The Power of the Pixel
The retail economics of platform marketing.
An article was published on Wired recently about Facebook’s failure to suppress fake news. The epically long, but must-read article is titled “Inside the Two Years that Shook Facebook — And the World”. As I read, in particular, I noted the implications to corporate power, retail economics, and platform marketing in the content…
“For the first time, insiders really began to question whether they had too much power. One employee told WIRED that watching Zuckerberg, he was reminded of Lennie in Of Mice and Men, the farm-worker with no understanding of his own strength.” — Wired
Power.
A few years ago, I would post a message on my business Facebook page and hundreds of fans would talk back to me. It was overwhelming, so we spoke sparingly and carefully. We could post a new product and within a few hours, it would be sold out because so many people knew about it right away.
When the platforms began introducing algorithms to filter user content, everything began to change. At first, we felt just a little squeeze. Then, a big squeeze. Do ads to increase traffic, they said. So we did ads. Do analytics, they said. So we did analytics. Both required the installation of a pixel on my site. At first, we just had access to insightful analytics about our consumers. Gradually, the effectiveness of our spend started to drop. I began to wonder if the pixel had a budget that it wanted me to spend of every sale before it would send me new traffic. Last year, during an appointment with one platform’s advanced sales team, I was able to get the sales rep to tell me that they wanted me to spend 20% of my revenue to see real growth in incoming traffic.
I manufacture a niche product in the baby industry, an industry shaken to its core by the Toys “R” Us bankruptcy filings and default on vendor payments. The industry was dominated by large retailers like TRU, but the majority of our brand sales have come from small, independent retailers who leaned on Google and Facebook for their customer communications. Like TRU, many of these independent retailers have closed their doors due to declining sales.
Economists and analysts are looking towards Amazon as the new retail horizon. Amazon has certainly found a service-based competitive advantage, but analysts seem to have overlooked other factors driving traffic and consumers towards their various purchasing options. Retail businesses could afford to talk to an audience they could reach under the original platform rules of audience access, but retail economics don’t support the new data-driven platform marketing. Is Amazon winning the sale simply because alternatives are disappearing in feeds and search results — the very places where consumers might encounter shopping choices?
Traditional marketing interrupts reading, watching, or listening processes. Print, television, and radio are being replaced by online news, Netflix, and podcasts moving those “interruptions” to platform driven social feeds, search results, product placement, or apps.
Platform marketing requires the use of a hidden tracking pixel on websites. That pixel records everything about the customer browsing the site. It records what sites the customer browses, how long they are there, what products they look at, and purchase, and even allows the platform to keep track of overall customer profiles around website traffic. While privacy concerns led to these targeting options being removed, platforms know if someone is likely to be pregnant. They also know if they just brought home a baby or are in the process of buying a house or a car.
In exchange for analytics data, tracking pixels record and report to businesses confidential revenue, product, and and marketing details. On a micro-level, pixels know what products sold to which customer and what that customer spent. On a macro-level, pixels allow databases to record detailed information about issues like the socio-economic trends of a business or a business segment.
Pixel data creates economic leverage for platforms.
Platforms are leveraging the valuable data stored by pixels. According to Business Insider, Facebook generated $27B in ad revenue in 2016 compared to Google’s $80B. In 2017, Facebook generated $39.9B in ad revenue compared to Google’s $95.4B.
The advertising industry generated $103.7 billion in revenue in 2016. In 2017, the estimated ad spend was $217.8 billion. In other words, the cost of reaching consumers was expected to more than double in 2017 and $135.5 billion, a staggering 62%, was spent with Facebook and Google.
Imagine a world where recorded pixel data enables platforms to leverage a percentage of the world’s business balance sheets. Because platforms are now the largest source of incoming traffic for many websites, a platform can now “turn off” or “turn up” a source of revenue for media, businesses, industries, ideas, or even countries by changing where a result is placed or how often it appears in consumer search results.
Scale that power out over every single company who is doing online marketing using platforms like Facebook or Google, and now you have a few public companies able to pull levers of economic growth — at will.
What are platforms doing with their economic leverage?
The Wired article goes on to discuss the conflict between Facebook and large media organizations.
And journalists know that the man who owns the farm has the leverage. If Facebook wanted to, it could quietly turn any number of dials that would harm a publisher — by manipulating its traffic, its ad network, or its readers. — Wired
Over the last several years, Facebook has been making it much more difficult (and expensive) for posts to be seen in user feeds, feeding large corporations and effectively shutting down small businesses, brands, and bloggers that had built relationships with followers.
The cost of marketing is bid by the platform at the time an ad is placed. Unlike previous marketing models where marketing costs were known and generally predictable, pixels guarantee that the platform has complete knowledge of the businesses revenue. This ensures platforms are, perhaps, a guaranteed partner at any level they want to participate in a business dependent on digital marketing.
Now, imagine the impact of this model, scaled across the planet over time. How might that model impact prices, competition, manufacturing, and strategy?
Archimedes once said, “Give me a lever long enough and a fulcrum strong enough, and I will move the earth.”
Ladies and gentleman, I give you the pixel, an invisible, tiny crowbar fueling our current retail crisis. Maybe it’s not all Amazon’s fault.
