Odd Lots - Mark Bergen on Apple's Threat to the Online Ad Industry

Episode Date: November 3, 2022

After years of basically printing money, the big online Internet behemoths are starting to stumble for various reasons. There's the macro slowdowns. New competition. And just basic threats to the way they do business. One major change has come from Apple, which has used its device dominance to curtail how apps can collect information on users, making targeting harder than it used to be. On this episode we speak to Bloomberg reporter Mark Bergen, the author of Like, Comment, Subscribe: Inside YouTube's Chaotic Rise to World Domination, about the difficult challenges facing the industry. See omnystudio.com/listener for privacy information.

I'm June Grasso, inviting you to join me for the Bloomberg Law podcast. Every weekday, we help you make sense of the legal stories that shape the nation and the world. Listen for complete analysis of the biggest court cases, the latest actions from Congress and regulators, and the legal moves driving the markets, from corporate law to constitutional law, and from state courts to the Supreme Court. At Bloomberg Law, we go beyond the day's headlines. We speak with top attorneys, judges, scholars and policy experts to break down what the rulings really mean. We do this every weekday,

then bring you the best conversations in our daily podcast. Search for Bloomberg Law on YouTube, Apple, Spotify, or anywhere else you listen. On the East Coast, listen as you start your day, and on the West Coast, catch up in the evening. That's the Bloomberg Law podcast with me, June Grosso. Subscribe today wherever you get your podcast. Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Wisenthall. And I'm Tracy Allaway. Tracy, remember in like the 2000s or like the financial crisis and everyone's?

I can barely remember last year, but go on. And everyone said, oh, it's such a tragedy. People could have been curing cancer, but then they were spending their time coming up with like more and more complex derivatives. And then I feel like for the 2010s, that morphed to all the smart people could have been curing cancer. but they spent their time getting more ads onto like tiny phone screens and stuff like that. This is the whole like software sucking up the entire economy idea.

But yes, I do remember that criticism. There was a lot of thought that went into how to best advertise on the internet. And in fact, I think we had an episode at one point about how the internet was actually powered purely by ads, right? No, I mean, it more or less seems to be. I mean, I guess people do pay for something. But it also feels like that era, both sort of from a macro standpoint and maybe a micro standpoint, is coming to a close again, again, another decade pivot because we have seen a lot of these internet mega companies like meaningfully start to slow growth.

The business models aren't firing on all cylinders as they want to are. And then just sort of like tech in general from macro reasons seems to be, it had better days. Right. Interest rates are going up. And so a lot of the valuations of big tech companies are coming down. But also to the business model point, I think this is interesting. Because initially, you know, we talk about very smart people going to tech firms and venture capital and spending a lot of mental energy there trying to figure out the business model.

But to some extent, it feels like the easy gains are kind of behind us, right? It was you create a product. You get everyone on your particular platform or using your product or whatever. and then you make a bunch of money. And now it feels like things are changing. Absolutely. I mean, look at a company like Facebook, for example, is just this, you know, they're really having to work for it.

Like their model is stressed right now, and there is the rise of TikTok and so forth. Every one of these companies, it feels like to some extent, after creating a decade of like the best money vacuuming up machines that were ever created are now like, They kind of have to really work for it now. Yeah, and come up with, let's say, more creative strategies.

And one of the things we've seen recently is something from Apple. Right. And so one of the stories is that Apple has this incredible position in the ecosystem because so many people own an iPhone and they pull out the first thing they interact with is the iPhone to get to the internet. And they have a lot of power over these other companies in terms of, you know, what shows up on that iPhone and how. Right.

