Wednesday, November 14, 2018

“Life After Google” (Introduction)

Life After Google
Life After Google
My blogger profile says that I work in “marketing automation”. As a young writer, with a then-young family, I gravitated toward advertising copywriting as a career, and later into other forms of marketing and marketing communications.

Marketing and advertising have been around for a long time, and the most successful marketers and advertisers have long used “data” of one form or another – information about you that they could use either to target you or to personalize their messaging to you or both. With TV and radio and even printed publications, the information was very generalized – marketers appealed to certain “demographics” rather than to individuals.

The founder of Macy’s, John Wanamaker (1838–1922), an early pioneer in marketing, is credited with saying, “Half the money I spend on advertising is wasted; the trouble is, I don’t know which half”. That was a big problem in the world of business where, it was known, “if you can measure it, you can manage it”. Advertising in print, radio, and TV, were expensive, but the results were largely unmeasurable and therefore the entire system seemed unmanageable.

That’s why ad pitches in the old days all seemed like crap shoots. Whoever had the best “idea”, and the loudest “pitch”, often won the business. The question of whether or not a particular campaign was successful could not be determined, especially with TV or radio advertising.

Addressing the concern of unmanageability, a specialized field, “direct marketing”, developed. It took marketing a bit further along the path of being able to measure success while adding personalization, using people’s names and addresses, as they were available through public and private sources. Direct marketers sought to measure the response rates from various marketing efforts; a very good direct mail campaign, in which a prospect would return a reply card or make a call to an 800 number, was about 2%.

But the half of advertising that did work back then was lucrative. The ad agency founder David Ogilvy, who worked in the 1950s and 1960s, included the nearby photo in his 1981 work “Ogilvy on Advertising” with the following caption: “If more copywriters were ambitious, they too would find fame and fortune. This is Touffou, the medieval castle where the author holes up when he is not visiting one of the Ogilvy & Mather offices.” Ogilvy purchased this castle – built in the 1100s – in 1966.

“Direct Response” in “the Cloud”

That was “then”. More recently, “marketing automation” is a field that has only come into being with the evolution of virtualization, or “cloud computing”, and its ability to aggregate A LOT of data about virtually everyone.

Around the year 2000, a few years after the Internet was first becoming populated, networking technologies were maturing. Larger organizations began using software that enabled computer hard drives to be networked together in such a way that large arrays of computer disks could function as a single computer.

It’s this model of computing, called “virtualization”, or “cloud computing”, that enables tech giants like Google, Facebook, and others to do what they do, which is, to aggregate a lot of data to sell to advertisers for their specific purposes.

Not satisfied to merely have a name, address, phone number, and maybe a product preference or two for you (as did the old-time direct marketers), more recent marketers of every type can now get their hands on all kinds of data on you … and they maintain huge databases that track the various pages you’ve visited, the amount of time you’ve spent on each page, the products you’ve looked at, the products you’ve purchased, the kinds of devices you now use to make purchases, and more. They use this information to create profiles of you, and they then use the profiles to put advertising (or emails or other types of messaging) in your face (practically) that they think you will respond to.

The founders of Google were among the first to recognize this, and advertising revenues were the driving force behind Google’s primary business model.

Advertising as a “System of the World”

I’ve provided this brief history of marketing and advertising, because Google, especially, has raised marketing and advertising beyond a mere discipline. They have enshrined it almost as a kind of capstone and pinnacle of what Gilder calls “a system of the world”.

Following up on my previous post about George Gilder, I'd like to spend some time looking at his work “Life After Google”.

The phrase “system of the world”, Gilder says, “denotes a set of ideas that pervade a society’s technology and institutions and inform its civilization”. The term was used in a 1992 Neal Stephenson novel, “The Baroque Cycle”, about Isaac Newton and Gottfried Leibniz, but it ultimately was derived from Newton himself.

In his eighteenth-century system of the world, Newton brought together two themes. Embodied in his calculus and physics, one Newtonian revelation rendered the physical world predictable and measurable. Another, less celebrated, was his key role in establishing a trustworthy gold standard, which made economic valuations as calculable and reliable as the physical dimensions of items in trade. (Kindle Locations 281-283).

This new “system of the world” was a stable monetary system that enabled England to “govern an empire larger and incomparably richer than Rome’s” (pg. 12).

