The New Ad Industry

“Tech” is a Misnomer for Silicon Valley’s Internet Giants

New "Mad Men," Google's Larry Page and Sergey Brin.

New “Mad Men,” Google’s Larry Page and Sergey Brin.

The British humorist Douglas Adams once summed up the trajectory of computers and the Internet in four teleological sentences: “First we thought the PC was a calculator. Then we found out how to turn numbers into letters with ASCII — and we thought it was a typewriter. Then we discovered graphics, and we thought it was a television.” Finally, observed Adams, “with the World Wide Web, we’ve realized it’s a brochure.”

Of course the computer is all these things today, and now with ubiquitous wireless networks the computer has become the all-in-one mobile device. It’s the phone-camera-computer-walkman-TV-gameboy-GPS that goes anywhere, does anything. But to update Adams in one important respect we need to add that finally with Google, and many other firms among the new breed of “tech” companies, the computer has become more than a mere brochure. The computer is an incredibly sophisticated and persuasive salesman. Brochures are inert documents that shoppers flip through. The computer as salesman is an agent, watching us closely, collecting data about our wants, and subtly implanting desires in our consumer minds.

Google is the best case in point. Google has never been a “tech” company, whatever tech is supposed to mean anyway. Google is an advertising company, and it makes most of its revenues from selling advertisements. Many of the fastest growing so-called tech companies are just like Google. The core of what they do, and how they make money, isn’t about the math and science of building things. Rather, these tech companies acquire, process, and sell information for the singular purpose of steering potential consumers toward a purchase.

Google’s financial filings are pretty clear about this. As the company’s executives conveniently state in Part 1, Item 1 of their most recent annual report to shareholders: “We generate revenue primarily by delivering relevant, cost-effective online advertising.”

How much advertising are we talking about in the grand scheme of Google’s overall business? 95 percent of the company’s revenues were thanks to advertising in 2012. In 2010 and 2011 it was 100 percent. Only with the purchase of Motorola Mobile last year did Google’s revenues shift ever so slightly from advertising to some hardware sales. Last year Google raked in $31 billion in earnings by selling ads. Compare that to the revenues of two of the largest traditional ad companies that just merged, Omnicom, which took in $14 billion last year, and Publicis which claimed $8.8 billion.

So why do we call Google a technology company if it’s main business is really selling ads? It has everything to do with how Google steers customers toward purchases. The story of Google’s founding is well known by now. Two Stanford grad students were playfully seeking a better way to search the Internet. In a fit of genius (and with generous federal research funding and the support of colleagues) they wrote an algorithm that made ranking web sites easy and useful. “Don’t be evil,” they said.

GooglePatent2

A component of Google’s secret sauce for page ranking.

Then in a flurry of activity which has never stopped, Google’s code writers proceeded to file 228 distinct patents based directly on the original “method for node ranking in a linked database” invention. On top of this the company filed another 3,079 patents, the majority of which are intended to monopolize infinitely more clever means of gathering and processing the personal and social information of web users so as to sell ads at higher and higher rates.

A random sampling of patent titles for which Google has applied or owns the rights gives some idea of what the company has been up to: “System and method of displaying ads based on location,” and “Identifying and/or blocking ads such as document-specific competitive ads.”

In spite of the geeky and clunky language of patent titles like these, the intent behind the code is clear. Track the geographic location of a cell phone’s owner and sell them ads for shops and restaurants nearby. Block competitor’s advertisements and promote those who pay you top dollar. And of course there are many Google patented codes that give the company its creepy powers that Gmail users are familiar with, like “Serving content-targeted ADS in e-mail, such as e-mail newsletters.” Through the various algorithms that now power the main portals of the Internet, neologisms like “google it” by definition mean; provide the world’s largest ad company with a data input so that it can suggest consumer choices for you.

So why do we call Google a “tech” company if most of what it does is advertising? That question is probably best directed at the whole tech industry today. Much of the revenues being raked in by corporations public and private, like Facebook and Twitter, are directly tied to advertising. Many of the most confidential trade secrets and the most valuable patents of Silicon Valley’s biggest corporations and fastest growing startups involve data collection and processing for the express purpose of advertising. Perhaps then Silicon Valley’s finest should be called the new ad industry?

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2 comments
  1. Franlin Graham said:

    Very interesting. What would (can) happen if we simply begin to avoid buying anything that is promoted by an ad on google? The web was supposed to free us of constraints in gaining access to knowledge and information. Instead, it is morphing into a creator of material wants, not needs. Unintended consequences are becoming the norm, not the outliers of our life.

  2. yocandra42 said:

    Hi Darwin,

    I agree with your well documented view of google as an ad agency, basically. However, with the threat of internet restriction, which could certainly throw a blanket on google’s ability to sell ads and have them seen by as many people as possible, it makes for a strange bedfellow right now. Google is opposed to internet restrictions; they’re just not very loud and certainly lack awareness about grass roots movements and how to grow one. ( https://www.google.com/takeaction/ )They’re an ad agency, afterall. I wrote about this threatening dark cloud over internet access that is being pushed by Verizon in front of the District of Columbia’s Appeals Court, unfortunately a conservative court, here in dailykos:

    http://www.dailykos.com/story/2013/09/12/1238310/-Verizon-and-Appeals-Court-wants-to-restrict-Internet-Usage

    Certainly a site such as yours, and thousands of other blogs and web sites, has a stake, if internet usage becomes a paid for tier process, limiting access for those who can’t afford the price. There is a very real possibility that this will happen, and you will see a decline of internet usage, access and content if this becomes reality. How much decline is anybody’s guess. You might also see a rise in pirate internet usage, like that in Greece, where folks connect to each other, creating their own network and tools for use, flying below the radar of the NSA and other spy outfits.

    We may be about to embark in a strange new world if the FCC loses in the Appeals court ruling. I’m hoping access continues to be wide open. The idea of restrictions on internet usage and content is of course, directly oppositional to freedom of speech and a free and independent press. I hope you’re with me on this.– elizabeth

    Date: Sun, 15 Sep 2013 00:37:40 +0000 To: yocandra42@hotmail.com

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