And again, they're having to be more creative and making. money off of those products, right? The iPhone is getting more technologically advanced. You don't have to necessarily buy one every year. People are holding onto them for longer. So how do you rest more money out of that particular customer base? Such a tragedy. Companies are having trouble resting more money out of their customer base. What a terrible situation. Anyway, without further ado, I want to talk more about online advertising this world, the challenges all these companies are facing, we're going to be speaking with our colleague, Mark Bergen. He's a reporter here at Bloomberg, and he is the author of a recently published book, Like, Comment, Subscribe

Inside YouTube's Chaotic Rise to World Domination. So Mark, thank you so much for coming on Odd Lots and congratulations on the book. Oh, thanks so much. Thanks for having me. So first of all, why a book about YouTube now? Why do you do this project? Yeah, YouTube is this kind of a sleeping giant in social media. Someone described it as like this iceberg that no one ever really talks about as much for a variety of reasons. I see YouTube as both the past and now future of social media and it was the first company to pay online broadcasters and invented the creator economy. And now we're seeing with TikTok, Instagram, Snapchat, Twitch, you name it, are all moving in this direction. Social media is no longer your friends and family and your acquaintances. It is

influencers. It is celebrity. It is a game built around commerce. And this is a world that YouTube very much created. Should we be telling odd lots listeners to like comment and subscribe? Other podcasts do that. I mean, it's an effective call of action. All right, everyone, like, comment and subscribe on odd lots wherever you find it. Okay. But you, well, we were talking in the intro about this idea that the sort of like easy gains are over for social media. And it is true. We've seen all these new issues also come up like antitrust when it comes to Facebook and Google, content regulation when it comes to YouTube, who should be the arbiters of what's true and what isn't. Are the easy days over for social media? I think, I mean, YouTube's business has grown tremendously.

And part of it was because they really didn't kind of lock into their commercial success until 2014, 2015. So the only data we have available is beginning in 2017 for their ads business. But 2017, it was around $8 billion. Last year, it was close to $29 billion. Wow. Pretty phenomenal growth. They just took off the pandemic when the viewership numbers and were all stuck at home watching there were studios, holiday studios were shut down.

Like YouTube became the default media aesthetic. And a lot of kids, a lot of yoga videos, just hours have just exploded. But the business has been crippled. I think you could make the argument more. by Apple's changes than by any regulation thus far. All right. Let's jump right into it. So Apple, they say, oh, we're the defenders of privacy.

And now I always get these alerts on my phone. It's like, do you still want to be broadcasting information to that app? It looks like maybe you haven't rethought this or something, which I imagine is not great for those apps when I click no. Yeah, I mean, there were people in Google and Facebook, less so at Google, but they will gripe privately. Facebook started to do it publicly. like Apple is now building out a search advertising business. They're starting to hire more people. Like they have, this is a really savvy move.

They've marketed themselves as the privacy first company. They have restricted online cookies on iPhones and like kneecapped a lot of potential digital rivals. I think the one way to look at it is, you know, this is, they are making the, they are driving this force movement towards less behavioral and targeted advertising, the sort of foundation for the internet economy. the last two decades. The cynical view is that they have found a pretty effective way to build out a competing business to Google without the world really knowing it. Well, okay, so first of all,

if you talk to Apple about this, they will say it's about privacy concerns. If you talk to their competitors like YouTube or Facebook, they will probably say this is a revenue grab. How are you thinking about it? And what are the sort of like clues or evidence on either side? Yeah, I think Google's a really interesting test case. It has this friend of me relationship with Apple. They are competitors, certainly in obviously in smartphone markets. Google's kind of gone after them a lot around an iPhone. But in their prime, Google's primary business of search advertising, like Apple is an extraordinarily convenient partner because for a long time Apple, Google has been the default search engine for Apple. And now that it's the subject of a