With the pound note riveted to gold at a fixed price, traders gained assurance that the currency they received for their goods and services would always be worth its designated value. They could undertake long-term commitments—bonds, loans, investments, mortgages, insurance policies, contracts, ocean voyages, infrastructural projects, new technologies—without fearing that inflation fueled by counterfeit or fiat money would erode the value of future payments. For centuries, all countries on a gold standard could issue bonds bearing interest near 3 percent. Newton’s regime rendered money essentially as irreversible as gold, as irreversible as time itself. (Kindle Locations 302-307).

“Free” as a new “System of the World”

You may have noticed that everything Google offers is “free”.

Internet searches are free. Email is free. The vast resources of the data centers, costing Google an estimated thirty billion dollars to build, are provided essentially for free.

Free is not by accident. If your business plan is to have access to the data of the entire world, then free is an imperative. At least for your “products.”

For your advertisers, it’s another matter. What your advertisers are paying for is the enormous data and the insights gained by processing it, all of which is made possible by “free.”

So the cascades of “free” began: free maps of phenomenal coverage and resolution, making Google master of mobile and local services; free YouTube videos of luminous quality and stunning diversity that are becoming a preferred vessel for Internet music as well; free email of elegant simplicity, with uncanny spam filters, facile attachments, and hundreds of gigabytes of storage, with links to free calendars and contact lists; free Android apps, free games, and free search of consummate speed and effectiveness; free, free, free, free vacation slideshows, free naked ladies, free moral uplift (“Do no evil”), free classics of world literature, and then free answers, tailored to your every whim by Google Mind. (Kindle Locations 446-455).

This was Google’s business model from the beginning:

Brin and Page began with the idea of producing a search engine maintained by a nonprofit university, operated beyond the corruption of commerce. They explained their view of advertising in their 1998 paper introducing their search engine:

Currently the predominant business model for commercial search engines is advertising...

We expect that commercial search engines will be inherently biased towards the advertisers and away from the needs of the consumers... In general, it could be argued from the consumer point of view that the better the search engine is, the fewer advertisements will be needed for the consumer to find what they want. This of course erodes the advertising supported business model of the existing search engines...

[W]e believe the issue of advertising causes enough mixed incentives that it is crucial to have a competitive search engine that is transparent and in the academic realm.

Steven Levy’s definitive book on Google describes the situation as Google developed its ad strategy in 1999: “At the time the dominant forms of advertising on the web were intrusive, annoying and sometimes insulting. Most common was the banner ad, a distracting color rectangle that would often flash like a burlesque marquee. Other ads hijacked your screen.”

The genius of Google was to invent a search advertising model that avoids all the pitfalls it ascribes to existing practices and establishes a new economic model for its system of the world. Google understands that most advertising most of the time is value-subtracted. That is, to the viewers, ads are overwhelmingly minuses, or even mines. The digital world has accordingly responded with ad-blockers, ad-filters, mutes, Tivos, ad-voids, and other devices to help viewers escape the minuses, the covert exactions, that pay for their free content.

Google led the world in grasping that this model is not only unsustainable but also unnecessary. Brin and Page saw that the information conferred by the pattern of searches was precisely the information needed to determine what ads viewers were likely to welcome. From its search results, it could produce ads that the viewer wanted to see. Thus it transformed the ad business for good. (Kindle Locations 542-563).

So, Google’s business model was to systematically create ads based on individual user profiles, with the expectation that you, the consumer, would (in searching for a particular topic) would want to see text-based ads related to that topic.

It was a genius system to gain all that could be gained out of “advertising”. Google’s system enabled both the measurement and the management of the method of advertising. It has made Google now the second most valuable company in the world (behind Apple), in market capitalization.

A Model Maxed Out

Yet on the other hand, now, after about 20 years, we are finding that this system has maxed itself out. By all measurements that we have access to, advertising model is “decaying”:

Slowly but surely the advertising model is decaying. According to a 2014 study quoted by Needham & Company’s Laura Martin, over the past seventy years daily media usage has doubled from five hours to ten hours per person. Free porn is both a vessel and a symbol of the addictive properties of free stuff. Meanwhile, ads delivered per person have remained stable at around 350 per day. Ads viewed per hour of media use, including print media, have dropped by half. In a world of digital devices, people are learning to cancel, mute, or avoid advertisements that they do not want to see. As soon as the next generation of innovators creates a new payment and security model, this trend will accelerate….

