If you’ve watched a lot of Hollywood westerns, you’ve probably seen a company town. It could be a town built by a mining company next to its mine: the company owns the land, the houses, the general store, the school, the saloon, the church. The company pays the miners to work the mine, but the miners pay the company to live in the town. Sometimes the miners get payed in “scrip,” which can only be spent in the town. This could be a benevolent arrangement, but the company has the power to take all of the profits if it wants to, and, at least in the movies, often did.
Company towns on the Internet
Nowadays we have virtual company towns, on the Internet. (The Internet has everything.) The most well known is Apple’s iOS App Store. Apple is the company and the workers are the developers who write apps for the store. In order to write the apps, developers must buy computers from Apple and use Apple’s development tools. In order to put the apps in the App Store, developers must pay Apple for an account and submit their programs to Apple for approval. Apple discourages or prevents developers from making apps that compete with their own apps, and can pull an app from the App Store at any time. Apple takes a cut of 30% from all App Store sales and subscriptions. (30% is outrageous—even those villains, banks, only charge 2-4% for credit card transactions!) Apple does not allow developers to distribute iOS applications any other way. Apple has made billions of dollars from the App Store, but ordinary developers struggle to make a living.
How Internet advertising is a company town
Surprisingly, the App Store is not the worst company town on the Internet. That distinction goes to the Internet advertising industry. Here the “company” is an advertising network and the “workers” are publishers who show ads, provided by the ad network, to their readers. Everyone knows that publishers are struggling; newspapers are on a decades-long decline, for example. One of the reasons is that their current arrangement with advertisers is a company town. The big tipoff is that publishers are only getting, at most, 30% of advertising dollars. In other words, the cut taken by the ad networks is 70% or more! This is much, much worse than the App Store.
Currently, publishers are relying on Facebook and Google to get readers. Often they rely on them to supply ads. With Google’s AMP and Facebook’s Instant Articles, they are also using them for distribution. They don’t know how ads are chosen and they may not know how much advertisers are paying; they don’t know the cut! Anil Dash has memorably called this a “Fake Market.”
Publishers are not only unaware of how much advertisers are paying, they don’t know how much value they themselves are providing to the ad networks, and they don’t get a share of this value. They aren’t just supplying page views; they are supplying intelligence on their readers. They are allowing ad networks to track their readers from site to site, so that the ad network knows that their reader also is interested in articles on other sites. That is, they allow third-party tracking.
This is valuable information: it tells ad networks what page clicks are worth, not only at a publisher’s site, but at other sites. Furthermore, publishers don’t get to see this information, and it is used against them, because advertisers and ad networks can use it to target their readers when they are reading other, cheaper sites.
What should publishers do
I don’t know how to fix everything for publishers. They’ve lost their monopoly on distribution and monopolies are hard to replace. But they can take immediate steps to improve the company town they are living in.
To start with, they should stop enabling cross-site tracking. There are lots of technologies for tracking but many are under the control of publishers. Publishers should stop using ad network analytics, ad network fonts, ad network CDNs and “like” buttons. They should disable referrers. They should renegotiate their contracts to rule out tracking via ad network scripts. They should use encryption (HTTPS instead of HTTP) to prevent tracking middlemen from inserting tracking code into their content before it gets to readers.
Ultimately, publishers need to move out of the company town. They need alternate sources of revenue, or alternative ad networks that they run themselves or which are run by people committed to transparency.
Closing your eyes is not an effective strategy .