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A reminder that the existence of the advertising industry is a tax that drives up the cost of everything that you buy, because every dollar spent on advertising

by kibwen 2y ago

A reminder that the existence of the advertising industry is a tax that drives up the cost of everything that you buy, because every dollar spent on advertising is a dollar that does not actually improve the product in any way, and yet must be recouped by increasing the price of the product. So in addition to the complete destruction of personal privacy and the normalization of the panopticon, it's also making you materially poorer. But hey, at least ads are more relevant, sorta, almost, sometimes!

ethbr1 2y ago
Running targeted advertising on devices allows manufacturers to price devices lower by recouping lost sale revenue from the advertising stream. In other words, an advertising dollar doesn't disappear: it's paid to someone.
- czl 2y ago
  > an advertising dollar doesn't disappear: it's paid to someone. Window breaking gangs could make a similar same claim about their activity boosting GDP might they not? https://en.m.wikipedia.org/wiki/Parable_of_the_broken_window https://en.m.wikipedia.org/wiki/Parable_of_the_broken_window
  - pests 2y ago
    Someone used this window breaking analogy recently here on HN - I can't remember why it came up or who said it, but is this a common framing? I do remember it being about how a window maker paying people to break windows not being a productive contribution to GDP. Just thought it was curious seeing it again.
    - czl 2y ago
      > but is this a common framing? Yes a common misconception about economics so much so it has a Wikipedia page to explain it.
      - pests 2y ago
        Oh duh, thanks. I somehow did not see your link when I originally posted.
- BLKNSLVR 2y ago
  > to someone ... I'd rather not pay for the "service" they're providing.
czl 2y ago
> So in addition to the complete destruction of personal privacy and the normalization of the panopticon, it's also making you materially poorer. But hey, at least ads are more relevant, sorta, almost, sometimes! Can a capitalist society operate without advertising? How are people to learn about products and services that are available? Yet today poorly targets ads waste the time of everyone involved. If ads could be made relevant without invading your privacy would you be against that?
- emptybits 2y ago
  > How are people to learn about products and services that are available? Search. Easier said than done, thanks to SEO and business models like Google. So maybe I should say "paid search". We get what we pay for.
  - czl 2y ago
    If you do not know a problem is a problem why search for a solution? If you do not know a product / service exists why would you search for it? If "search" is your answer what do you suppose advertisers are doing? Are they not searching for customers? Advertising is an expensive search with many externalities on society. These externalities are wasteful hence the search for a better way to do it. Google / Facebook / ... I think are funded by solving this problem.
    - ok_dad 2y ago
      I’ve been advertised something that actually removes a problem I know about in my life, just for made up “problems”. If I don’t know a product or service exists, why do I need it? My life is fine as it is, I don’t need stupid advertisements for stuff that won’t enrich it.
      - czl 2y ago
        > If I don’t know a product or service exists, why do I need it? Do you not purchase things / services you do not need? > My life is fine as it is, I don’t need stupid advertisements for stuff that won’t enrich it. How might you reply to a someone from a few thousand or few hundred or even few dozen years ago that has your attitude? Might you be tempted to advertise to them what they are missing? Would they not be interested?
moandcompany 2y ago
Also... Some TV operating system manufacturers give away their OS to TV manufacturers, and in some cases they even pay TV manufacturers to use their software. Some streaming service companies pay the TV manufacturers to have a shortcut/launch button on the physical remote.
cortesoft 2y ago
> A reminder that the existence of the advertising industry is a tax that drives up the cost of everything that you buy, because every dollar spent on advertising is a dollar that does not actually improve the product in any way, and yet must be recouped by increasing the price of the product I am not going to try to argue that advertising is good or anything, but I don't think your economic argument is accurate. If a company didn't have to spend anything on advertising, they wouldn't use that money to improve their product or to reduce the price; the money would go towards profit. So many people seem to think that prices are set at "expense + fixed profit margin = price" but that is not how any company sets their prices. The ONLY reason a business is going to lower prices is because they think that is the way to increase their profit. They aren't going to lower prices just because some cost goes away.
- bonoboTP 2y ago
  In an efficient market, competition would drive prices down to reach quite thin profit margins. Of course there is all sorts of friction, change in conditions, inertia, upfront costs, risk etc that reality isn't ideal.
- idle_zealot 2y ago
  The idea is that they would have to spend that money on improving the good/service or reducing the price in order to compete. Currently more money goes to competing for your attention than on competing on merit.
- gljiva 2y ago
  If advertising is giving an expected edge over competition bigger than price decrease, then the advertising will be used in sort of an arms race that could have been a competition in giving the best product for the least money instead. Still, even if there is no immediate price decrease for the customer, I would be much more satisfied if all the money went to the maker(s) of the product and well-investing shareholders than someone who provides no value and could have been working on something productive instead.
CalRobert 2y ago
In addition to making everything you buy cost more, it also leads to lots of people buying a lot of things they don't really need (or want, after the rush of buying another piece of crap wears off)
- amelius 2y ago
  Yes. Someone should research the effect of banning ads on the health of our planet.
moandcompany 2y ago
In the case of television screens, the net profit margins on sales of these devices are in the single-digit percentages. Fairly thin, around 4-7%. Higher-end products, such as cutting-edge flagship products (e.g. 100"+ MicroLED television screens) will have higher margins, but lower production yields, and orders of magnitude lower sales volume. These products don't need to be replaced year after year, and most buyers are not selecting a product based on the technical specifications and performance, rather the screen-size per dollar (or whatever currency used) and other factors such as aesthetic appeal of the device in the home environment. The average lifetime, before replacement, of a television screen in North America is somewhere around 5-7 years, and you don't need one in every room of your home or living space. The commodification of screens from both the production side (i.e. newer entrants to the market from Chinese manufacturers) and from the content portal side (i.e. Roku, Google TV, Fire TV, etc) is a major strategic problem for the television brands you are probably most familiar with. The forementioned examples of content portals are coming from companies that are fundamentally based around advertising, and the companies that were traditionally about manufacturing realized that the advertising revenue opportunity was too good to give up. They are trying to grow their revenue, and profitability, and see that they won't be able to do so from their original core businesses. This is also why you're seeing all of these "FAST" (Free, Ad-supported Streaming Television) services popping up from the tv manufacturers themselves. Vizio, for example, was a value-oriented producer of televisions and related products. In 2021, as Vizio became a public company, they disclosed that they make more than twice the profit from their advertising/service business than their device sales (https://www.theverge.com/2021/11/10/22773073/vizio-acr-advertising-inscape-data-privacy-q3-2021 https://www.theverge.com/2021/11/10/22773073/vizio-acr-adver...). Walmart is now acquiring Vizio for that business and the opportunity to collect customer data (https://corporate.walmart.com/news/2024/02/20/walmart-agrees-to-acquire-vizio-holding-corp-to-facilitate-accelerated-growth-of-walmart-connect-through-vizio-s-smartcast-operating-system https://corporate.walmart.com/news/2024/02/20/walmart-agrees...). Roku is another good focused example because they are a publicly traded company and you can analyze their income statements and business model. Their hardware devices are basically being sold at cost or at a loss so they can seed the market and create an audience (i.e. their inventory) for their high-margin advertising services business. Google and Amazon also want a large piece of this pie. Apple is starting to show that they want advertising money too. We are also seeing cases where the television devices themselves can be produced cheap enough to be given away to users that opt into advertising (e.g. Telly: https://www.theverge.com/2023/5/15/23721674/telly-free-tv-streaming-ilya-pozin-ads https://www.theverge.com/2023/5/15/23721674/telly-free-tv-st...). When this dynamic is economically viable (i.e. give away the hardware, make the money via ads), you can see how big of a problem traditional television device manufacturers have.

