By Niraj Dawar
About one-third of all advertising dollars are now spent online. Google, the alpha gorilla in this space, pulls in half of that expenditure as revenue. The key selling proposition of online advertising versus physical-world advertising is its trackability, the ability to connect the dots between ad exposure and purchases. Online, this is measurable (even though specific measures are still contraversial, often misused, and continually being refined), because ad exposure and purchases are both trackable and generally assignable to an individual user. Google has a more complete picture of the consumer than any other company, because it knows when consumers view ads in Google Search, Gmail, YouTube, Google Maps, and Android apps. It also knows where consumers go, both online and in the physical world, based on cookies and location data from their phones. But the online giant has not had a very clear picture of where consumers shop in the physical world and how much they spend — until now.
Last week Google announced that, in an effort to bridge the “online ad–offline purchase” gap, it will begin to connect online ad exposure to brick-and-mortar sales. The company claims it will be able to track about 70% of all credit and debit card transactions and link them to online consumer behavior.
Data from the U.S. Census Bureau shows that in the first quarter of 2017 most purchases happened offline. Retail e-commerce accounted for about 8.5% of total retail sales, and although it is growing much faster than brick-and-mortar retail, that still leaves more than 90% of sales that are difficult to connect to online advertising exposure. This is a problem for Google, which wants to convince marketers that online ads are effective. Google’s move is also a competitive response to Facebook’s partnership with Square and Marketo, announced last summer. That partnership allowed Facebook to track consumer store visits and some transactions, and was itself a competitive reaction to Google’s store visit metrics, which have been part of its AdWords product since 2014.
These moves are big leaps forward for advertisers. Ultimately, all marketers want an answer to the question: Who buys what, when, and at what price? The answer allows marketers to target consumers who are most likely to buy their product, at prices at which they are most likely to buy, making marketing expenditures much more efficient. A whole view of the consumer, knowing that people who saw an ad for a pair of Nike shoes then went out and bought it, is a powerful incentive to use targeted online ads. Knowing that consumers who shop at Home Depot also tend to shop at PetSmart drives decisions such as media purchases and placement, cross-promotions, and even store location for both companies.
The advances also raise privacy concerns: Do Google and Facebook know too much, are they too intrusive in their efforts to match data about individual consumers from online and offline sources, and are they profiting from consumer data without consumers’ express permission or knowledge? In my view, the companies have so far had two broad categories of responses to the question of privacy: First, they say the switch is in the consumers’ hand, in that people can trade some privacy for greater personalization of content and advertising, or opt out of offering that data (usually). Second, the companies say their algorithms maintain the privacy and anonymity of users. In effect, they are saying that only the machines have knowledge of the consumer, so privacy is ensured.
These responses will need to hold up to scrutiny in a world where marketing becomes increasingly automated and where algorithms make most decisions about the targeting of advertising dollars. Consumers may want to separate the greater personalization of content from advertising and allow one without the other. Many are already voting with their clicks and taps by installing ad blockers, tracking blockers, and switching off their phone’s location services (although apps such as Pokémon Go got millions to switch them on again, illustrating the point that consumers will trade privacy for functionality). Another model that looms and is prevalent in Android apps is consumers being particularly averse to advertising or concerned about privacy and paying to switch off ads and tracking.
The second response, that algorithms maintain the consumers’ anonymity, is a little trickier to defend. Whether it is a human or a machine that is linking the data to develop a whole view of the consumer, the ultimate effect on individual consumers is the same: They are targeted with ads that are eerily personalized and persistent across media — they follow the consumer around online and, soon, offline. The day is not far off when a store will receive an alert that a certain consumer is on their way to the store to, most likely, buy a certain product. Or, perhaps most purchases will have moved online by then, with transactions initiated and completed by consumers’ bots communicating with sellers’ bots.
Whichever way the privacy debate shakes out, it is evident that the gap between online and offline markets is being bridged, and that bridge is made of data. Marketers in the real world will benefit from better targeting, using Google’s and Facebook’s data about consumer behavior. It will allow them to target better and make their marketing budgets go further. But they need to be aware that better targeting is a short-term strategy: Once their competitors have equal access to the same targeting tools, profits from better targeting get competed away. Ultimately, marketers will need to learn to use the data to create new and better forms of value for our customers.