6th January 2021
Breaking up Alibaba; Digital advertising is a fraud-fest
Welcome to Just Two Things, which I plan to write daily, five days a week, if I can manage it. Some links may also appear on my blog from time to time. Replies or comments will come to me by email.
#1: Breaking up Alibaba
Over the Christmas period the Chinese authorities announced an anti-trust investigation into Alibaba, the vast Chinese tech company built up by Jack Ma. Maybe it’s not a surprise—one of the things that has become clear during the last year, and not just in China, is that the large tech companies have too much power. The EU is using competition law to limit their excesses; in the US even Republican lawmakers are hostile. And this final stage in the Perez tech cycle is when lawmakers and regulators catch up and impose limits to the externalities from the tech surge.
Jane Li at Quartz has a good article on the background to the China’s decision: here’s a couple of extracts:
The concerted actions aimed at the Alibaba lAnt] empire are a fresh reminder of the Communist Party’s shifting priorities amid a slowing Chinese economy and a more complicated international environment, with rising scrutiny of Chinese tech firms from the US to Europe and India. It’s clear that Beijing’s enhanced focus on preventing systematic financial risks and curtailing the country’s rising debt levels, concerns that had already derailed some other flamboyant and powerful tycoons, now also extends to its tech champions.
The point about systemic risk seems to have been influential:
For regulators, the risks mainly lie within Ant’s credit business, the company’s largest source of revenue. The draft rules for online lenders issued two days before the abolished flotation require lenders to provide at least 30% of the loans they facilitate. As Ant passes the vast majority of the loans onto partners, normally banks, and keeps just 2% on its own balance sheet, complying with the rule would require a large increase in capital, hurting its profitability…
“Is Ant passing on too much risk to banks? Yes. Should there be oversight? Yes,” said Tan, of Merics. “That said though, could the regulators have handled the situation better? Yes as well.”
Worth noting that some of the commentary has also observed the role of big tech in increasing inequality in China, as it has elsewhere.
#2: Digital advertising is riddled with fraud
There’s now endless evidence that a lot of ad clicks are coming from bots, and when you stop the bots turning up on your site, you still sell the same amount of stuff. Forbes’ columnist Augustine Fou had a piece about this earlier this week. It ended up being a fairly measured plea for better digital marketing, but kicked off with some startling data:
When P&G turned off $200 million of their digital ad spending, they saw NO CHANGE in business outcomes [1]. When Chase reduced their programmatic reach from 400,000 sites showing its ads to 5,000 sites (a 99% decrease), they saw NO CHANGE in business outcomes [2]. When Uber turned off $120 million of their digital ad spending meant to drive more app installs, they saw NO CHANGE in the rate of app installs [3].
But Cory Doctorow’s daily blog has a version of the same story—‘Ad-tech is a bezzle’—which is a much better read, and maybe more illuminating as well:
The ad-tech fraud is many-layered. On the surface, there's the counting frauds: fake clicks, fake sites, fake videos, etc. But there's a deeper fraud, a theory fraud, the fraud that with enough surveillance data and machine learning, ad-tech can sell anyone anything.
That is: even if we count accurately, ads are still overvalued and underperforming. This is also a lesson whose examples are coming with increasing tempo, as when Ebay simply stopped buying Google search ads and saw no decrease in sales.
Worth reading to the end of it for the story about Uber.