The advertising world is uncomplicated at its core, and utterly bewildering when seen from the outside. The easy bit stems from a simple axiom: Wherever you can find the attention of potential customers, you pay to get your message in front of them. That’s the essence of advertising: paying for attention. It gets complicated by the details – the medium, the message, the targeting, the tech – but wherever customers gather, advertising will follow. There’s simply too much money to be made for it to be otherwise.
So it was utterly unsurprising to learn, a few hours ago as I write this, that there will soon be ads on PayPal, driven by the data the company collects. PayPal recorded 6.5 billion payments in the first quarter of 2024 alone, according to the Journal. The company plans on creating what’s known as a “retail media network” allowing advertisers to leverage PayPal’s data to target users both on platform and off.
PayPal is just playing catchup. Walmart, JP Morgan Chase, Target, and many others have already built ad businesses based on the data they collect. PayPal’s been struggling lately, and it needs a new revenue line to keep Wall Street happy. If it can build an efficient programmatic ads business, margins will perk up, and so will its stock price. Done well, programmatic advertising can drive nearly 80 percent gross margins. Apple’s ads business is responsible for nearly 10 percent of its margin, Amazon’s even more. I imagine beleaguered PayPay shareholders are asking “What took you so damn long?!”
Well, it’s not that easy to build an advertising network, particularly one driven by metric tons of user data. Beyond the technical and regulatory hurdles, which are daunting, there are the integrations. Activating all that user data across streaming television, the open web, and the BigTech platforms requires managing delicate, highly fraught relationships with scores of companies – all of whom are also in the advertising business. Everyone wants their vig, and no one wants to share their data. It’s a hot mess, and it’s only getting messier.
The hottest mess of all right now is streaming television – advertisers crave its 15- and 30-second spots and its younger demographics, but the sector lacks scale, standards, and data sharing. Everyone is pushing ads, but so far, the business is tiny compared to the rest of the advertising marketplace. This plays into the hands of the largest companies with highly-developed digital ads businesses – Amazon, Google, and Netflix. They’ve already won – and everyone knows it. It can’t be fun to be Paramount+ right about now.
Another super hot mess, thanks to AI, is search advertising. There’s so much to say about Google’s announcements last week – I have about 25 tabs open right now, trying to make some sense of it all. But my overarching takeaway is this: There’s simply no way Google would push its generative AI models directly into the cash cow of search if it wasn’t certain it could make money – and a lot of it – from doing so. And despite my earlier predictions that Google would pivot to a subscription-based model for AI, the only conclusion one can draw is this: Just like PayPal, and just like streaming, AI is going to be driven by ads. Lots, and lots, and lots of ads.