The FTC has been pounding the pavement this week, giving testimony, statements, and remarks to multiple types of audiences, including the U.S. Senate. More on these talks, as well as an update on a forthcoming event on protecting children from digital advertising, after the jump.
Maryland became the first U.S. state to create a digital advertising tax on February 12, 2021. The Digital Advertising Gross Revenue Tax (DAGRT) was originally passed in March of 2020, but subsequently vetoed by Maryland Governor, Larry Hogan. Maryland’s legislature voted to override the Governor’s veto, however. The contentious journey for DAGRT passage is likely to be overshadowed by a litigious future.
DAGRT (full text here) imposes a progressive tax on the sale of digital advertising services’ gross revenue within the state. DAGRT focuses on large providers of digital advertising services; entities with revenue exceeding $100 million. The rate of the tax imposed, based on global revenue, is 2.5% for annual global gross receipts of $100 million to $1 billion, 5% for gross receipts of $1 billion to $5 billion, 7.5% for gross receipts of $5 billion to $15 billion, and 10% for gross receipts exceeding $15 billion. The rate then applies to digital advertising services’ gross revenue in Maryland. However, DAGRT does require all entities with an annual gross revenue derived from digital advertising services within the state over $1 million to file a specialized tax return. DAGRT’s focus on large providers of digital advertising services might incentivize these providers to find avenues to avoid the tax by changing their digital advertising strategies. For example, more companies may offer advertisement-free subscription options. It’s also possible that the companies faced with paying the tax may simply pass the cost on to the smaller businesses purchasing the advertisements and to consumers.
Continue Reading Maryland’s Digital Advertising Tax: A Contentious Start, and an Uncertain Future
The news that Cambridge Analytica, the shadowy, digital political consultancy, may have misused user data obtained from Facebook is reverberating throughout Washington and foreign capitals. The immediate fallout has been calls for Congressional and federal investigations into what happened. The Federal Trade Commission has taken the unusual step of publicly announcing a “non-public” investigation into whether Facebook breached the terms of a 2011 consent agreement with the agency. A coalition of 37 State Attorneys General has also sent a letter to Facebook demanding information about how the company handles information collected by users.
Of course, it doesn’t help that Cambridge Analytica’s Chief Executive Officer was caught on hidden camera pitching outright blackmail and dirty tricks to sway future elections. But, the real scandal appears to be that Cambridge misused information collected from Facebook members and their friends in order to psychologically manipulate them to favor one candidate over another. The ensuing media attention has brought to the fore concerns that have been simmering for years, but which have until now largely been ignored by average consumers.
The word “bot” is a double-entendre. It refers both to the larval stage of the bot-fly, a rather gruesome internal parasite (warning, link not for the squeamish) and to a software application that runs automated scripts on the internet in highly repetitive fashion—also with parasitic effects. Internet bots can be programmed for good or evil. This post refers to the latter kind.
Use of Bots for Ad Fraud
The dominant model of compensation for digital advertising remains the CPM, or cost per thousand impressions. Impressions are simply ad views, that is, the successful delivery of a specific advertisement to a consumer’s web browser. (We adopt the fiction that it has been “viewed” so long as it appears for some period of time on the consumer’s screen.) There is robust debate on what an impression actually means with respect to non-static ads, such as videos, for which compensation may flow even if the consumer sees only a few seconds of the entire video. A publisher, such as a website, will offer advertisers a sliver of their online real-estate at a given CPM rate, and will thereafter be compensated by advertisers at that rate for how many impressions have been generated.
Consumers are winning in the digital age. And marketing teams are being forced to think outside of the box.
According to a recent study, people would rather give up their spouse, or go to prison if it means they won’t lose their smartphone. On top of that, consumers are “cutting” or “shaving” the cord to traditional television and demanding more flexibility in how they view content. Nielsen data shows that between 2011 and 2017, traditional TV viewing by 18-24 year olds dropped by almost 12 hours a week, or by roughly 1 hour 40 minutes per day. In addition, online advertisers are employing targeted advertising whereby consumers are exposed to ads that reflect their interests. As a consequence, consumers are becoming increasingly difficult for marketers to reach and businesses are struggling to find ways to bridge this gap.
Last December, authorities arrested Edgar Welch, a 28-year old man from Salisbury, North Carolina, who had entered Comet Ping Pong, a Washington, D.C. pizza parlor, armed with a shot gun. Mr. Welch reportedly came to Comet Ping Pong on a self-described mission to free child sex slaves that he believed might be imprisoned there at the bidding of Hillary Clinton and her campaign Chief of Staff, John Podesta. After Welch shot his gun into the ceiling, terrified employees fled the building. Then, after encountering swarms of local police, and having found no evidence of the vast conspiracy he had been led by social media to believe existed, he gave himself up peacefully to authorities.
As outlandish as the story may seem, Mr. Welch was not the only one duped by the story. For weeks, dozens of anonymous posters had fanned the flames and pursued the imaginary conspiracy theory on Reddit.com, a hugely popular social news aggregation site.
This fake conspiracy was likely fueled in part by armies of “bots,” which are fake social media accounts often purchased and organized centrally, and mobilized to push a particular opinion or agenda and sway public opinion. It is surprisingly easily to purchase bots online. For example, Russian websites, such as BuyAces, sell empty social media accounts to anyone willing to pay with digital currency. Once purchased, programmers can enable these accounts to disseminate information or respond to news stories en masse. It is widely reported that Special Prosecutor, Robert Mueller, is investigating whether the Russian government used such tactics to influence the last election.
What does this have to do with advertising, you might ask? Everything.