by kibwen 2y ago

ethbr1 2y ago

Running targeted advertising on devices allows manufacturers to price devices lower by recouping lost sale revenue from the advertising stream. In other words, an advertising dollar doesn't disappear: it's paid to someone.

czl 2y ago
> an advertising dollar doesn't disappear: it's paid to someone. Window breaking gangs could make a similar same claim about their activity boosting GDP might they not? https://en.m.wikipedia.org/wiki/Parable_of_the_broken_window https://en.m.wikipedia.org/wiki/Parable_of_the_broken_window
- pests 2y ago
  Someone used this window breaking analogy recently here on HN - I can't remember why it came up or who said it, but is this a common framing? I do remember it being about how a window maker paying people to break windows not being a productive contribution to GDP. Just thought it was curious seeing it again.
  - czl 2y ago
    > but is this a common framing? Yes a common misconception about economics so much so it has a Wikipedia page to explain it.
    - pests 2y ago
      Oh duh, thanks. I somehow did not see your link when I originally posted.
BLKNSLVR 2y ago
> to someone ... I'd rather not pay for the "service" they're providing.

czl 2y ago

> So in addition to the complete destruction of personal privacy and the normalization of the panopticon, it's also making you materially poorer. But hey, at least ads are more relevant, sorta, almost, sometimes! Can a capitalist society operate without advertising? How are people to learn about products and services that are available? Yet today poorly targets ads waste the time of everyone involved. If ads could be made relevant without invading your privacy would you be against that?

emptybits 2y ago
> How are people to learn about products and services that are available? Search. Easier said than done, thanks to SEO and business models like Google. So maybe I should say "paid search". We get what we pay for.
- czl 2y ago
  If you do not know a problem is a problem why search for a solution? If you do not know a product / service exists why would you search for it? If "search" is your answer what do you suppose advertisers are doing? Are they not searching for customers? Advertising is an expensive search with many externalities on society. These externalities are wasteful hence the search for a better way to do it. Google / Facebook / ... I think are funded by solving this problem.
  - ok_dad 2y ago
    I’ve been advertised something that actually removes a problem I know about in my life, just for made up “problems”. If I don’t know a product or service exists, why do I need it? My life is fine as it is, I don’t need stupid advertisements for stuff that won’t enrich it.
    - czl 2y ago
      > If I don’t know a product or service exists, why do I need it? Do you not purchase things / services you do not need? > My life is fine as it is, I don’t need stupid advertisements for stuff that won’t enrich it. How might you reply to a someone from a few thousand or few hundred or even few dozen years ago that has your attitude? Might you be tempted to advertise to them what they are missing? Would they not be interested?

