How Do Small Businesses and Consumers Benefit from Targeted Advertising?

Targeted ads get a really bad rap and I’m here to clear the air. My goal is to convince you by the end of this article that we need to keep targeted ads for the sake of everyone.

First I’ll start by dispelling the biggest misconception in regards to targeted ads. Then I’ll break down the different groups that benefit from targeted ads. Finally I’ll finish by going over a couple of ways to better regulate targeted ads so they don’t get out of hand and we can continue reaping the benefits.

What is the most common misconception people have about targeted ads?

"My phone keeps listening to my conversations and then showing me ads based on what I say I say the word Doritos and the next ad I see is for a bag of Cool Ranch"

We’ve all heard this guy. Probably the biggest misconception around targeted ads is that your phone or smart home device are listening to your conversations and reporting the data to advertisers. This idea comes from the fact that these devices are technically listening to everything we say. While that is true and you can easily see where this idea came from, if you actually do some research you’ll see why this isn't an issue.

Let’s first go over why the devices are always listening. These devices are listening so they can activate their virtual assistant feature. The virtual assistant is only triggered by a specific phrase, “Hey Siri”, “Ok Google”, “Alexa”, etc. Whatever the trigger phrase is, that's the only thing the smart device is listening for. If that trigger word is not spoken, the smart device will not react or record anything you say.

That brings me to my next point, recording. Yes, smart devices do record what we say, but they don't record anything that's not directly said to them. They do this in order to understand your voice better. This allows them to differentiate between voices more successfully, respond to you in more appropriate ways, and provide more accurate information. Facebook and Google both have explicitly stated that microphone data is off limits to advertisers. They don't even send the recordings back to a company database. It's all stored within your device. The only time this would happen is in the event something goes wrong during an interaction with their virtual assistant, for the sole purpose of improving future interactions that you have. At which point most smart devices, such as iPhones, confirm with you first before sending any audio recording back to a company database.

Hypothetically, even if our smart devices were analyzing everything we say, breaking it down, and using that to change our targeted ad experience instantly, how well would that actually work?

Think about how the interactions go with smart devices now. How many times have you had to say, “Hey Siri” repeatedly in order to get a response? How many times has your Alexa device accidentally been triggered by a phrase like "a letter"? Typically anecdotal evidence has little to no validity but considering how commonly known these issues are, and all the jokes that shows like SNL, Community, and The Office have made about the many issues we have with voice commands, I think we should make an exception. In this case we’re all aware that even when talking directly to a smart device, they can still struggle to understand what we’re saying. How good do you really think these devices are at analyzing passive conversations? While there is substantial evidence of emotional manipulation with targeted ads, this kind of sci-fi level conspiracy is based on nothing but ignorance in regards to how little our everyday technology has advanced.

Who benefits from targeted advertising and how?

Mega Corporations & Big Businesses

Yes of course those that benefit from targeted ads the most are mega corporations and big businesses. While this article might seem like pro-capitalist propaganda put out by the very corporations that benefit the most from these ads, it's not. The point of this article is to show you that everyone else benefits from targeted advertising as well as these huge companies. How these companies benefit from targeted ads in a different way than everyday small businesses, is the real question. The easiest way to explain it is with a well known example.

In 2018, Facebook was caught selling user data to a marketing company named Cambridge Analytica. Cambridge Analytica then used that data to help politicians like Donald Trump and Ted Cruz advertise to Facebook users in malicious ways. The data not only influenced who they targeted, but the content they used for ad campaigns as well. They produced ads that were designed with psychological tactics used to elicit fear and anger. That’s what sets big businesses apart from everyone else. They use advertising agencies that specialize in data collection and emotional manipulation. These companies use the data purchased from Facebook to understand their target audience on an intimate level. Then they take that knowledge and use it to create the content being sent out to their audience. Them having access to these companies that use your data in malicious ways is the real issue. The big corporations themselves aren’t getting your data, they just hire companies with the data to guide their entire marketing strategy in the right direction. Google and Facebook aren't the ones using data to create psychologically manipulative ads, it's these middle man marketing firms.

Small Businesses

For some reason people completely gloss over all of the small businesses that are able to utilize targeted ads to market themselves and their products in a cost effective way. Any business or individual that has done any kind of advertising online knows what kind of targeting I’m referring to. You use demographic targeting so your ads get in front of the right people. The better you are at targeting your demographic, the more lead and sale conversions you see. Targeted marketing allows a small business owner with the proper knowledge to turn $10 into a sale and brand awareness. This drastically lowers the barrier of entry for advertising when you compare that to pre-internet numbers.

In the 90’s your cheapest option for advertising was a local newspaper ad. This ad went out to everyone so you had no choice but to pay whatever the total reach was worth, regardless of how well your business lines up with the people reading the paper. According to The NY Times, the average cost of a one page black and white newspaper ad in 1990 was $6,224. Now you’re able to pay for advertising based on impressions, clicks, sales, and more. This means you have the ability to pay based on how well the ad does rather than the reach of the platform you’re working with.

In 2022, the average CPC or cost per click on Facebook is $0.97, the average CPM or cost per impression is $7.19/1,000 impressions. Even if only 0.1% of your impressions convert to sales, you’re still making 1sale for every $7.19 you spend on advertising. That means if you spend $72 advertising to 7,000 people at a 0.1% conversion rate, you're looking at 10 sales. That’s how small businesses benefit from targeted advertising, it brings down the cost of advertising 100 fold. Less for advertising allows small businesses to thrive, no matter their situation.

