In a recent post, I mentioned John Lanchester’s view that Facebook, and by extension other software giants represented a new form of surveillance capitalism. In his LRB article, in which he reviewed three recent books on things digital, he is pretty trenchant on this subject.

Facebook, in fact, is the biggest surveillance-based enterprise in the history of mankind. It knows far, far more about you than the most intrusive government has ever known about its citizens. It’s amazing that people haven’t really understood this about the company. I’ve spent time thinking about Facebook, and the thing I keep coming back to is that its users don’t realise what it is the company does. What Facebook does is watch you, and then use what it knows about you and your behaviour to sell ads. I’m not sure there has ever been a more complete disconnect between what a company says it does – ‘connect’, ‘build communities’ – and the commercial reality.

Although one of the elements of received wisdom about digital platform businesses such as Facebook is that they tend to monopoly because of their network effects, he can also see trends that might curb its growth, or even see it shrink. There are four, or perhaps five.

Disenchantment

The first is what Timothy Wu calls in The Attention Merchants “disenchantment effects”—that periods of rapid media growth produce a backlash, sometimes with accompanying regulation or legislation. This is why Paris still has tight control of display advertising. This extends beyond media. When significant technologies become mature, and their rate of growth slows, there’s a period of social stocktaking in which social side effects (external costs, in other words) start to be regulated. Think of ‘60s innovations such as seat-belts, parking meters, and drink-driving legislation, in response to road deaths and congestion.

Lanchester focuses on customer disenchantment, meaning advertiser disenchantment.

[A] lot of the clicks on these ads are fake. There is a mismatch of interests here. Facebook wants clicks, because that’s how it gets paid: when ads are clicked on. But what if the clicks aren’t real but are instead automated clicks from fake accounts run by computer bots? This is a well-known problem, which particularly affects Google, because it’s easy to set up a site, allow it to host programmatic ads, then set up a bot to click on those ads, and collect the money that comes rolling in. On Facebook the fraudulent clicks are more likely to be from competitors trying to drive each others’ costs up.

Click fraud

Indeed, Ad Week has estimated the cost of click fraud at $7 billion, representing one-sixth of the market. Some of the estimates of click fraud are a lot higher than that. These are not trivial sums, especially in a market that is facing serious cost pressures. Even legitimate views are, shall we say, enhanced by the way Facebook chooses to measure use.

A video is counted as ‘viewed’ on Facebook if it runs for three seconds, even if the user is scrolling past it in her news feed and even if the sound is off. Many Facebook videos with hundreds of thousands of ‘views’, if counted by the techniques that are used to count television audiences, would have no viewers at all.

Inevitably, Facebook has tried to claim that its ads have the most impact in the first two seconds: advertisers are sceptical.

But there might also be end-user disenchantment. We have seen generational change affect online use before, and Facebook might also be vulnerable to this. There’s some evidence that younger people are sharing less on more open platforms, and using closed platforms instead, such as WhatsApp. Even though Facebook also owns WhatsApp, there is less data to be seen and used in a closed end-to-end platform. People don’t need to stop using Facebook to erode much of its value; they just need to use it less.

Unhappy

Another source of end-user disenchantment might be the emerging evidence that Facebook use is bad for well-being, given that wellbeing is one of the strong long-term shifts in social values. Lanchester notes that “the more people use Facebook, the more unhappy they are.” It is possible that this is a correlation, not causation, but I expect to see more on this issue.

Second, there could be more formal regulation, and this might be related to advertising, particularly political advertising. Every time it is clear that Facebook’s algorithms actually allow people to advertise to “Jew-haters,” as ProPublica recently discovered, or that Russian interests have paid Facebook for American political ads during the 2016 Presidential campaign. The fact that Facebook profits so handsomely from “fake news” that it has no incentives to do anything about it —what’s good for Facebook is bad for America—might also spur some kind of regulation.

And right on cue: [Update 1] the EU has just warned Facebook and Twitter that they will regulate them unless they take steps to remove hate speech in a much more timely way.