Beyond the suppliers of ads that no one wishes to see, Google’s main role is intermediator. Although Google’s list of business principles leads off with “The customer comes first,” Google has few end customers at all. Beyond the coddled purchasers of its ads, Google’s customer base is tiny compared with Amazon’s, which unlike Google was never shy about collecting money. (Kindle Locations 655-666).

Believe it or not, you are not a Google “customer”. In the account above, you are the “consumer”. It’s a subtle but significant difference.

Those who pay the advertising fees are Google’s customers. And a whole industry has developed around the topic, essentially, of “how to be a good Google customer”.

There are millions of pages devoted to “search engine marketing” (“SEM”), all dedicated to helping marketers to understand how to purchase “keywords” and phrases in order to optimize advertising response and generate the best responses.

Separately, another whole industry, “search engine optimization” (“SEO” – devoted to producing “content” in such a way that it appears first in the Google search rankings, right below the ads, has also developed).

This process is exhausting itself.

The reason that Google has become the second largest company in the world, offering “free” things, is because it aggregates YOUR data and sells it to advertisers. The profits of Google are a testament to the amount of, and the quality of, data that it has on YOU.

However, this system is not working for advertisers; nor is it actually providing a service for you, the user of Google’s “free” services. It all comes at a price.

The Real Cost of “Free”

Apple’s CEO, Tim Cook, noted that “if the service is ‘free,’ you are not the customer but the product” Kindle Locations 534-535).

So what’s wrong with free? It is always a lie, because on this earth nothing, in the end, is free. You are exchanging incommensurable items. For glimpses of a short video that you may or may not want to see to the end, you agree to watch an ad long enough to click it closed. Instead of paying—and signaling—with the fungible precision of money, you pay in the slippery coin of information and distraction.

If you do not charge for your software services—if they are “open source”—you can avoid liability for buggy “betas”. You can happily escape the overreach of the patent bureau’s ridiculous seventeen-year protection for minor software advances or “business processes” like one-click shopping. But don’t pretend that you have customers.

Of all Google’s foundational principles, the zero price, is apparently its most benign. Yet it will prove to be not only its most pernicious principle but the fatal flaw that dooms Google itself. Google will likely be an important company ten years from now. Search is a valuable service, and search it will continue to provide. On search it may prosper, even at a price of zero. But Google’s insidious system of the world will be swept away. (Kindle Locations 455-464).

In short, Google has moved its transactions for “consumers” off the gold standard, and back to a barter system, where you exchange both information and time and attention (some of your most valuable – if not ultimately measurable commodities) – in exchange for revenues to accrue in Google’s coffers.

It has placed all of its wagers on the fact that its “aggregate-audiences-and-sell-advertising” model will continue to remain a lucrative business model.

But there are several reasons for Gilder’s assurance that Google’s system of the world will be soon pass away.

In the first place, ad-blocking technologies are on the rise, and that once healthy 2% (“.02”)response rate for a direct response mailing is nearing less than 0.03% (“.0003”) of intentional click-throughs for Google’s ads. Facebook, which relies on a similar business model, is also facing similar difficulties.

The technologies behind Google’s massive server farms are reaching their physical limits. That is, there is so much fiber-optic cable running between processors that the system is limited by the speed of light!

Google’s security model is merely an afterthought and is falling apart. Aside from that, we will soon see the arrival of popularly-adopted and tested blockchain technologies, which (as opposed to Google’s “silo” model of data) are highly distributed, highly secure, and enabling a new wave of entrepreneurial expansion.

For these and other reasons, Gilder believes that the empire that Google has created will stall, and other technologies will overshadow what Google does. Not that Google will ever go away. They will always be a viable company. But technologies progress in waves, and soon the Google wave will be crashing ashore.

I’ll talk more about these developments in subsequent blog posts, Lord willing.


  1. DuckDuckGo gives you searches and blocks ad tracking. Doesn't track you at all.

    1. Gilder recommends the new "Brave" browser. I plan to discuss that a bit. It's not just about "not tracking", but the new systems he envisions will actually pay you for your "attention". He gets into Blockchain technology as well (the kind of technology behind Bitcoin. But Blockchains have tremendous use in terms of contracts and exchanges and supply chains and things like that. The bottom line is that Google's technology is maxed out, and newer distributed architectures are coming that will ultimately revive entrepreneurial enterprises.