the internet sockpuppets and the broken tail

Of Sock-Puppets and Broken Tails

© 2009 Whythawk | All Rights Reserved | http://www.whythawk.com/

A Whythawk ThoughtStrikeApril 2009

Online Advertising Market EvolutionIm

pa

ct �Google introduces AdWords, quickly followed by AdSense

� Online Advertising: $8.0b



� Google earns revenues of $ 16.6 billion from AdWords.

� NASDAQ crash

� Google buys DoubleClick for $3.1b

� Google buys Blogger

© Whythawk 2009 | All Rights Reserved | http://www.whythawk.com/

Time

Imp

act

1994 2008

2

� Hotwired (now Wired) becomes the first website to host banner ads

� Netscape launches

� Amazon and eBay launched

� Google launches

quickly followed by AdSense

� 2.5 million auctions earn revenue of $ 47.4 million for eBay

� Online Advertising: $267m




The Internet is like Zimbabwe

• There are 722 million Africans; and the average person spends $ 2.24 per day;

• For every dollar invested into the world’s wealthiest places, there is a potential return ofsome $ 62.50; in Africa, that return is less than $ 42.00.

• It is no wonder that the average African attracts annual per capita investment of only $ 19.

• So why is the Internet like Zimbabwe ... a country where 12million people survive in a turbulent, informal market,dominated by wealthy dictators, with 11 million percentinflation, and no rule of law?

• Because the Internet is just as perversely unequal and unstable; with 1billion people online, spending per capita is only 33 cents per day and thetop 100 businesses accrue more than half of that;

© Whythawk 2009 | All Rights Reserved | http://www.whythawk.com/ 3

top 100 businesses accrue more than half of that;• Reputations to mitigate trade risk are earned in walled-gardens, like

Amazon or eBay, and much activity is designed to game the system inorder to earn a reputation above and beyond a person’s worth.

• If you were tasked, today, with bringing economic order to Zimbabwe’s chaos,could you do it? It can be done, and similar approaches to solving emergingmarket and informal trading problems can be applied to online e-commerce.

• The Internet, with even greater reputation and trust chaos than Africa, receives annual percapita investment of $39, for only $ 3 return for each dollar invested.

• But maybe you still need convincing that trust on the Internet – and with it, economic

stability – is broken...

The broken tail: not so black and white...

Google does not want you or your clients’ sites to rank ANY higher than they deserve to. Google defines deserve; they are a for-profit company. That means that

just about any intentional manipulation will be, by definition, black hat ...

The one thing that you need to be able to do as a black hat is break things down to their simplest forms; to find the essence of the problem. For example, ask questions like ‘How exactly did the sites that now rank get to #1?’ and ‘If links make you rank, what could I do to automate the process of getting millions of links?’ or maybe even

‘How can I go from making one site that makes $100 a month to automating the process of making hundreds or thousands of similar sites?’

QuadsZilla, SEO Black Hat

• Online advertising is worth around $30 billion this year. Still a small proportion of the $500 billionspent overall, but projected to reach 14% by 2010.

• Estimates of click-fraud are anywhere from 10% to 50% of the total value of the market; billions


• Estimates of click-fraud are anywhere from 10% to 50% of the total value of the market; billionsof dollars a year.

• However, there is more than click-fraud:• Sites such as del.icio.us, Digg and Reddit allow users to aggregate and vote up links; votes

of powerful users can be purchased, or numerous “sock-puppet” logins created;• eBay and Amazon allow purchasers to write reviews, but good reviews can be bought and

highly rated reviewers are frequently businesses;• Then there is more blatant fraud, such as deliberate failure to fulfil orders, or targeting

competitors click-through adverts to destroy their marketing budgets.

• And those that survive all this and build a credible reputation find that it is explicitly linked

to a single walled-off social-media site; they cannot trade with outsiders...

The value of online advertising...

• For every advertising dollar spent, online businesses return revenuesof $5.50, while offline businesses return a shade under $83.50.

• If the Internet really is just a magazine and newspaper substitute,then the continued availability of free products and services worksonly as long as those subsidising the industry – through advertising

– believe that they are getting value for their investment...