And, [Update 2] Congress is actively concerned about the Russian ads issue, as Buzzfeed reports:

The Russian ad scandal has captured lawmakers’ attention in a way Facebook’s previous political crises — from allegations of bias in its Trending column to its role in spreading fake news — have not. It has crystallized a trio of individual fears — Facebook is too big, has too much influence, and cannot effectively monitor itself — into one big expression of all of them.

Pricing algorithms

Third, one of the trends implied by surveillance capitalism is individualised pricing. As Lanchester observes, the big internet enterprises have so far escaped competition investigation, because—in the US—this typically focuses on consumer pricing and consumer benefit. Because Facebook and Google are free, in the sense that they don’t cost money (we’re paying them with our data, which they sell on), they have largely escaped competition scrutiny in the US, though not, of course, in Europe.

But the point at which their activities lead to individualised pricing, and especially if this pricing is driven by algorithms that can’t be independently tested or evaluated, is the point at which this may well change. Even without that, there will surely come a point where a competition economist decides that algorithms that increase the price of an airfare when you return for a second look are anti-competitive.

Cookie wars

The other issue is that not all of the companies that have grown rich on the digital boom share the same interests. Unlike Facebook and Google, Apple’s customers are end-users who pay them for their products (Amazon sits somewhere between). It’s better for Apple’s business model to position themselves as being on the side of their customers; Apple’s software is increasingly designed to reduce intrusion.

[T]he new Safari feature uses a “machine learning model”, Apple says, to identify which first-party cookies are actually desired by users, and which are placed by advertisers. If the latter, the cookie gets blocked from third-party use after a day, and purged completely from the device after a month, drastically limiting the ability of advertisers to keep track of where on the web Safari users visit.

And it’s worth noting the extreme response by the ad industry to this relatively modest restriction on what advertisers can do with end-user data:

Apple’s unilateral and heavy-handed approach is bad for consumer choice and bad for the ad-supported online content and services consumers love. Blocking cookies in this manner will drive a wedge between brands and their customers… As organizations devoted to innovation and growth in the consumer economy, we will actively oppose any actions like this by companies that harm consumers by distorting the digital advertising ecosystem and undermining its operations.

Well, blah, blah, blah. If controls such as those that Apple is proposing are going to be so damaging, then clearly the “digital advertising ecosystem” is a lot more fragile than we thought it was.

Pushing monetisation

It is worth putting all of this in a wider context. Facebook’s expansion has been driven by a simple model:

Growth (in numbers) x Monetisation (of each user).

There are strong grounds to think that user growth has run of road, certainly in mature markets, which really only leaves monetisation. What monetisation means is getting advertising in Facebook and Google to work harder, which means, for example, inserting more ads in feeds and being more unscrupulous with user data. We know from experience that end-users dislike both of these things: in other words, the pursuit of monetisation could turn into a vicious circle.

One final note here, from Nick Srnicek’s book on Platform Capitalism. He points out that advertising markets are more fragile than they seem, especially to recession. The last time, ad-based platforms like Facebook and Google were able to ride out the recession through growth in numbers, which was still strong.

He doesn’t add that they were also insulated at the time from profit/performance pressures from shareholders and investors because both were privately held at the time. Both are now at least partially listed on the stock exchange.

Recession, in short, could be a catalyst that makes the combination of pressures outlined here start to have an effect on how these surveillance businesses work. We could be close to peak Facebook.

The image at the top of the post is by Marc Smith, and is published here under a Creative Commons licence. It was also used to illustrate an article on The Conversation on the subject of surveillance capitalism.

Chaos Monkeys takes us from Goldman Sachs to Facebook, and out the other side, via a digital ad business called Adchemy,  the start-up ‘school’ Y Combinator, and the startup, AdGrok. Mostly Martinez is a good guide; especially to the world of venture capital and startups. Martinez persuades a couple of engineer colleagues at Adchemy, which is clearly struggling, to pitch to Y Combinator, the start-up hothouse then run by Paul Graham. Going in, they have a product concept that probably isn’t going to work, but that doesn’t matter because Y Combinator, like much of the rest of Silicon Valley, is as interested in teams as it is in products.

Miracles

Why isn’t their product going to work? This is a flash of innovation insight that’s worth the price of the book and quite a lot more.

