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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
One of the golden rules of business is to respect the customer. That principle has served Elon Musk brilliantly when it comes to Tesla or SpaceX. If you want to drive a cool car or blast a satellite into space, then Elon is your guy.
But the world’s richest man also appears to be testing the counterproposition when it comes to his social media plaything, X. After several big companies, including Disney, Apple and IBM, pulled their advertising from his platform after Musk endorsed an antisemitic tweet, the world’s richest man had a blunt message for them. “Go fuck yourself,” he told them.
Advertisers appear to be taking Musk’s message to heart and will find it easy to switch to Google, TikTok and Facebook. X, the service formerly known as Twitter, only represents a tiny fraction of the vast digital advertising market. GroupM, a media agency, predicts that X’s advertising revenue will fall more than 50 per cent to below $2bn this year, meaning the company will drop out of the top 25 global ad sellers.
It takes rare skill not to make money out of the financial geyser that is digital advertising, but X has succeeded to an inglorious degree. Overall, the digital ads market will grow 9.2 per cent this year to $617bn, according to GroupM, the media agency. The top five global advertising sellers — Google, Meta, ByteDance (which runs TikTok), Alibaba and Amazon — have increased advertising revenue 25.4 per cent on a compound annual basis from 2016 to 2022.
But some advertisers question how well these other digital ads platforms look after their customers, too. A recent report from Adalytics, an advertising analysis service, highlighted that ads for some of the world’s biggest brands — as well as those of US and European government agencies — have been regularly popping up on pornographic and sanctioned Iranian and Russian company websites.
After scouring 7.2mn sites, Adalytics found multiple examples of ads from companies and organisations, including Apple, BMW, Walmart and the US Treasury, appearing on dodgy websites, unbeknown to the advertisers themselves. These ads had been indirectly placed via the Google Search Partner network, which allows third-party developers to embed search engines in their own websites.
Not only do ads surfaced in this way jeopardise the reputation of the advertisers, but they also perform extremely poorly, Adalytics said. Google responded that it was investigating Adalytics’ claims but had found no evidence of ad revenue being shared with any sanctioned entity.
Ironically, the widespread adoption of machine learning systems is enabling marketers and the digital ads platforms to create and serve more targeted and personalised ads than ever before and on a massive scale. This allows “the right message to be sent to the right consumer at the right time,” says Mark Read, chief executive of WPP, a major advertising agency. “We can optimise the media.”
So, for example, in 2021 the agency used artificial intelligence and geolocation tools to help create 130,000 tailored video ads for 2,000 local stores in India, all receiving the “personal” endorsement of the Bollywood star Shah Rukh Khan. The ads were viewed 94mn times across YouTube and Facebook.
But Read adds that advertisers want far more transparency from the digital platforms and third-party verification over where and when their ads run. Those platforms keen to gain market share should promote such transparency, he says.
Some lawmakers are demanding tougher regulatory intervention to address the problem. US Senator Mark Warner has called on the Federal Trade Commission and the Department of Justice to investigate “the extent to which digital advertising intermediaries maintain a concentrated ecosystem rife with fraud”.
However, Richard Kramer, senior analyst at Arete Research, says that marketers have themselves demonstrated “woeful negligence” in not paying enough attention to how they spend billions of dollars a year. He likens the digital ads market to a vast and opaque stock market with too many billions of trades made every day to check and reconcile, with side trades often occurring in “dark pools”.
Google could simply stop serving ads through its search and video partner networks, Kramer says, but he doubts the company wants to become a smaller, if better, business. “None of these companies want transparency. For Big Tech, “‘open’ is a four-letter word”, he says.
It is finally time for advertisers, if not regulators, to enforce such openness.