Department of Justice antitrust case, I think this is the chief reason why Facebook, Meta has been griping very publicly about what Apple's been doing, and you haven't heard a peep from Google. And in part because their search business is less affected. Like search business, search ads in general are less reliant on the kind of third party cookies. YouTube, however, is heavily reliant on the fact that they want to, like they can serve much better

and higher priced ads if they know all the videos that you've watched, all the other websites you've visited, you know, all the sort of granularity that this entire complex machinery of online advertising is, build upon. So can we actually take a step back? And can you maybe explain exactly how the market operated before Apple's Big Switch? Because this is not something that I am entirely familiar with, other than, as Joe mentioned, you know, suddenly you get all these notices on your phone saying, do you want to opt into data tracking? Yeah. I mean, it is, I think, remarkably similar to sort of

financial markets in its like complexity and opacity. Like there are, it's like two-sided markets right there, the buy side and a sell side where you have, you know, publishers that are out there, like have a lot of online real estate. And that's everything from Bloomberg.com and the New York Times to like you very popular mobile apps that that and Snapchat, Twitter, right? Like Twitter has real estate and then there are a bunch of marketers that want to get in front of consumers. Google has the machinery on both sides. Like they own both sides of the market. And Google is the world's biggest digital advertising company. They have, they have been for decades now, the sort of primary way that online publishers have monetized is

with Google AdSense. That basically AdSense is the same exact model on YouTube, just taken over to video. So it is the world's biggest online video advertising service by far. And effectively, it's a very easy and increasingly automated system where if I'm a marketer, I'm P&G, P&G spends millions of dollars and billions of dollars in marketing. I'm going to go to Google and I'm going to kind of give them a chunk of money effectively. It goes through a bunch of ad agencies and then Google is going to allocate that based on, oh, we're going to give this to search in front of people whenever they type a keyword.

We're going to put this on display to put on the Bloomberg.coms of the world and we're going to allocate this to video knowing that we can actually reach in this very hyper-targeted way the consumers we want to reach. Are there speculators who might be the equivalent of a hedge fund or a trading desk who will buy ad inventory just on the assumption that they can flip it and sell it for more than what that person was selling from? I haven't heard of that one. There's certainly like all sorts of middlemen in the industry. And, you know, there were tie in the era. I'm sure this still happens. But I used to go to all these advertising conferences and, you know, all sorts of ad tech companies that, you know, they asked them what they do. It's just, you don't really understand where they sit in the stack, right? There's just like all sorts of complexities and, and they're programmatic advertising companies that just do one thing on mobile. And there was Bluetooth advertising was a big hot thing where you could actually like serve an ad to a consumer right when they're in front of the Colgate at the aisle.

Like this was, I mean, this was, we're moving towards this world. And certainly before Apple stepped in of, of incredible, like, their geofencing be able to like get your cellular data and know, your exact location and push alerts. And I mean, this is why it's under so much privacy and antitrust scrutiny is because it became quickly invasive and incredibly unregulated. Hi, I'm PJ Vote. My podcast search engine has a new two-part series for you. Of all the new technologies coming out of AI, the most transformative one might be driverless

cars. They're already on the road in 10 American cities and they're quickly coming to more. We tell the story of how we got here. The secret team at Google that spent 15 years building what might be the same. safest vehicle on the road, and we cover the fights brewing in blue cities where unions and politicians are working to keep those cars off the streets. Listen to search engine wherever you get your podcasts. So can you talk to us maybe about like how important data targeting or targeting of an audience actually is? Because I think we hear these things like, oh,

it makes it harder for advertisers if they're not able to track your data. Why is that so important? And like, can you maybe give us some numbers around how valuable a targeted ad is versus an untargeted one? I don't even know if untargeted ads exist on the internet. Oh, yeah. Well, and just on to sort of add on to Tracy's question, like let's say I go to golf.com. Yeah. Okay. The ads that I get, like how much is it, oh, he's on golf.com.

He probably wants to read about golf as opposed to ads that I get that maybe, you know, the last 10 sites I went to is like pets.com or something. And so my, like, how valuable is it for golf.com to be able to know that I also like pets? I mean, there's all sorts of open and may unsolved questions about the value and X, like, precision of online advertising. And the classic example is like you go and you buy a pair of sneakers and then all you see are ads for the same exact sneakers, like just following you around the internet, right? I just bought these. Why do you like the world's biggest tech companies that supposedly know a lot about you, like

can't solve that. You bought one pair of sneakers. You must want more. You might want another one, right? I do, but I definitely don't need a second stove. Yeah. I mean, I think that to a certain extent, the, like the, you know, YouTube is a really interesting example in part.

