It's The Biggest Scandal In Tech (And No One's Talking About It)

July 31, 2017

A truly massive scandal is brewing in Big Tech.

This scandal concerns the fact that 60% of advertising “clicks” are in fact, NOT human; they are bots or automated algorithms that don’t buy anything. EVER.

If you don’t believe me, and think I’m just making this up, consider what Keith Weed had to say last month.

Weed is head of Marketing for the consumer goods giant Unilever. In this role, he oversees a marketing budget of $8+ BILLION per year. And here are his statements on digital advertising.

With $8.4 billion in annual ad spend, the advertising industry pays attention when Unilever is unhappy. During the Cannes Lions Festival of Creativity, Unilever's chief marketing and communications officer Keith Weed outlined the three concerns that "keep him up at night."

"If you don't have your ad viewed, you are dead,” Weed told a Cannes audience on Wednesday.

He wants advertisers to "join up the dots in the digital industry." As Weed sees it, this ecosystem is corrupted. Some 60% of traffic online is bots. "We want to buy eyeballs of viewers not bots," says Weed. "If it is too good to be true, it probably is."

Source: Mediapost.

What does this mean?

The Tech Giants, Facebook and Alphabet (formerly Google), make their money by charging advertisers a certain amount for every click the advertisers’ ads receive online.

The price that Facebook and Alphabet can charge for advertising space is based on the amount of web traffic that ads receive. The more traffic they receive, the HIGHER the price Facebook and Alphabet can charge advertisers for ad space.

So if 60% of ALL AD CLICKS are in fact BOTS, not HUMANS, the reality is that these ad prices are in fact MASSIVELY overstated.

Again, if you think I’m making this up, consider that another consumer goods giant, Proctor and Gamble cut its online marketing budget by $100 million and found…ZERO IMPACT ON GROWTH.

Procter & Gamble Co. said that its move to cut more than $100 million in digital marketing spend in the June quarter had little impact on its business, proving that those digital ads were largely ineffective.

Almost all of the consumer product giant’s advertising cuts in the period came from digital, finance chief Jon Moeller said on its earnings call Thursday. The company targeted ads that could wind up on sites with fake traffic from software known as “bots,” or those with objectionable content.

Source: WSJ.

Again, Proctor and Gamble cut online advertising by $100 million and had ZERO impact on its results.

These are two massive companies both of which spent BILLIONS in advertising. And both of them are stating point blank that the value of digital advertising via companies like Facebook and Alphabet is MASSIVELY overstated.

What happens if these companies have to begin accurately pricing their ads?

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Chief Market Strategist

Phoenix Capital Research

Graham Summers is Chief Market Strategist for Phoenix Capital Research, an independent investment research firm based in the Washington DC-metro area with clients in 56 countries around the world.

Graham’s clients include over 20,000 retail investors as well as strategists at some of the largest financial institutions in the world (Morgan Stanley, Merrill Lynch, Royal Bank of Scotland, UBS, and Raymond James to name a few). His views on business and investing has been featured in RollingStone magazine, The New York Post, CNN Money, Crain’s New York Business, the National Review, Thomson Reuters, the Glenn Beck Show and more.

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