Consumers

Here’s the one way that most people refuse to acknowledge, but consumers benefit from targeted advertising in multiple ways. People have so bought into the fear and the improper use of targeted ads that they're willing to look past their own benefit. The most obvious benefit for consumers is ad relevance. Most platforms like TikTok or YouTube have feedback options if you’re seeing the same ad repeatedly or seeing ads that don’t match your interests. That’s because the better your advertising experience is, the more valuable an ad is. The bottom line is advertisers, when they are paying per impression, don’t want their advertising budget to be wasted on the same person, the platforms don’t want their ads to perform poorly, and consumers don’t want to see the same ads over and over again. So when people complain about seeing the same ads over and over again or getting ads that make no sense for them, they’re complaining about a situation they themselves are enabling. It is a lose, lose, lose situation for everyone involved.

There’s no getting around ads, you’ll have to see them in every form of media or entertainment you consume, especially the free forms like Google and Facebook. Even if we were to eliminate targeted ads altogether we would still see ads, they would just be more generic and run a lot more often. Look at cable ads for example. Anyone who’s been home sick with nothing to do or stumbled upon an SVU marathon they couldn’t resist, knows all too well that there are a lot of ads on cable and it’s the same ads during every commercial break. You’ll see the same prescription, insurance, and TV show ads 20 times while watching cable. In fact, 30% of the content you see on cable TV is ads, the other 70% being the actual content you want to see. According to a UK based study, millennials spend 8.5 hours a day consuming, creating, and interacting with content. and Gen Z is sitting at a slightly higher 10.6 hours per day. Most of us do spend more time consuming content than we do sleeping. Which is why the amount of time we spend looking at ads is important.

For a targeted advertising experience that we can compare to cable TV, we studied the frequency of TikTok ads on the FYP. A member of our research team scrolled their for you page for 1 hour. In that time they saw 150 videos and 10 advertisements. Making the percentage of videos on their for you page was only 6.25%. Plus that’s not even the percentage of content that you actually watch. In some DVR or On-Demand cases you don't have to deal with any ads but in all live TV cases you're stuck waiting for the commercials to end every 15 minutes. With TikTok you not only have the ability to scroll past any ads, the TikTok algorithm also adjusts the frequency of ads automatically based on how long you've been scrolling. According to our data, what started as a 5:1 video to advertising ratio, quickly became 10:1, then 15:1. By the end of the hour our researcher was only seeing an ad after watching 25 TikTok videos. This was definitely an unexpected discovery but still a welcome one. Because TikTok is able to track how long you’ve been on the app you’re essentially able to earn less ads. Cable TV on the other hand has no tracking which is why the percentage of ad content consumed is so high.

Overall consumers benefit from targeted ads for a number of reasons. Ads appear less frequently, they’re shorter in length and optional, the ads you see are more unique and relevant to you, and the variety of ads is much larger compared to "old media". There are a lot of dangers, similar to the emotional manipulation we discussed earlier, but if we are able to regulate targeted ads properly we can avoid such dangers while still reaping the rewards.

How do we regulate targeted advertising properly without losing what we gain from targeted ads?

Fast answer is, we don’t. Obviously any regulation we do will lower the value of the ads, which will most likely result in more ads. However, if we put minor regulations in place we can minimize the increase in frequency while still being better off than a time before targeted advertising.

Manipulative Ads

One of the biggest issues is manipulative advertising. Ads that prey on our emotions in order to sell goods and services. While all ads do this in some way, whether it’s nostalgia or love, it’s the bad emotions like anger and fear that when manipulated can be considered malicious. There are already regulations in place that dictate how ads are able to affect our behaviors and decisions so it isn’t anything out of the ordinary. There are also laws that protect children from certain types of advertising practices. It's the very thing that the FTC was founded on. We just need to apply these concepts to this new forms of advertising. To learn more about the different types of advertising regulations currently in place you can visit the FTC’s website.

Selling Data

The major issue with data collection is that the data is being sold after it's collected. Companies like Cambridge Analytica buy the information and use it to manipulate the psyche. The process of collecting the data and using it to adjust ads on your own platform isn’t the issue. Small businesses being able to target relevant people is not the issue. The transfer of data from one company to the other is the issue. Small businesses don’t receive any personal data when advertising, they just tell Google what groups of people they want to target and then Google acts as the Cambridge Analytica of the situation. They use their own data that they collected and adjust the advertising experience they provide. This type of advertising is still very profitable for advertising platforms and beneficial for consumers. If we just eliminate the ability to sell data then the root of the issue is gone.

In Conclusion

Targeted Advertising benefits mega corporations, small businesses, and consumers alike. What we need to worry about is the data purchasing and exchange aspect of targeted advertising.

About Alex

I graduated from the University of Michigan with a Bachelors in Marketing. I then relocated to Chicago for an entry level Social Media Manager job. After about a year I got in touch with a friend from college who had a cousin named Francisco, aka the Owner of Big Picture Creatives. At the time he still worked at Fiscal Web Designs but was looking to start something of his own. After hearing about the wide range of clients he was helping, I was certainly intrigued. So I decided to partner with him and help create Big Picture. We've been doing this for a few years now and I can't imagine doing anything else. Instead of helping an old-fashioned company reply to boomers complaining on Facebook, I now get to help new small businesses every single day!