Like, they have, they built this very, a fantastic targeting model where they can, like, show and add to a viewer. You mentioned, like, if you watch a lot of golf channels, right? Like, if you're, if you're an advertiser, you are going to probably want to get in front of that. You know, if you're selling golf gear clubs. You want to get in front of that person that's watching a lot of the YouTube videos. They have this feature, I'm sure, the skippable ad format, which is a major part of their success. It was because if the consumer is actually watching this because they didn't click the skip button, that's worth a lot more money.

And if Nike runs an ad that didn't skip, Adidas is going to want to pay more in this automated bidding system. And this is like Google Search kind of works really well with scarcity too, where it's like they can drive up the cost per mill or cost per click pretty high in these. in these scarce markets. Well, let's go back then to the Apple situation directly. Prior to this policy change, what was an iPhone user giving to various apps when they use them? And when did the policy change and what are they getting now from those users? Yeah.

I mean, some of it is really hard to trace. But if I was an iPhone user and I'm using maybe like a Chrome or even Safari, you're getting a lot of background data. Netflix, there's a lot of ad companies you probably never heard of who are like serving a cookie on you on your your mobile browsing. Some of it there are there are companies that have like invented ways to do deep linking between when you bounce from an app to the web, right? This is this has always been Google's fear of Apple in some ways is that Apple is only if you're only experience on an iPhone is just moving from app to app right like that is you're you're no longer going through the

turnstile of the internet which is Google. Google. So certainly amount of data about the websites you visited, how long you link, like what you click on, all those sort of signals. It's my understanding is like with now that they've kind of fully eliminated third party cookies and Google is, has said they're doing the same for Chrome, which is they own the Chrome browser. It is actually this Google has pushed that timeline back several years. I think now it's they say 2024. And so the idea, like basically like these third party sites that do the tracking will not, you effectively will not be able to know your internet history of like what, you know, if you visit golf.com and then you go to ESPN. ESPN doesn't know that you visit at golf.com, right? ESPN might just sees you as a sports fan. They don't see you as like a golf fanatic.

What scope do companies have to sort of bypass Apple's restrictions on this? Like is there a lot of leeway to still somehow track people, even if they've opted out. This is, I'm not an expert, but Google and Facebook have both sort of invented these machine learning models that can like walk in backwards, right? Kind of like build proxies of your activity. They're really exactly. They both have different like jargony names for the for the services, but effectively that's it.

Like, oh, we're going to, we're going to put you in a group of people. I'm going to keep going back to this golf example. We're going to put you in a group of, and we don't know that you, Joe, are. are actually visiting this, but we know that there's enough like golf fans doing this activity or using this app. And so we can approximate. I mean, the real issue here is that there's Google and Facebook are, you know, have been a duopoly in this world for a very long time.

That is the third, the actual challenger now is Amazon, right? Like certainly not a small company. Like Amazon's ads business has grown tremendously in the past few years. And they're less threatened by this because they also, it's all in-house, right? Amazon's business is based on like the activity on Amazon properties. So that's one way that companies have got around it. The big push also that all the platforms you see all much of ad tech companies have pivoted towards commerce, e-commerce, especially during the pandemic.

For what it's worth and for listeners, I don't even golf and I don't have a pet. So I don't know why I use those examples. No, I just needed to get that out there. The ads that I've been getting on Instagram lately have been absolute garbage. The worst target in, it's just unbelievable. Is that true? Okay, because the ads that I've been getting on Instagram, because I experimented with this because I got really interested.

I was like, where are they getting this info from? It seems to be coming in through Google. It's like if you do a Google search, it shows up on Instagram. There's the one that they always have to debunk, which is like if you're talking, the microphone thing. I tried that too. Yeah. My husband and I did baby carriages.