When confronted with any startup idea, ask yourself one simple question: How many miracles have to happen for it to succeed?

If the answer is zero, you’re not looking at a startup, you’re just dealing with a regular business… To be a startup, miracles need to happen. But a precise number of miracles.

Most successful startups depend on one miracle only. For Airbnb, it was getting people to let stragers into their spare bedrooms and weekend cottages. This was a user behavior miracle. For Google it was creating an exponentially better search sevice than anything that had existed to date. This was atechnical miracle. For Uber or Instacart, it was getting people to book and pay for real-world services via wesites or phones. This was a consumer-workflow miracle…

The classic sign of a shitty startup is that it requires at least two (or more!) miracles to succeed. (P50-51)

Y Combinator is particularly good at getting its progeny in front of investors, but even allowing for that the commitment, rat-like cunning and persistence needed to get it across the line with investors and an eventual acquisition is more or less complete. As he says when he has the chance to pitch to a potential buyer and has a computer glitch, rule #1 of the start-up is “Always be closing”.

VCs at work

The history of AdGrok, and its eventual acquisition following some initial investment, is almost a case study in VCs at work, and Martinez is pretty good at explaining the mechanics of how the VC business works (and the different and sometimes conflicting things that different types of VCs want from the eventual deal), even if you sometimes have to go back and check on some of the technicalities. This focus on the mechanics of the start-up reminded me of Jerry Kaplan’s 1990s classic Startup.

I hadn’t realised before I read the book of the extent to which the big Silicon Valley companies use startup acquisitions as a way of acquiring talent rather than software or patents. The rationale is that acquiring good product managers and engineers is difficult, and they come expensive, so using discussions about their product is a good way of assessing cultural fit. And bringing in people who have been through the startup mix, rather than looking first for a long-run career at a big company, injects some energy into the culture, and that energy is worth paying a premium for.

Breakfast, lunch and dinner

In the end (spoiler!) Martinez has the chance to go to Twitter or Facebook. He chooses Facebook because of the full-on nature of the demands that the business makes of its staff, compared to Twitter, and this was partly learned from a casual remark from a Twitter engineer, when Martinez asked him what he liked most about Twitter.

“Well, you know, in companies like Facebook and Google, they serve you breakfast, lunch and dinner. Here at Twitter, they only serve you breakfast and lunch.”

I cringed inwardly. So the big selling point was that nobody worked late into the night…? (P237)

And after two years (more spoilers) after his live adserving product FBX loses out in an internal power struggle, he’s gone again:

I could barely remember what my life was like before Facebook, and there was a trail of destruction I had caused by spending m entire life there: two children neglected, two different women whose worthy love I’d spurned, two boats rotting in neglect, and anything like an intellect or a life outside campus rotting in neglect due to indifference and my dedication to the Facebook cause. (P458)

If he’d stayed with the rest of the AdGrok team and gone to Twitter, he’d also have been about $1m better off and would not have burned his bridges irrevocably with one of his investors.

And no: nowhere in the book does he make the connection between these outcomes and his disdain for Twitter’s failure, at the time, to serve dinner.

If he were chocolate

There are things not to like about Chaos Monkeys. It’s readable, but it’s too long; a competent editor could have taken 80 pages out of it without blinking, and improved it a lot. For example, I didn’t need to know about an inconsequential fling with a Facebook colleague in a company stationery cupboard, nor his streetrace in a carshare Tesla; I already knew he was reckless and competitive by then. He tries not to be, but he’s too pleased with himself a lot of the time. The lawyer who bailed AdGrok out of a hole may have agreed to a terrible deal (he accepted equity in the startup with no risk premium) but I’m not sure why Martinez needs to rub his face in it.

There are too many footnotes, all too long. He tips his hat in a look-at-me sort of way to Michael Lewis’ Liar’s Poker without really understanding what made that such a fine book (well written, aware of his own shortcomings as a bond salesman, telling anecdotes, watching the start of deep transformation in the way investment banks work.) Martinez is a good observer, but if he were chocolate he would eat himself.

