Don’t fear the adman

Ingenuism Weekly 47

“Creativity and innovation are about finding unexpected solutions to obvious problems, or finding obvious solutions to unexpected problems.” –Rei Inamoto

INSIGHT

Don’t fear the adman

Don Watkins and Robert Hendershott

Photo by Andre Benz on Unsplash

One of the most striking things about advertising is how new it is. For most of human history, no one had any need to broadcast to a mass audience. In the rare occasions anyone bothered, information traveled through a bureaucratic chain. The Vatican tells cardinals who tell bishops who tell priests who tell the laity.

It wasn’t until the rise of modern progress that there suddenly became a need for regular mass communication: producers needed to tell consumers, “Hey, our product exists and you should totally buy it.”

Advertising solved this problem. Just like roads connected producers to markets, advertising connected producers to the buyers who shopped at these markets. It was the original information superhighway.

The key insight that led to the rise of modern advertising was that certain platforms commanded public attention. Lots of people read newspapers and magazines or traveled downtown. Later they listened to the radio and watched TV and surfed the internet. Advertisers figured out that they could pay to promote their wares on these platforms. Buyers could discover new products, producers could acquire new customers, and the platform owners could profit by making this connection.

Advertising was a huge innovation that benefited consumers both directly and indirectly. Take newspapers. As late as the early 1830s, they were mostly read by tiny fraction of the population, typically businessmen and politicians.

Benjamin Day changed that when he decided to launch the New York Sun. His plan was to slash the price of newspapers, from 6 cents to 1, dramatically expand readership, and make money by filling the pages with advertising.

This not only expanded readership but it also liberated newspapers from the partisan benefactors (often political parties) who published earlier papers. The Sun, for example, was staunchly abolitionist at a time when none of the major parties endorsed the end of slavery.

That’s not to say that the effects of advertising were all positive. Day’s paper was no longer geared toward telling people what the publisher thought was important—it was geared toward telling people things they’d find interesting, and this often meant catering to the lowest common denominator. Tim Wu gives this example in his book The Attention Merchants,

The first issue of the [New York Sun] told also the story of William Scott and Charlotte Grey. Scott was jailed for assaulting Grey, his female companion. Brought before the magistrate, Scott was offered release on one condition: that he promise to marry Grey, the injured party. “Mr. Scott cast a sheep’s eye towards the girl, and then looking out of the window, gave the bridewell a melancholy survey. [He] was hesitating which he should choose—a wife or prison. The Justice insisted on an immediate answer. At length he concluded that he ‘might as well marry the critter,’ and they left the office apparently satisfied.”

Of course, this kind of low brow content isn’t the only negative attributed to advertising. Even advertising’s most defensible role—the communication of information—is criticized since advertisers aren’t disinterestedly providing objective information about their products. They’re trying to sell you, and at times resort to puffery and even outright lies.

We all know that “selling snake oil” is a synonymous with promoting a useless product. But snake oil was a real thing and it made Claude Hopkins, the Don Draper of his day, a very wealthy man. Hopkins would write compelling sales letters for so-called patent medicines, send them directly to people’s homes, and the orders would roll in. The problem was the letters were filled totally false and made-up claims about the healing powers of snake oil and other patent medicines.

But this story doesn’t end there. In fact, it actually teaches us how to think about advertising and its role informing consumers. Because, while Hopkins was up to his shenanigans, a former New York Sun reporter, Samuel Hopkins Adams, decided to do an exposé on the patent medicine industry.

It was a tour de force. Adams commissioned a chemical assay of various patent medicines to reveal that they were filled with useless and sometimes dangerous ingredients. He had labs test the efficacy of the medicines on animals, and the results were, well, let’s just say some animals were definitely harmed in the making of this series.

Adams’ exposé essentially killed the patent “medicine” industry, led to the passage of the FDA truth in labeling act, and made snake oil an enduring part of our lexicon. False advertising created the snake oil industry…but advertising also enabled the platform that exposed it as a fraud.

The larger lesson: advertising is part of an information system—a system where businesses inform us about what they’re selling, competitors inform us of why their wares are superior, the government polices to ensure businesses don’t make fraudulent claims, journalists and other watchdogs try to make their mark by exposing misleading claims, and other buyers share their positive and negative experiences with a product. 