We're not having a baby, but just as an experiment to see like what would show up. Nothing if you talk about them in front of Alexa, but if you Google search for it, they show up. up on Instagram. I mean, Google has, we're, Google for a long time, we kept, tried to keep, they had like a state, an intrusion state separation from like search and the rest of the display internet. That started changing in 2015. And in part that was just about a financial concern.

Like they wanted to give more data to the ad tech industry. It was just a bigger growth. But for a long time, at least they said, and people I've talked to the early days, like, have this almost a religious belief that like your searches, I mean, you know, Google has our most intimate data, right? Like the things we're searching for. We tell Google things that we wouldn't tell our spouses kind of, right? And so like that search data is incredibly valuable to a marketer if they're, you know, trying to selling pharmaceuticals or lawyers, right? Like those kind of, those are the industries that typically have incredibly high search ads because there are people

that are really in demand for a particular thing. Instagram is, I mean, Facebook has, you know, it's so funny people talk about how crappy the ad qualities are. And yet, like there as business certainly has been suffering because of Apple's changes, but it's still that, right, but like the one of the two kings of the industry. Well, then talk about what we've seen specifically. So when you say, okay, because this is the core of the whole thing. When we talk about their businesses has started to suffer because of the policy changes that Apple has made, what are we seeing concretely in terms of how it's spilling over? Yeah, I mean, the dollars, I think some of this was,

you know, the other factor, there are like macroeconomic factors and for marketing. Right. There's the war in Ukraine and then there's just the pandemic in general. But, but in part, you know, if you're an advertiser and your choices are between, say, like, television or billboard ad and Facebook, the argument for online has always been like, you know, there's a joke about TV. Like, I don't, you put your ad up there and you have no idea who's watching necessarily. And that's just sort of like brand advertising, right?

And in the industry, there's brand and there's direct response. and the direct response are ads are the one where you want people to make an immediate action. Like you want them to install an app, buy a thing. So this is, you know, Apple's changes have made it much more difficult to do that. And so they're getting, you know, there have to be more reliant on brand advertising, that sort of contextual, just old-batching. But just to be clear, do we know, like, have they put a dollar amount? Or did they say, you know what this is what would be like?

Facebook put a amount on there, actually, and I don't have it off the top of my head. I mean, their market cap has taken a huge it. And some of it is regulation, but have they really been regulated? Yeah, like it's just, there's kind of just the specter of regulation. It's not like Congress hasn't gone after. The only real big tech regulation I talk about in the book is the FTC went after YouTube for illegally targeting kids with collecting data on children under 13. And that's another area where like there's this whole online academy that's been unregulated. and you know, you're not allowed to collect data on children under 13.

And yet a lot of companies have done that. I mean, we don't know the numbers for YouTube in part because they don't share their financial data. But what was what was meta's mark, drop, valuation drop in the past? I don't know. A lot. A lot. Definitely. I'll just say this.

I'm not, let's see, actually. The stock went from around 360 to 160. And the market cap at the peak of 2021 was about 1.06 trillion and now it's 4203. I mean, Facebook is cheap. So then, okay, of that roughly half a trillion dollar market cap, has anyone made an attempt to say, how much can we ascribe this to Apple and that change in the online network? Facebook's business is primarily mobile advertising. And iPhones, and there was a new stat, I think recently that they're now that they've just

leap product Android in the U.S. is the most popular system. Apple has historically been the Apple phones. just make a lot more money per user than Android phones do. And so we can assume that Facebook makes a lot more money on iPhones than on Android. And so that is a bulk of their business. And I think it's, we can say, like a significant impact. So you mentioned antitrust a number of times and also the sensitivity of like Google complaining about what Apple is doing, given that they have a slightly different relationship

with Apple than something like meta. And also given that they're under antitrust scrutiny themselves. What are the chances that we do get some sort of antitrust action when it comes to Apple and their transparency push? Because it seems a little difficult. It's like on the one hand, well, you know, you own the product, you're making it a walled garden, you're cutting people off from it. But on the other hand, you say you're doing it for privacy reasons, right? That should sound good to regulators. They've had more, Apple certainly had more pressure around the app store and the accusation that they're running in like an app store monopoly or, and that, you know, if you own an iPhone, you'd be you're basically.