Saving Facebook

The reason that the advertising market and its monetisation became so important to Facebook in that period was because of its IPO–its revenues were flat and it needed to show growth to its new shareholders. The solutions that were attempted were basically a develop of Facebook’s existing, but closed, ad platform, and FBX, Martinez’ project, which was an open platform. Facebook’s culture and model is about closed systems, and that approach commanded most of the resources. The FBX platform, with its small team and limited resources, was essentially an insurance policy, although Martinez, for all his smarts, never seems to realise this.

But the thing that saved Facebook’s financial position was neither of these things. It was the rapid shift in 2013 towards mobile and device use. If the shift was expected, its timing and speed were not. This allowed Facebook to insert ads profitably into user feeds on mobile.

News Feed Ads rode to success atop a tsunami-esque wave nobody had predicted, or at least hadn’t predicted to arrive right then and so quickly. In this case, that wave was mobile, which in the space of a few months in 2013 suddenly constituted the majoriy of Facebook usage… [D]ata and high quality formats and placements, meant that Facebook dominated mobile like few oter incumbents had managed to. (P483, 487-8)

Carthage must be destroyed

Despite being fired by them, Martinez clearly remains a fan of Facebook. He defends its position on privacy vociferously (they’re not a threat to your privacy, he says) and he admires the focus that Zuckerberg has on avoiding complacency. When Facebook moves into Sun’s former buildings in Menlo Park, Zuckerberg left some of the old Sun signs up, as a reminder, as it were, that this too could pass. When Google launched Google Plus, a clear bid for Facebook’s market space, the phrase Carthage delenda est (“Carthage must be destroyed”) became a company catchphrase.

John Lanchester, on the other hand, is not such a fan. He sees Facebook as the exemplar of a new form of surveillance capitalism. More on that in another post.

I was doing some blog management, and found this post written but never posted. It seems to touch on some recurring themes of mine.

I developed a mild obsession when in Prague with the huge outdoor advertisement for Nivea at the top of this post. We were staying a short distance from the centre, and the sign was right by the hotel, attracting the attention of drivers as they joined one of the freeways out of the city.One had to admire the scale: as the photograph shows, the execution (as advertisers say) involved the whole of one side of an empty building four storeys high and about forty metres long. The advertisement has been tailored to fit the contours of the roof as the building climbs a hill. The engineering was impressive too. Inspection revealed that the poster hoarding had been welded onto the side of the building, which had once upon a time been – well, I don’t know: a warehouse, perhaps, or a light industrial factory.

Reduced to a sign

In other words something which used to have a social form and function, embedded in a place and carrying within it a network of relationships and flows, is reduced to a sign, literally, detached, disembodied, almost dematerialised, more or less as John Urry and Scott Lash predicted 20 years ago.

What’s strange to me is that we don’t find this more strange than we do. It says a lot for our times that an advertisement can carry more value than a building.

The picture at the top of this post was taken by Andrew Curry. It is published here under a Creative Commons licence: some rights reserved.

The documentary version is a slide show of Sao Paulo after the ban.

And the fictional version was made by Sky to support its current Sky Movies campaign (“because you like your movies without interruptions we’ve already taken out the ads”). Not enough time tonight to reflect on the potential difficulties associated with this for a broadcaster which is partially funded by advertising, and also spends heavily on advertising to support its marketing and promotion.

Obviously the Sky promotion has better production values (a director has been hard at work directing) and the music is more carefully chosen. And Sao Paulo is a little more untidy than Sky’s visualisation. But in terms of the streetscape, there’s not that much difference.

However, both these pictures seem incomplete; without the outdoor advertising, the streets are fairly drab. In the medium to long term, this seems unlikely. What’s more likely to happen is that the streets will regain colour – but with images which come from a public culture rather than from private desires.

One of the reasons for this growing commercialisation is the rapid increase in family incomes over the past fifty years (a threefold rise), which has meant that more money is spent on children, and by them. Advertisers have followed the money, which has created more materialistic demands by children. Toddlers can’t distinguish between advertising and programmes. Over the past century, the economic role of children has shifted from being producers (if largely unpaid) to consumers. One of the things they end up consuming, in effect, is a more solitary lifestyle, which is increasingly mediated through products, especially electronic products. (In this and below, I am summarising a longer paper by Piachaud. which has a good summary of the literature and a detailed analysis of the important trends, available in pdf.)

