Adverse Selection
How Bad Ads Present a Structural Danger to Google
"Turning and turning in the widening gyre
The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity."
As ad-blocker usage continues to rise—especially in the U.S.—the internet is becoming increasingly divided into two groups of users: those who use ad blockers (typically more sophisticated) and those who don’t (often less sophisticated).
This two user world paradigm creates perverse incentives for both advertisers and ad platforms. When ads are shown to less sophisticated users who are unlikely to use ad blockers, more advertisers are more likely to profit from serving bad ads. These bad advertisers target vulnerable users, knowing they are more susceptible to scams and misleading content. This is an example of adverse selection, where bad actors exploit the vulnerabilities of less-informed users. Over time, this leads to a significant problem for ad platforms, resembling a "Market for Lemons" where deceptive advertisers proliferate and market failure becomes inevitable. Ad platforms through the strong pull of quarterly earnings and temptation to see ads safety as a cost center are increasingly pressured to cater to these bad advertisers, undermining user trust and the integrity of the ads ecosystem.
Escalating Consequences
This situation worsens over time as the ad market becomes saturated with bad ads aimed at individuals more likely to fall victim to them, driving even more rational users to ad blocking.
In the past, during the internet's rapid growth phase, the expanding 'pie' allowed most players to thrive, and the negative consequences we now face were not as acute. However, those days are behind us.
We now find ourselves in a more challenging environment, where the users still exposed to ads are often unsophisticated and much more likely to be duped by bad ads at previously unimaginable speed and scale.
Anti-ad blocking measures, like those introduced in Chrome Manifest V3, attempt to address the issue by limiting ad blocker effectiveness and user choice, but this does little to resolve the underlying problem.
How to fix this mess:
To preempt this race to the bottom, ad platforms must take proactive steps to regulate harmful ads and work to create a healthier, more transparent advertising ecosystem. This approach should prioritize long-term user trust and platform integrity over short-term revenue goals. To achieve this, ad platforms need to establish tighter feedback loops (avoiding accountability sinks) that allow for continuous monitoring and real-time interdiction of ad content as well as conscientiously processing reports from users and researchers. Additionally, ad platforms should implement advanced monitoring to track advertiser behavior, so as to identify and address harmful ads upstream.
Ad platforms must also hold malicious advertisers accountable for the impact of their ads by working closely with legal authorities to ensure that those responsible for fraudulent or malicious advertising face legal consequences. This sends a clear message that deceptive ads won’t be tolerated and will be a strong deterrent.
User education is another key element. Ad platforms should invest in teaching users how to think critically, recognize scams and malicious ads, empowering them to make more informed decisions and protect themselves.
By combining:
- Technically brilliant vigilance
- Legal action
- User education
Ad platforms can foster a safer, more trustworthy advertising environment, reducing the risk of user exploitation and ensuring the long-term health of the ads ecosystem.