So like Apple is the gatekeeper. And I think it's digital advertising, there's certainly companies in the advertising space to complain about that. Like Apple's one movement from Cooper Tino has single hand, and it has huge ripple effects for this multi-billion dollar digital advertising world. I think that as far as I understand, Apple has faced some in Congress and the epic lawsuit, the creators of Fortnite has sued Apple, also sued Google, but they've really gone after Apple.

about this is about in-store app fees for Fortnite games. I think that like for Google's case, the most likely outcome for many antitrust might be to kneecap some of their ad tech and like the way their digital advertising works. The news doesn't stop on the weekends. Context changes constantly. And now Bloomberg is the place to stay on top of it all. Hi, I'm David Gurra.

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So what about for small businesses? I mean, this is the argument in favor of like hyper-targeted advertising that it's like, I can get, it's like, are you looking for a new dentist in the East Village? teeth whitening or something like that. It could be like hyper-tarism. Oh, my God, how do they know? I need that teeth white. I'm doing video for odd lots now.

I'm doing, I need teeth whitening. You hear about these complaints, but sometimes you can't tell if it's like AstroTurf, like some group that Facebook may have like encouraged, like, how real is this for the companies that were able to like find a model because they're really good at like, you know, finding their exact potential customers. Yeah. I'm Facebook. Part of the success of Facebook and Google has been the long tail of like the mom and pop

advertisers. Facebook has leaned into this a lot as a response to Google as well. They're going to Amy Klobuchar's office in Congress and saying like, why are you trying to hurt small businesses, right? And like that might be a compelling argument. Certainly it has political. Because like for a P&G, like everyone is going to buy laundry detergent or something, right? And so for them, I don't know if they need as hyper-targeting as like the

Yeah, I mean, like P&G level, they basically operate us like a big, and they have all these ad agencies that effectively operate as consultancies. And like they are looking at spread. Like they're running ads with spreadsheets and algorithms and like moving the numbers around. And so yes, I think that is somewhat compelling the fact that they are in probably going to continue to. Like they know the argument that Facebook and Google will make, despite these changes around we lose some of our targeting and richness. The audience is still here. Like relative, this has been like YouTube's argument for, for.

over a decade now is like compared to television there are so many more people and so many more hours spent on YouTube and that the amount of money the marketing dollars spent on television is not proportionate like you need if you're like want to if you want a challenge and there have been some challenger brands in CPG right like the challenge the real smart challenger brands will like be where the kids are and we're being like get in front of the audience on digital and do like sponsored content deals and and like can lean into digital advertising. That's effectively works, right? Like, these companies have grown because that argument has worked and money is moving over from TV to the internet. What exactly is Apple search and

advertising business? Like, there's an Apple search engine, right? Like, what exactly are we talking about when we say Apple's really like, yeah, I mean, there is, there's Siri, which is an Apple search engine in some ways, right? There's the app store, which I think is that's where the expect, like, if you look at the tea leaves on where they're hiring and putting resources, it is to run effectively like a search advertising business in the app store. Yeah, like you want to promote, I don't know, like you're searching for like Uber and Lyft's like, I want to like spend money to be up the top result when you search for Uber and then people are going to click on Lyft.

So what's the sort of like game plan from the Facebooks of the world or the YouTube's of the world? Like, what can they do to actually try to offset this? And I guess a very extreme example, but, you know, could, I don't know, could Facebook, like, launch its own phone or something? Like, if the idea is to get as close to a customer as possible. Yes. Well, this, I mean, Google has. Right.

Like, I'm, I got a pixel, Google Pixel in front of me, in part because of a company I cover. And Google Pixel was a response because, like, they, you know, Google has Android, the open source software model. They give away their software for free to Samsung. and like a galaxy of pun intended, a galaxy of a handset makers. And that they like for a long time like Google was like, okay, these will be rivals to Apple and it hasn't really happened. And Apple, like I said, has just premium.