One of the results is that poor families end up poorer as they try to keep up, according to the National Consumer Council:

‘Advertising makes poverty bite. The children that have the least, in socioeconomic groups C2 and DE, are most interested in consumer and materialist concerns. This ‘aspiration gap’ is most marked in the poorest households’.

A broader effect of this “constant barrage of advertising” is that children may develop higher levels of materialism, and that this harms their psychological wellbeing.

One of the rights embedded in the UN Convention on the Rights of the Child is the right of the child to be protected from economic exploitation. But frameworks of rights usually assume that rights holders can exerise their rights for themselves. This is not the case for children. Piachaud argues that:

It is abundantly clear that children are weak in the face of the strong commercial pressures. It is also clear that these pressures increasingly intrude on intimate relationships within the family. It may therefore be that the law can and should be increasingly used to protect children’s rights to a childhood free from commercial pressures.

The paper reviews the arguments in favour of regulation or education as methods of protection, and concludes from this that there is a case for significnt market intervention:

“The evidence presented here suggests that the freedom of children would be substantially enhanced if commercial pressures were drastically curtailed. This might comprise:

1. The end of all advertising and other commercial pressures, of any sort on any media, directly or indirectly targeted at children aged under 7.
2. The end of all advertising directed at children aged 7-15 where this may have adverse effects on some children’s health, education, or their personal or social development.
3. Control of this advertising to made the responsibility of a body whose primary concern is with children, rather than, as now, being left to self regulationby the advertising industry.”

It could be that the modest regulation introduced to address obesity concerns is only the start of ‘darkening’ the children’s advertising market. David Piachaud is more trenchant when interviewed for The Edge article:

“The evidence indicates that the freedom of childhood is being eroded and their rights ignored,” says Professor Piachaud. “Protection of children from commercial pressures is seriously inadequate. Each child should be free to be a child.”

The whole November issue of The Edge is themed around  research on “Britain’s children”, including their health and education.

Related posts: Blindspot – our over-examined children?, Childhood more depressing than it used to be, ‘Darkening’ the soft drinks market and Toxic consumption.

The campaign was launched at the end of October in Sydney by a US advocacy group, the Center for Science in the Public Interest (CSPI), which does a lot of work around food and food companies, and a confederation, the International Association of Consumer Food Organizations, which has members in 12 countries across the world.

Its target is increased government regulation of soft drink companies, and it has six demands, which are worth summarising. Governments should ensure:

• Increased promotion of new lower-sugar products, and support for independently funded research on safe substitute sweeteners.
• End all marketing of ‘sugar laden’ beverages to under-16s
• A comprehensive labelling system showing calorie content, nutritional warnings, and consumer alerts (such as, “High sugar – drink only occasionally”)
• Stop promoting any sweetened beverages in schools
• Pay a ‘modest’ added tax to be used to fund nutritional research and subsidise fruit consumption
• Put limits on beverage sponsorship programmes.

A couple of relevant things about the campaign; it has health evidence coming out of its ears, so it’s likely to catch the attention of governments. And it’s at least as concerned by the way in which the soft drink companies have responded to falling sales in richer markets by shifting promotion and marketing to poorer countries (they could be said to be following the template of the tobacco companies, and largely successfully), as it is by health impacts in richer countries.

Their presentation – but not the web site – suggests some channels for consumer activism. They include things like organising a “No soft drinks week”, pressuring children’s magazines to stop accepting soft drinks ads, supporting their schools campaigns, and asking stores to remove soft-drinks-related marketing from public display.

In the obesity scenarios we asked whether food and drinks which were likely to have adverse health effects would in future be more like tobacco (closed down slowly) or alcohol (tolerated but within increasingly strict limits). So far it looks more like the latter. But maybe consumers won’t have the last word here. I heard last week that a well-known crisps manufacturer in the UK was having problems recruiting, at least at graduate level, because people didn’t really want to work for them. I mean: what do you tell your friends? And how cool would it look on Facebook?

There’s a summary of the story at the Worldwatch Institute.

Related posts: ‘Healthy food’ trends in the US, Toxic consumption.

