Not so Free Lunch
You may not think of it at first, but many of the services that we consider “free”, including the likes of Facebook, Google and Gmail all come with a hidden cost. Companies like Facebook and Google stand to make billions of dollars on advertising revenue (and in fact, they do) by selling highly targeted ads. Facebook’s ad targeting tools, for example, allows advertisers to select specific locations, demographics, interests and behaviors. This vast array of knowledge about specific individuals comes from every link you click, every post you read and almost every interaction that occurs on the site. Similarly, Gmail’s terms of service allows Google to scan all email content in order to improve their ad targeting. Our willingness to share personal information with these online giants in exchange for the “free” service they provide gives them extraordinary insight into our personal behaviors and interests and the more you consider the facts, the more it seems true that “if you’re not paying for it, you are the product”.
As we all know, advertising is an enormous market worth billions of dollars. Google alone made 59 billion in advertising revenue in 2014 and Facebook made over 3.59 billion. Recent research by the Adobe Digital Index found that the effectiveness of Facebook’s ad targeting has increased their click-through rate 35% from last year. The cost-per-click has risen similarly as companies are willing to pay more to target very specific users, who are much more likely to generate revenue for the business. These advertisers sell ad placement based on bids, as we talked about in class, but many also provide an autobidding system that allows companies to allocate a fixed advertising budget which will intelligently, and automatically, be used to bid for ad spots that are the most likely to result in a click-through. Advanced algorithms decide on the most relative ads for given spots as well, to prevent a company with an extremely large advertising budget to buy all the ad spots. As these companies ingest even more data about us, they become even better at selling targets ads, allowing them to spend more on developing their service, and ultimately creating a feedback loop that results with us becoming dependent on these “free” services to the point where they seem like a public utility.
Sources:
http://www.marketingmagazine.co.uk/article/1369827/facebook-ad-personalisation-driving-googles-strategy
https://www.facebook.com/business/a/online-sales/ad-targeting-details
http://www.theguardian.com/technology/2014/apr/15/gmail-scans-all-emails-new-google-terms-clarify