Buying And Selling Ads Is Not The Same As Buying And Selling Stocks

Oof. Here we go again. The false equivalency between Wall Street and “digital Madison Avenue” means that an ill-fated bill introduced last year—putatively aimed at breaking up and punishing Big Tech ad businesses (and with unintended casualties as well)—is back from the dead.

The newly introduced bill has been given a dramatically over-the-top new moniker: the Advertising Middlemen Endangering Rigorous Internet Competition Accountability (AMERICA—really?) act. It wants to save us all from the Big Tech Big Bad Bear, which in fact has improved our entertainment, shopping, and newsgathering lives for the last couple of decades and driven the economy like no other sector. Republican Sen. Mike Lee of Utah has proposed it again, and gotten a cast of unlikely bedfellows including Democrats Amy Klobuchar and Elizabeth Warren, and Republicans Ted Cruz, Marco Rubio, Josh Hawley, Lindsey Graham, and J.D. Vance, to join in the attack on the one industry, other than medical science, that has made it possible for us to work, communicate, and live through the pandemic. The bipartisan bill says it wants to prevent companies from controlling more than one part of the digital ad world if they handle more than $20 billion in digital ad transactions.

Just this week, on Wednesday, May 3, there were hearings in front of the US Senate Judiciary Committee with voices debating the act and its potential to hurt rather than encourage competition in the digital sector.

It is at least strange that there is a dollar-amount cutoff point, and therefore it seems like it’s directed at the most successful digital companies.

Why are they doing this? In his press release, Senator Lee writes, “Companies like Google and Facebook have been able to exploit their unprecedented troves of detailed user data to obtain vice grip-like control over digital advertising, amassing power on every side of the market and using it to block competition and take advantage of their customers, The conflicts of interest are so glaring that one Google employee described Google’s ad business as being like ‘if Goldman or Citibank owned the NYSE.’”

Wait. What? That’s an absurd analogy.

Any employee of any business can get the marketplace wrong and parrot the common wisdom out there. Citing some unidentified person as an expert is just irresponsible. Imagine what an employee of the last Republican administration says is being taken as “truth” by Senator Cruz or Graham…

M. Todd Henderson, Professor of Law at the University of Chicago Law School, appeared at the hearing on May 3, and made an eloquent case for why it is false equivalency to say selling and buying stocks and ads are alike. Just as he does in his recently published white paper for the International Center for Law and Economics, “Ads are not stocks, and any claim that they should be regulated as stocks is deeply misleading.”

He lays it out this way: The stock market is the primary means of wealth creation in the United States—enormous social stakes are implicated in ensuring that stock markets are well-regulated. In the stock market, companies can issue and sell shares of their stock to raise capital, and investors can buy and sell those shares in the hopes of making a profit.

Advertising, on the other hand, is a way for a limited number of companies to reach customers and promote their products or services. There are similarities, but they are fundamentally different in their purpose and operation. Advertising does not involve the same level of risk as investing in the stock market, and advertisers do not have the same degree of control over the outcome of their advertising campaigns as investors do over their investments.

Put another way: Securities markets are not marketing words and images aimed at selling commodities. Online ad markets are.

There are some similarities between these activities (someone makes a profit – yay!), but the mechanics and objectives are fundamentally and totally different.

Besides, in ways that the senators in their small wisdom seem not to understand, media has always been a game of actors who do both buy and sell, in the same way as digital—just take a short look at the media companies on cable, which sell advertising and which buy time from the cable operators or in some cases play all sides of that like a Disney or a Peacock. It’s always been true that media companies sell and buy, and therefore sit on both sides of the transactions. And it’s still true in digital—without regard to whether they are doing $20 billion in advertising or $20 million.

Ads for consumer products or services, which are what is traded in the ad marketplace, are not financial instruments that represent ownership in a company or corporation and a proportionate claim on its assets and earnings. They don’t have a prospectus. But they are creative or click bait.

They have no intrinsic value unto themselves, nor do they represent a portion of something else that has value.

Digital exchanges are not equivalent to stock-market exchanges. There isn’t intrinsic value in an ad, especially not before it has been placed in a media buy and judged in its performance. Sellers and buyers in digital do not own or control shares in consumer companies or in agencies—the analogy is just all wrong.

Henderson goes into exceptional detail about the differences between stocks and ads which I won’t recap here, but it’s well worth a read. He also talks about other markets (the art auction market, for example) which are much more analogous to ad marketplaces than the appropriately hyper-regulated stock market.

But the crux of the issue is this: False comparisons are how we end up with bad regulation.

Stocks have posted prices that apply to everyone. In online advertising, there is no single price, no empirical intrinsic value, and no riskless profits you can assign to an ad. So many variables affect how well an ad performs—from creative and targeting to timing and placement and consumer apathy or excitement. When you bought your last car, or tube of toothpaste, were you in the same frame of mind as when you purchased a stock? When you saw an ad, did you think of it as you do of a stock prospectus?

And while the ad tech large players or any other online media company use information from users to provide a better service for their advertising customers, this is the behavior of any retailer, or bread maker, or the operator of any platform, and it’s nothing like securities manipulation.

The sponsors of this bill single out two companies by name as the bill’s main target, but again and as usual, our elected representatives in DC aren’t keeping their eyes on where the puck is going but rather on where it was and don’t yet see that it would affect Apple, Amazon, and just about any other big or mid-sized media company as well. And what about the “indirect” rising retail media companies like Walmart, Instacart and Kroger, building huge sell/buy ad businesses with their partners and clients? Retail media advertising is already a juggernaut: McKinsey expects it to grow from $45 billion this year to over $100 billion in 2026.

If all this sounds like a good way to kill one of the strongest and most vital economic engines of our economy, it surely is. As Henderson concludes, if we were to see this bill pass: “Any analogous regulatory regime for online ad markets would have to be much, much bigger and much more intrusive.”

And that should be a frightening prospect for anyone who relies on digital media for advertising—whether you’re buying media to reach customers and sell product, selling ads to make money, or both—and certainly anyone among the millions who rely on digital media for their living.