Friedman’s argued consistently that General Motors stands in the way of the US reducing its energy dependency, because GM’s business policies promote high energy consumption, and high energy consumption, vehicles and they lobby against regulation. In a piece last year, he linked these directly to the war in Iraq.

GM demanded the right of replay but got bogged down in a dispute with the paper on the words it could use. So it published its version on its blog instead. Goliath does David.

Bowen’s article is worth reading in full, but for those short of time, the lessons he draws can be summarised as follows:

1. If companies can personalise themselves, there’s no reason why they can’t talk informally on the web to their advantage – but it takes some subtlety.
2. Companies need to understand the different sorts of space that now exist online. The website is where people expect to find the “official information”. Blogs allow informality.
3. There’s a difference between the ‘home turf’, where the company controls the space, and the ‘away ground’, where you’re engaging with other people as guests in their space.
4. Home turf blogs work where there is already a community of users, where the subject is a source of enthusiasm and preferably where the blog is run by an individual that users can identify with. Dell has done this well. GM’s Fast Lane blog is about an enthusiasts’ subject – cars – but is also really the ”Bob Lutz blog”. The vice chairman is an enthusiastic contributor, and his posts get many more comments than others.
5. It helps to talk the language. One more example from GM: “The FYI blog encourages visitors to post videos on YouTube or photos on Flickr: ”tag it with gmfyi and we’ll find it”. A gentle way of collecting content, while fitting perfectly with the way the social network world works,” as Bowen notes.
6. There is a gulf between lawyers and IT companies (not to mention HR departments), who regard the online space as a world of problems, and agencies and internal enthusiasts who see mostly new possibilities. Which doesn’t mean that one group is right and the other is wrong. The boundaries between work and home, and different roles and voices, can get easily blurred. There are subtleties here as well. But that’s another post for another day.

The Cluetrain manifesto, which pioneered this whole discussion a decade ago with the central idea that ‘Markets are conversations’, is still relevant and worth reading, if you haven’t.

Thanks to the Bowen and Craggs email service.

According to an article by the Worldwatch Institute, the city banned most outdoor advertising in January this year. Some 15,000 billboards have been removed, and the city has generated about $8m in fines.

According to Mayor Gilberto Kassab, the so-called “Clean City Law” arose from a need to address rising pollution of all kinds, including air, water, and noise. “We decided that we should start combating pollution with the most conspicuous sector—visual pollution,” he was reported as saying.

Despite some business opposition, the change has 70% approval from residents. This might be because advertising has been increasing four to five times as quickly in Brazil as the average rate of growth worldwide. One of the unexpected effects – as billboards are removed – has been to make parts of the city newly visible, sometimes exposing hidden inequalities. Sao Paulo’s not completely on its own. In Beijing certain types of outdoor ads promoting luxury products have been banned because they discourage “harmony in the city”.
And Worldwatch’s Eric Assadourian argues that it takes this type of change to address the underlying issues of consumerism which create both global warming and resource shortages.

“It’s not simply greenhouse gases that cause climate change—it’s our consumer lifestyle that causes the greenhouse gases that cause climate change. Until we end consumerism and the rampant advertising that drives it, we will not solve the climate crisis.”

One interesting measure of visual pollution – which also bears on the amount of energy we consume – is the number of stars we can see with the naked eye. This has fallen hugely. In On The Commons, Jonathan Rowe quotes some striking figures first published in the New Yorker on the level of light pollution we now experience as normal.

One common metric rates the darkness of the sky on a scale of one [the darkest] to nine. Galileo’s sky was a one. New York City is a nine. The typical U.S. suburb is five, six, or seven. There are only a few places on earth – the Australian outback is one – where one can see the sky our ancestors did.

According to the New Yorker article, someone standing on the top of the Empire State Building (this is the New Yorker) on a clear night would see only one per cent of what Galileo would have been able to see in the night sky with the naked eye. As Rowe observes, one only has to watch a Shakespeare play to realise how much knowledge he could assume of the stars among his audience – and how little we understand in contrast.

An article on why we should worry about the mental environment, written by Bill McKibben for the Culture Jammers mahazie Adbusters can be found here.