Like people spend more money on iPhones. And then I think Google saw in part they're investing in Pixel because they saw this world. They're like, oh, our digital advertising model is not going to last for a long time. We need to own and operate the actual hardware. We've reported on this quite a bit. Facebook has tried several times. It looks like, I mean, their company is now pivoting towards, like, I think Mark Zuckerberg's bet is that we're going to stick a phone on our face. And he's going to own that, right?

And so that's their, they've renamed the company, meta, like Facebook's existential crisis has always been that Google and Apple own the operating systems where they make most of their money. And so the move in the metaverse is Facebook will have the. Why are we even recording this altogether in a studio? We could be like, legless avatars, yeah. Frightening thought. Google and YouTube, and the rest of social media is commerce, like pushing commerce pretty aggressively.

And this looks like, I think, more ways to purchase directly, buy something directly in Instagram, for instance, buy something directly in a YouTube video. Like, I think they're running into like the, the uncanny valley of how much do you want social media to look like the home shopping network. But YouTube and part of the reason I wrote this book is really fascinating. Like they built up the millions. There are about two million over two million creators that make money on YouTube.

That number is actually down from when the company had to make it a little bit harder. But that's a lot of that's just that's a whole economy. So many of them are now comfortable because the because of it's been harder and like increasing the harder to make money and then to make now with Apple's changes higher ad rates online. So they're moving towards and you can if you watch enough YouTube, you'll like a lot of them have sponsored content deals, right? Or they're just like trying to sell their merch and their merchandise to like tabs and they're looking in the channel. I think they're experimenting. TikTok is also moving in commerce. Like that is a direct response to Apple and to privacy

regulation cutting out, carving out the like the profitability of online ads. So, you know, just last good picture, does it feel like this is the end of, you know, Tracy mentioned, like if I don't remember when we did it, three or four years ago, someone came on and talked to us about the extent to which the entire internet is all ads. And does it feel like the, does this feel like a turning point? Because then, and I don't want to even like talk about, I don't even want to say the word, but like, web three and this like idea. There's going to be like something else that's like we have to like buy coins. I'm actually surprised we made it like 30 minutes.

I know we did. Yeah, we did. No ads. We just like buy coins for Mark Andreessen in order to use the internet. Like is that like is that is this a turning point? The possibility of Web 3 nowwithstanding like the criticism of the indrescence of the world is like look at this economy we built around online advertising is not the world we want. And like I'll share an anecdote from the book, which is, you know, YouTube started like a decade

ago YouTube was not making money. It was unprofitable. And they were trying to, after the financial crisis, they're like, okay, we need to make money from this thing. And there was an ads manager who gave a presentation on stage about how they were going to do it. And Sergey Bren, who this is not confirmed, but Sergey Brin, in my reporting, Sergey Bren, who's a founder of Google worth, how much is Sergey Worth? One of the world's wealthiest men, largely based on a search advertising business, made a joke about how, you know, how the YouTube ads were like, he interrupted the speech being like, ha ha, like YouTube ads are interruptive, disruptive, and we- 95.7 billion, by the way.

Yeah, like the founders of Google have never- You could just say 100 billion at that point. Never-to-keep it accurate here in Bloomberg. The founders have like notoriously never loved advertising as a business model. Like, it has clearly been successful for them. Like, they will make a discrep-like, a lot of them will be like, search ads, search ads, you're delivering a thing that you really want. And the rest of the ads is kind of icky.

And like, there's a sense, it's this weird irony in the fact that they're the biggest online advertising company and yet, a lot of people that work there, like, don't love this. It's kind of sleazy market. Like, people in marketing know this, right? I think they think of it as like old economy, right? Like ad sales. Absolutely true.