There’s no such thing as an information system that impersonally churns out objective data to help us make decisions. Its role is to provide us with information, which we’re free to process based on our own preferences, more or less objectively.

And as part of the information system, advertising adds more value when it provides more relevant information to consumers. Targeted advertising may raise privacy concerns but there is no doubt that the internet has enabled advertising’s evolution into a much more effective medium. 

There used to be an old joke that everyone knew that half of their advertising spending was wasted—they just didn’t know which half. Because of the feedback provided by modern advertising, in particular on the web, today advertisers do know. This reduces not only wasted spending by advertisers but also wasted attention on the part of consumers.

Seen in this light, there’s no problem with information that comes from sources trying to sell us products—especially when feedback, learning, and competitive pressure on platforms leads the advertising to provide us with more and more value for our attention.

QUICK TAKES

The problem with financial innovation

Last week I talked about the benefits of financial innovation but didn’t address the elephant stampeding around the room. Namely, what about the downsides of financial innovation?

Economist Arnold Kling has a good piece on this issue. The short-version: in an impartial market, financial innovation is like any other kind of innovation.

In the context of a free market, innovation is a positive-sum game. The innovations that survive—most don’t—are the ones that conserve resources and improve quality. In the case of financial innovation, improving quality could mean better risk management.

But he goes on to point out, we don’t have anything like a neutral, impartial market in finance today. (And, as I’ve argued, we never have.) In particular, there are a lot of government guarantees that prevent failure, and the result is that a lot of financial innovation is aimed at gaming the system so that “heads I win, tails you lose.”

These guarantees can be exploited by firms that take on excessive risk. If a gamble pays off, the gains go to owners and managers of the firm. If the gamble turns out badly, some of the losses go to taxpayers. Even though managers might not consciously be searching for ways to game the system, the competition for returns will push them in the direction of doing so.

Innovative financial instruments and practices can facilitate gaming the system, without regulators realizing it. Clever innovations can enable a bank to comply with the letter of a regulation while violating its spirit. Sometimes, even the executives of the bank are fooled. They do not realize that their profits are coming from this “regulatory arbitrage,” rather than from real business skill.

We know that when you resist failure, you stymie learning, innovation, and progress. I still think financial innovations are on net beneficial. But in our current environment, it’s right to view them with more skepticism than the latest app coming out of Silicon Valley.

Brand building

The New York Times has a fascinating profile of Stewart Brand, founder of the Whole Earth Catalog that inspired Silicon Valley icons like Steve Jobs.

The whole thing is worth reading, but this part was particularly fascinating:

Mr. Brand learned to avoid making specific predictions about the future in 2002, when he toured the nuclear waste storage facility in Yucca Mountain.

Through the 1990s Mr. Brand opposed nuclear power, but he began to rethink his opposition after he discovered, during that tour, that some experts believed some new nuclear technologies would be found to use what is now considered nuclear waste. That changed the way he thought about the future in general.

“It showed us that long-term thinking is at its best, not in terms of long-term planning century by century or utopian planning,” he said. “But you’re trying to keep all the kinds of options that are currently available open—don’t lose options. What progress consists of is adding more options.”

That’s such an important lesson, and it reminds me of some the points that came up in our recent discussion of living like an Ingenuist. The best way to build a great career isn’t to sit down and work out a 20 year plan. It’s to engage in trial and error learning over time, maximizing optionality along the way.

If you focus on creating opportunities, you won’t know exactly where that path will lead, but you do know it will lead some place better than you could have foreseen at the start of your journey.

Don’t kill your cat

With rising inflation, some of the advice we’re being given is to basically eat like paupers and let our pets die.

When it comes to food, don’t be afraid to explore…Meat prices have increased about 14% from February 2021 and will go up even more. Though your palate may not be used to it, tasty meat substitutes include vegetables (where prices are up a little over 4%, or lentils and beans, which are up about 9%)…It's a more efficient, healthier and cheaper way to get calories…

If you’re one of the many Americans who became a new pet owner during the pandemic, you might want to rethink those costly pet medical needs…

One of the central values of the progress movement is to counter that sort of fatalism. In that vein, here’s a good piece from Eli Dourado arguing that what today’s situation calls for is not frugality but productivity. 

