Advertisements as Facebook and Google’s Main Source of Revenue
Advertisements consist of 80% of Google’s revenue and 98% of Facebooks’ revenue. By using sponsored searches based on specific keywords and ad slots, these tech companies can profit off clicks of advertisements from people using their websites. As we learned, Facebook and Google use algorithms that allocate ad slots to companies based on valuations per click and click rates. Companies give valuations and the algorithm uses an auction to allocate the ad slots, similar to the VCG method. However, years of refinement has led to more complicated algorithms that allow for more consideration of factors, as well as more ad slots and companies. There are many effects on this algorithm for users and companies.
In order to improve the predictive accuracy and valuations of clicks for certain ad slots, Google and Facebook collect tons of data on users and giving that information to a variety of companies, from banks to grocery stores. While this may lead to better ads tailored toward users, this also poses a cybersecurity and privacy issue. This also creates a positive feedback loop where ads and valuations become more accurate to the user, creating more ad slots to advertise for and collect more data. An interesting question to research is to see whether the valuations reflect valuations of companies and users or whether valuations are being affected by the algorithm.
https://www.nytimes.com/2021/10/28/technology/google-facebook-advertising.html