Race to the Bottom

Most digital advertising is bought in a competitive auction.

You’re competing with similar firms who have similar products and services for the same audience.

And, if you want more share of that market, there’s an easy way to get it. You simply need to bid more for their attention. All else equal, higher bids equals more share.

Of course, your competitors will see that and likely counter your increased bid with an increased bid of their own. Which means they’ll reclaim their market share and the competitive dynamic will return to what it was pre-bid increase.

But, the difference is that now the cost of advertising has increased for everyone. That means you’re all making less money.

This is a race to the bottom. You can’t win it. Your competitors can’t win it. The only ones who win this race are the platforms that enable it: Google and Facebook.

It’s why Google and Facebook have some of the largest, sustained profit margins in the world. Some of that profit certainly comes from the old-school marketing channels they successfully disrupted, like the phone book, newspapers, and magazines.

But, plenty of it comes from squeezing the margins of its advertisers, like you.

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