If we can’t counterbalance the supply shock in every granular manifestation, we can at least take action to boost productivity and aggregate supply. Macroeconomic textbooks don’t focus on this policy lever because they assume that the supply side of the economy is already optimized. Yet it is manifestly evident that American society is not maximizing its productivity. If we wanted to raise American productivity, for example, we could simplify geothermal permitting, deregulate advanced meltdown-proof nuclear reactors, make it easier to build transmission lines, figure out why high-speed rail is so expensive, fix permitting generally, abolish the Jones Act, automate our ports, allow drones to operate autonomously, legalize supersonic flight over land, reduce occupational-licensing requirements, train more medical workers, build more hospitals, revamp our pandemic-response institutions, simplify drug approvals, deregulate land use to allow denser housing and mixed-use neighborhoods, allow more immigration, cancel inefficient programs, restrict cost-plus procurement contracts in favor of more effective methods, end appropriations based on job creation, avoid political direction of scientific research, and instill urgency in grantmaking.

This message has been brought to you by the Pets of America.

100 true fans

A lot progress doesn’t consist of sexy breakthrough technologies, but increasingly customized products and services.

Today I don’t have to buy whatever music my local Tower Records happens to stock—I can choose from virtually all the music human beings have created. Great news for all you fans of sitar punk-jazz fusion.

But you can also look at that same phenomenon from the creator side rather than the consumer side. As we’ve pointed out, in a long tail economy, you can get rich selling unpopular products.

Here’s a great piece that translates this fact into useful advice for creators. It argues that whereas Kevin Kelly famously celebrated how anyone with 1000 true fans can prosper in the Internet age, the truth is even more exciting: you really only need 100.

As the Passion Economy grows, more people are monetizing what they love. The global adoption of social platforms like Facebook and YouTube, the mainstreaming of the influencer model, and the rise of new creator tools has shifted the threshold for success. I believe that creators need to amass only 100 True Fans—not 1,000—paying them $1,000 a year, not $100. Today, creators can effectively make more money off fewer fans.

Sound unlikely? We’re already seeing this shift, according to creator platforms. On Patreon, the average initial pledge amount has increased 22 percent over the past two years. Since 2017, the share of new patrons paying more than $100 per month—or $1,200 per year—has grown 21 percent. On the online course platform Podia, the number of creators earning more than $1,000 in a month is growing 20 percent each month, while the average number of customers per creator is growing at a rate of 10 percent. Likewise, on Teachable, the average price point per class offering has risen roughly 20 percent, year over year. In 2019, nearly 500 Teachable course creators made more than $100,000; of those, 25 averaged more than $1,000 per sale. 

See the piece for advice on how to find and monetize your 100 true fans.

The education of a stupid robot

“The robots are kind of stupid until you put the intelligence on them,” said Raymond Tunstill, CTO of FruitCast. He’s talking about AI robots that he uses to help identify ripe strawberries. It turns out that one of the biggest challenges with using AI is training the robots.

But there’s a company helping businesses like FruitCast get AI systems up to speed.

FruitCast, the agricultural AI startup behind the robots, taught its bots how to do their jobs with data from V7 Labs, a London-based startup that helps AI companies automate the training-data process for models. Training can be one of the most labor-intensive parts of getting an AI system off the ground, since it often calls for not only time and resources, but also vetted and relevant data.

What’s really fascinating is how V7 got into the robot training business. Namely, they learned from failure.

“The secret behind V7 is this system that we call AutoAnnotate,” the startup’s CEO Alberto Rizzoli told us. He and his cofounder, Simon Edwardsson, thought it up based on obstacles encountered in their previous business venture: Aipoly, a computer-vision startup that allowed blind users to identify objects using their phone cameras. Though the software worked “decently well,” Rizzoli recalled, “training data was the really difficult part to create.”

So they created AutoAnnotate, a general-purpose AI model for computer vision. When a client comes to V7 with training data—images or videos they’d like an AI model to learn from—V7 detects the object’s boundaries in each frame (like strawberries, for instance), and then uses AutoAnnotate to label it. According to its internal measurements, labeling a high-quality piece of training data could take a human up to 2 minutes, said Rizzoli, compared to about 2.5 seconds for AutoAnnotate.

Seems like a wasted chance to name your company “The Robot Whisperer.”

Until next time,
Don Watkins

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