moandcompany 2y ago

Also... Some TV operating system manufacturers give away their OS to TV manufacturers, and in some cases they even pay TV manufacturers to use their software. Some streaming service companies pay the TV manufacturers to have a shortcut/launch button on the physical remote.

cortesoft 2y ago

> A reminder that the existence of the advertising industry is a tax that drives up the cost of everything that you buy, because every dollar spent on advertising is a dollar that does not actually improve the product in any way, and yet must be recouped by increasing the price of the product I am not going to try to argue that advertising is good or anything, but I don't think your economic argument is accurate. If a company didn't have to spend anything on advertising, they wouldn't use that money to improve their product or to reduce the price; the money would go towards profit. So many people seem to think that prices are set at "expense + fixed profit margin = price" but that is not how any company sets their prices. The ONLY reason a business is going to lower prices is because they think that is the way to increase their profit. They aren't going to lower prices just because some cost goes away.

bonoboTP 2y ago
In an efficient market, competition would drive prices down to reach quite thin profit margins. Of course there is all sorts of friction, change in conditions, inertia, upfront costs, risk etc that reality isn't ideal.
idle_zealot 2y ago
The idea is that they would have to spend that money on improving the good/service or reducing the price in order to compete. Currently more money goes to competing for your attention than on competing on merit.
gljiva 2y ago
If advertising is giving an expected edge over competition bigger than price decrease, then the advertising will be used in sort of an arms race that could have been a competition in giving the best product for the least money instead. Still, even if there is no immediate price decrease for the customer, I would be much more satisfied if all the money went to the maker(s) of the product and well-investing shareholders than someone who provides no value and could have been working on something productive instead.

CalRobert 2y ago

In addition to making everything you buy cost more, it also leads to lots of people buying a lot of things they don't really need (or want, after the rush of buying another piece of crap wears off)

amelius 2y ago
Yes. Someone should research the effect of banning ads on the health of our planet.

moandcompany 2y ago

In the case of television screens, the net profit margins on sales of these devices are in the single-digit percentages. Fairly thin, around 4-7%. Higher-end products, such as cutting-edge flagship products (e.g. 100"+ MicroLED television screens) will have higher margins, but lower production yields, and orders of magnitude lower sales volume. These products don't need to be replaced year after year, and most buyers are not selecting a product based on the technical specifications and performance, rather the screen-size per dollar (or whatever currency used) and other factors such as aesthetic appeal of the device in the home environment. The average lifetime, before replacement, of a television screen in North America is somewhere around 5-7 years, and you don't need one in every room of your home or living space. The commodification of screens from both the production side (i.e. newer entrants to the market from Chinese manufacturers) and from the content portal side (i.e. Roku, Google TV, Fire TV, etc) is a major strategic problem for the television brands you are probably most familiar with. The forementioned examples of content portals are coming from companies that are fundamentally based around advertising, and the companies that were traditionally about manufacturing realized that the advertising revenue opportunity was too good to give up. They are trying to grow their revenue, and profitability, and see that they won't be able to do so from their original core businesses. This is also why you're seeing all of these "FAST" (Free, Ad-supported Streaming Television) services popping up from the tv manufacturers themselves. Vizio, for example, was a value-oriented producer of televisions and related products. In 2021, as Vizio became a public company, they disclosed that they make more than twice the profit from their advertising/service business than their device sales (https://www.theverge.com/2021/11/10/22773073/vizio-acr-advertising-inscape-data-privacy-q3-2021 https://www.theverge.com/2021/11/10/22773073/vizio-acr-adver...). Walmart is now acquiring Vizio for that business and the opportunity to collect customer data (https://corporate.walmart.com/news/2024/02/20/walmart-agrees-to-acquire-vizio-holding-corp-to-facilitate-accelerated-growth-of-walmart-connect-through-vizio-s-smartcast-operating-system https://corporate.walmart.com/news/2024/02/20/walmart-agrees...). Roku is another good focused example because they are a publicly traded company and you can analyze their income statements and business model. Their hardware devices are basically being sold at cost or at a loss so they can seed the market and create an audience (i.e. their inventory) for their high-margin advertising services business. Google and Amazon also want a large piece of this pie. Apple is starting to show that they want advertising money too. We are also seeing cases where the television devices themselves can be produced cheap enough to be given away to users that opt into advertising (e.g. Telly: https://www.theverge.com/2023/5/15/23721674/telly-free-tv-streaming-ilya-pozin-ads https://www.theverge.com/2023/5/15/23721674/telly-free-tv-st...). When this dynamic is economically viable (i.e. give away the hardware, make the money via ads), you can see how big of a problem traditional television device manufacturers have.