• So media companies are working to eradicate fraud and monitorconsumer behaviour:• Search engines track user interests through reading their mail and sifting through the

websites they visit;

• Amazon, eBay and other retailers, keep detailed records of what is bought and browsed;

• Even Internet hosts and service-providers are tracking the packet transmissions of data to


• Such actions are starting to result in a majorconsumer backlash.

• The difficulty continues; if companies cannot trackusers, they cannot offer appropriate products, letalone prevent online fraud or identity theft.

• Yet, using the Internet purely as a media substitute

seems limiting ... isn’t it better as a trade-enabler – facilitating transactions the way credit-cards enable strangers to trust each other and dobusiness?

0.0%

5.0%

10.0%

15.0%

20.0%

Internet World

Advertising as Percentage of Final Consumption Expenditure

• Even Internet hosts and service-providers are tracking the packet transmissions of data tomonitor user behaviour.

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The peril of doing nothing...

• There is a fundamental flaw inherent in the way Internet-commerce is premised that acts to undermine it; the sameflaw that destabilises emerging markets the world over.

• Hype causes uncertainty, “irrational-exuberance” andvolatility; like musical chairs, everyone hopes that theywon’t be last to sit down, and then they discover that thechairs themselves are broken.

...whether it be NASDAQ in 2000, or the US sub-prime collapse in 2008...

Chart of NASDAQ closing values from 1994 to 2008


• If there is no trust in the value of the information available, then that places an upwardlimit on the risks that individuals will take. That will automatically be priced into the market andwill be evident in the limited value, or volatility, of business transactions.

• The world’s emerging markets are poverty stricken – not through lack of initiative, talent or

resources – but because there is no way to prove ownership, either of property or ofreputation. And the world of telecommunication-based commerce is floundering in the samesea.

• Without a radical rethink of the way in which such transactions are premised, it can never bemore than a highly unstable emerging market ... dominated by wealthy dictators, andpeopled by an impoverished multitude.

Market EvolutionIm

pa

ct

Scenarios:

Conservative ■

Radical ■

■ Pressure from US privacy-advocates forces lawmakers to legislate “opt-in” requirements for online advertising collection as well as better management of online identity, long-tail ranking systems, and click-fraud.

■ Social aggregation sites, Digg and Reddit, are targets of lawsuits related to opinion-rigging.

■ Investment confidence plunges amidst conflicting responses to managing fraud by Internet companies; stock values plunge.

■ The global economy remains in recession longer than expected. Online advertising spend drops

■ Market uncertainty triggers a wave of consolidation; old-media groups snap up the leading online publishers. In the aftermath, surviving thought-leaders announce Web 3.0.


Time

Imp

act

Start End

7

■ An automated click-fraud syndicate is exposed, sparking fears that this is more prevalent than expected; coupled with already weak returns from online advertising spend, overall ad-spend drops.

■ Google and Yahoo lose a series of class-action lawsuits relating to click-fraud.

■ The global economy enters recession. Service job-pay tightens and unemployment rises causing the main users and supporters of social-networks and micro-blogging to become less active.

■ eBay loses more critical lawsuits for hosting sales of pirate goods; Amazon is embarrassed after it emerges that publishers pay for good reviews and high rankings.

than expected. Online advertising spend drops further, and so does activity in Web 2.0-type services. Open-source programmers are also less active. Many online business models come under pressure.

ThoughtStrike: it’s about the chaos...

• Whythawk researches emerging trends in a widerange of industries; we search for opportunities forcreative-destruction and game-changing strategiesthat will disrupt businesses or societies; then weproduce a high-level analysis of these scenariossummarising our findings ... the ThoughtStrike.

• No ThoughtStrike is ever released unless Whythawkhas already considered the opportunities unlocked


has already considered the opportunities unlockedby that disruption and developed a product to takeadvantage of that opportunity.

• If you are ready to ask the question, “So, now what?” contact Whythawk, and we willcontinue.

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Whythawk

Gavin Chait | Risk Analyst & Strategist | [email protected] | M: +44 (0) 78 9495 7090 | http://www.whythawk.com/

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the internet sockpuppets and the broken tail

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