announcing a move away from ads and laying off a significant portion of their team.
There’s a lot to unpack. So, let’s start with Google. The problem was that Google placed ads from unsuspecting clients alongside racist/hateful content. The clients were, of course appalled. Advertising agencies were quick to point fingers at Google and Google’s stock took a (relative) beating.
Now, let’s take a second to think about what the ideal state might be. I would posit that it would look something to the effect of — don’t show ads next to bad videos.
But, just as we do that, we begin to see the obvious problems —
1. What is good or bad?
2. Who decides?
3. How can this be done in a reasonable way at the crazy scale at which YouTube operates?
The easy answer is to appoint YouTube/Google as the organization that decides what is good and bad. And, while this might be simpler to do with certain kinds of content (e.g. terrorist content), there’s very plenty of gray territory. In addition, YouTube has actually been clamping down on certain kinds of content and this has been annoying its influencers.
And, while advertising agencies have been working their clients and the media to push YouTube to police content, this isn’t in YouTube’s long term interest. Besides, there’s reason to believe that the agencies have an additional agenda beyond their client’s best interests. That’s because agencies have had a rather difficult time as we’ve transitioned from the old world to a new world dominated by digital giants like Google and Facebook.
In the old world, agencies helped their client’s allocate spend across the various channels that owned consumer attention (newspapers, TV, etc.). They, then, used the limited data available to optimize their client’s spend.
However, in the new world, attention and data is monopolized by the digital giants — in particular by Google and Facebook. Agencies have been rapidly going out of business, consolidating and building data capabilities to help clients deploy their digital assets better.
However, leverage in advertising is driven by attention and data. And, in digital advertising, these form a self reinforcing loop giving digital giants a massive amount of leverage.
And, profits follow leverage.
So, the digital advertising landscape might look like it has a lot of players (and it does).
However, the gains are largely monopolized by Google and Facebook.
So, it is no wonder that the agencies are viewing this as a means to weakening Google (and maybe Facebook in the process). But, it is unlikely to have long term consequences. As long as Google and Facebook have attention, and thus, data, advertising dollars will follow. I think 3 things will happen as a result of this —
1. Google will improve controls to help advertisers and other online advertisers will follow.
2. Brands will take more care advertising online while acknowledging that mis-steps will happen. They will also ensure their agencies are monitoring their ad placements more carefully.
Of course, this is all until a new medium/company shows up that takes consumer attention and ad dollars with it.
This background is helpful in understanding what is going on with Medium and Twitter. There are 4 core business models on the internet -
- incidental/one shot purchases (e.g. buying from a blog or niche retail website)
- subscriptions (charging per user — e.g. software-as-a-service)
- tax (charging per transaction — e.g. payments, platform services like Uber and Kickstarter)
So, if ads isn’t working as well for Twitter, subscriptions is an obvious place to go to. This mix of ads and subscriptions is what most news businesses (New York Times, The Economist) follow. This mix is existential for these business on the internet as they don’t have the requisite scale to win with just one of the two.
But, for Twitter and Medium, the implications are different.
Medium probably never had a shot at winning with ads. Thoughtful long form content isn’t a recipe for building an ads business. Cat videos and/or mindless soap operas work much better. So, Medium should, perhaps, always have been an awesome, niche subscription business (perhaps focused on creators instead of the current focus of charging consumers — I am bearish on this being a winning move). But, they were likely victims of too much venture capital and the associated pressure for explosive growth.
For Twitter, however, this is will end up being an acknowledgment that they’re dropping out of the competition with Facebook for mass consumer attention. It may not be the worst thing for Twitter. As a Twitter fan, I certainly hope this shift will help them improve an awesome product that has struggled with user growth and acquisition. But, it’ll likely lead to a drop in valuation and more of a talent exodus.
All this brings us back to why YouTube will likely tread very carefully on policing content on the platform. The one metric that matters in an ad business is user attention. And, YouTube needs its influencers to produce engaging videos that enable it to build a successful ad business.