An article in Wired has sparked controversy with its claim that Trump paid lower prices for its Facebook ads than Clinton:
During the run-up to the election, the Trump and Clinton campaigns bid ruthlessly for the same online real estate in front of the same swing-state voters. But because Trump used provocative content to stoke social media buzz, and he was better able to drive likes, comments, and shares than Clinton, his bids received a boost from Facebook’s click model, effectively winning him more media for less money. In essence, Clinton was paying Manhattan prices for the square footage on your smartphone’s screen, while Trump was paying Detroit prices.
The claim is plausible but although written by a Facebook expert it never really explains why Google and Facebook prices their ads in this way. The reason is what I call the “mesothelioma lawyer” problem. A click on an ad for a “mesothelioma lawyer” is extremely valuable because people who aren’t interested in hiring a mesothelioma lawyer are unlikely to click and those who do click are likely to become profitable clients. Thus, anyone searching for mesothelioma is likely to see an ad for a mesothelioma lawyer.
But suppose that Google or Facebook simply charge for ads by the click. Someone who searches for “funny hat video” isn’t likely to click on an ad for a mesothelioma lawyer but the people who do click are still likely to be very profitable to a mesothelioma lawyer. As a result, the mesothelioma lawyer can outbid the seller of funny hats for ads connected to “funny hat video” even though the search has nothing to do with mesothelioma. If Google or Facebook only charged by the click it would be mesothelioma lawyer ads everywhere, all the time.
To avoid this problem, Google and Facebook calculate how many clicks or interactions your ad is likely to receive and they charge lower prices the greater the predicted number of clicks. As a result, sellers of funny hats get lower prices than mesothelioma lawyers for ads that pop up after the user watches a funny hat video and mesothelioma lawyers get lower prices than sellers of funny hats for ads that pop up after the user searches for information on mesothelioma. In the long run this system better targets ads to customers and thus maximizes the value of the platform to both advertisers and customers.
As the Wired piece eventually states this isn’t even new:
“I always wonder why people in politics act like this stuff is so mystical,” Brad Parscale, the leader of the Trump data effort, told reporters in late 2016. “It’s the same shit we use in commercial, just has fancier names.”
He’s absolutely right. None of this is even novel: It’s merely best practice for any smart Facebook advertiser.
Addendum: See also Hal Varian’s discussion of the underlying issues in the Online Advertising section of this paper.