And so I, web, web three or whatever, like, I think that you can, the sort of case inside Silicon Valley is like, here's a chance for us to reinvent ourselves. And Google's history, like in the past decade, they've been just trying to find a business that's not reliant on ads. Cloud computing is the main one. you know YouTube has subscriptions there's YouTube TV there there's comedy like they've been always searching for ways to move past this in part for all the reasons we talked about and in part because they don't love it right and but at the same time like you know YouTube was once

competing with Netflix Amazon Prime Disney on original programming and subscriptions they mostly dropped out there like let these companies like bury themselves competing for subscribers, we're just going to continue to dominate a pretty good margin-heavy business, even after Apple changes. Like, on-in-dads can remains a pretty successful business in Google's testing for that. Mark Bergen, congrats on the book. And thank you so much for coming on the podcast. Thanks for having you.

So I thought that was really interesting, Joe. And the whole transparency push by Apple was not something that was really on my radar, other than I sort of like clocked it a little bit when I was using my phone. but I hadn't have thought of the impact on other businesses. I thought it was interesting what Mark was saying about this idea that for a lot of these big tech companies, like they want to get away from the business of ad sales. And it feels like that almost from inception. Like there's almost an aversion to anything to do with media from the tech companies,

even though ultimately they're in the business of selling media, right? Like no one actually wants to be a content producer. Right. At least YouTube does it. And when you, you know, this idea of actually having to go out and sell ads, like it does seem kind of old fashion. It does. And I remember thinking about that too because, right, when like Google came on the scene is like this sort of wow factor. It's like this magical money machine because you tell the computer what you're looking for. And then that's the most amazing form of ads. But then a few years later and they probably have like whole teams internally dedicated to like taking ad sales buyers from Procter and Gamble to the U.S. Open or like taking them out for wine and stuff. It's like, man, this is like this is kind of like old school. This doesn't seem very techy to me. Yeah. And I guess my other big takeaway from that conversation is we should be telling people to like, comment, and subscribe, right? We should definitely be telling people to like, comment, and subscribe. So please do that if you're listening.

You know, just one other thing, you know, it always seems, and Mark was talking about, like, the sort of incredible ecosystem of ad tech companies and how there's like nine middlemen, right? And I've always thought there's an interesting, and I asked that question about speculators. The interesting analogy between online ads and financial markets, whereas you might find an edge at some point, like, oh, this ad capacity space is really cheap here. Or I found a really cheap way to get in front of these high dollar clients. And then everyone discovers it. Right. Someone comes into like arbitrage up really quickly. So it's like, and then the search for the new one. And so you think, why has there this like endless parade of ad tech companies?

And it's like everyone like trying to find that art. But look, if data is going to be harder to come by, people are going to have to really put into more work. Yeah. And then the question is, what is the new edge? Because people got so into targeted advertising, like, what comes next? You know, we don't talk about like tech business a lot. Maybe we should talk about because these companies are obviously so important. And our entire lives.

For many, many years, we haven't really had to talk about tech business. Because the share prices just went up. They just went up. They just went up. But yeah, now I guess the question is the future is like to use the internet. We got to buy a coin from Andreessen Horowitz. All right. On that happy note, shall we leave it there?

Let's leave it there. Okay. This has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway. And I'm Joe Wisenthall. You can follow me on Twitter at The Stallwart. Follow our guest on Twitter, Mark Bergen.

He's at MH Bergen. And check out his new book. Like, comment, subscribe inside YouTube's chaotic rise to world domination. Follow our producer, Carmen Rodriguez, at Carmen Armin. and check out all of our podcasts at Bloomberg under the handle at Podcasts. Thanks for listening. I'm Francine Lacquah, an award-winning journalist, and I've got a new podcast, leaders with Francine Lacqua from Bloomberg Podcasts.

I've interviewed everyone from Heads of State to fashion icons about the news of the moment. But I've always been curious, who are these people as leaders? I don't think there's one right way to be a leader. Make decisions. A poor decision is always better than no decision. Listen to new episodes every other Monday. Follow Leaders with Francine Lacroix wherever you get your podcasts.