The Internet Is Secretly Powered By Billions Of Tiny Auctions

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast.

Tracy Alloway (0:15)

And I'm Tracy Alloway.

Joe Weisenthal (0:16)

Tracy, do you know what powers the internet?

Tracy Alloway (0:22)

Hamsters on wheels. No, electricity, I don't know.

Data, is this like a metaphor?

Joe Weisenthal (0:31)

I guess you could probably say, have a lot of different answers. Electricity is probably one, someone could say data.

I was gonna say online advertising.

Tracy Alloway (0:41)

Ah, now this is interesting. Do you mean in the sense that online advertising pays for websites to actually run?

Joe Weisenthal (0:48)

Yeah, basically it's like, if you think about virtually anything we do on the internet, if you think about at least some aspect of our careers having written on the internet, if you think of all the social networking sites, literally everything, in some way it was probably paid for via online advertising.

Tracy Alloway (1:11)

Yeah, I guess you're right. I mean, none of these things are really provided for free. And I guess the cliche is always, if you're not paying for the service, then the product they're selling is probably you and your personal data, and they're selling that to advertisers, right?

Joe Weisenthal (1:29)

Exactly. And of course, as we know, a lot of the practices in online advertising these days are pretty controversial and people are concerned about privacy, and as you said, your personal data and the reader or the user being the product.

But have you ever wondered really how they figure out what ad to serve you in the split second? You go to a website and there's already an ad that's perfectly tailored to your interest. Have you ever really explored how that happens?

Tracy Alloway (1:58)

I'm not lying when I say I have actually wondered this. Specifically, I've wondered why the pair of shoes that I looked at for like five seconds two weeks ago follow me around the internet for months later, begging to be bought.

That really annoys me. So if this is what we're going to talk about, then I'm on board, Joe, but what does it have to do with markets exactly?

Joe Weisenthal (2:18)

Well, first of all, this is exactly what we're going to be talking about. So you're in luck.

And of course it's a markets thing because someone has to buy and sell that ad inventory. And essentially you go to a website or you go to Facebook or whatever.

And there has to be some sort of process for allocating that advertising space. And how much are people going to pay for it? And how much is that worth? And how much is the website going to sell it for? And that is a marketplace.

Tracy Alloway (2:49)

So the internet is fundamentally run by market structure is what you're telling me. I love this episode already.

Joe Weisenthal (2:55)

Exactly. Well, I'm very excited about it. So without further ado, I want to bring in our guest. His name is Afsheen Bigdeli. He is a systems engineer for online ad platforms. And we are going to talk about market structure as it pertains to the world of online advertising.

Afsheen, thank you very much for coming in.

Afsheen Bigdeli (3:21)

Thank you. And hi Tracy, hi Joe.

Joe Weisenthal (3:25)

So what happens when I go to a website? Wow, let's just jump right in.

Afsheen Bigdeli (3:31)

Great, so today on average for the average website, let's go through what happens. So you load up your favorite web page, whatever it is, let's say bloomberg.com of course.

And chances are you visited bloomberg.com before. This is not the first time you visited this site. So that's important, we'll get back to that in a bit. What happens the moment you load the page, there is a race. People want to find out who you are and whether it's worth their time to show you an ad. And the hope is if they show you an ad, maybe you will in some way engage or convert or respond to that ad in different ways. And there are different methods for measuring exactly how you convert.

So the whole game at this point is to show you an ad as quickly as possible that is as revenue impacting as possible for both the person purchasing the ad and the person selling you the ad, the publisher and the advertiser.

Tracy Alloway (4:31)

So I have a bunch of questions already about how the buyers and the sellers kind of come together. But I guess before we get to that, can you describe what kind of personal data is available if Joe or I actually click on a website, be it the Bloomberg website or something else?