Social media is a drug. You are a lab rats. We’re all lab rats. It’s the world that can be incredible and that’s worth a lot of money. For technology companies whose business model is to make sure that advertisers are as successful as possible, it freaks in them. Why do advertisers pay those companies? They pay in exchange for showing their ads to us. We’re the product. Our attention on is the product being sold to advertisers. Before you started watching the video, you were probably given an ad or two to watch by YouTube AdSense through Google, which also services YouTube as the biggest advertising service on the planet, a title it has held for over a decade. According to the company’s 2020 filings, it generated $147,000,000,000 in revenue from online advertising. Well, we have to make money and I think this advertising model is probably the most elegant way. This included everything from banners on websites to the ad that you watched before this video started. It’s a great business model and it finances the free Google-powered services that we all take for granted. I mean, who here pays for their personal email?
But there is a problem with these ads that are very different from what you might see on traditional television or on the radio or in a newspaper. If you are still old-school enough to read, those ads on YouTube just seem to be full of scams. I wasn’t sure if this was just me, but a recent community poll revealed I am not alone and I wanted to figure out why. Whether it’s some hustle bro trying to tell you how you can make a million dollars a month-by-day treat or a mobile game ad that is showing gameplay that looks literally nothing like the game itself, it’s all very questionable. So it’s time to learn how money works. To find out why YouTube is full of ads that look like outright scams.
Why does Youtube allow the scammer to show their scam ads?
Advertising on YouTube and all Google platforms go through a system called AdSense for Facebook and Instagram. It’s called Facebook Ads and most other big social media companies have their own version of the same concept. These platforms allow businesses to create their ads and launch them to target a specific audience. A business selling office supplies can pick banner ads that are displayed to people between the ages of 18 and 60 on business-focused websites like LinkedIn. A big company like Apple will have a much broader set of advertising filters. They would be happy to put an ad for their new iPhone in front of basically everybody so they can spread their budget out over all of these online advertising platforms as well as traditional advertising channels like print, radio and television.
Such a large advertising campaign with such broad parameters will pay less money per view because they are not being too picky with who they target. Every time someone clicks on a video, the YouTube algorithm springs into action. You watch too much YouTube, my friend. Oh, but I am not talking about the YouTube algorithm for regular videos. No, I am talking about the algorithm for ads. This algorithm has one simple objective make as much money as possible. But how it does it is kind of complicated and very clever. The algorithm will basically run an auction in a fraction of a second. The bidders will be the companies that want to show their ad and they will be bidding for the opportunity to do so on that particular video for that particular person.
Some auctions will fetch higher prices if the viewer fits a demographic that is likely to spend money on the advertiser’s product. For example, if there is a young professional watching a finance video. And some auctions will go for very little money if the viewer is less likely to spend money on the advertiser’s product. For example, a teenager watching a gaming video in this virtual auction house a big company like Apple will just go around and place a lowball bid on every single auction. It will lose the more competitive auctions, but it doesn’t need to be picky because almost everybody watching YouTube is potentially in the market for an iPhone. Eh, I don’t think so. These auctions will also not always be won by the highest bidder on YouTube. Specifically, advertisers don’t pay for their ads until one of three things happens the person watches at least 30 seconds of the ad the person watches the entire ad if it’s less than 0 seconds long or the person clicks on the ad link. To demonstrate what this means, let’s watch an ad together right now. You probably clicked the skip button as soon as it popped up, didn’t you?
I know you did. Well, if you did, the advertiser didn’t pay anything for the small part of the ad that you watched because YouTube didn’t satisfy any of these requirements. So if you are a cunning online advertiser. Why not try something like this create a really impactful 22nd ad and then end that ad within ten minutes of a horrible screeching sound that will make people press the skip button? Then you could get the word out about your product without having to pay for it because you wouldn’t be charged for any of your ads because they didn’t satisfy any of these requirements. Very clever, but it won’t work. I’m sorry, what? Why? That’s where the second part of the YouTube ad algorithm steps in. It chooses the highest bidder that the viewer is likely to watch for long enough so that it can get itself paid.
That 30-sec ad followed by screeching might be the highest bidder, but the ad algorithm will never pick it because it knows that the ad is unlikely to pay out the average watch. Time matters just as much to advertisers as it does to YouTubers because if people always get their ads, then the ad algorithm will stop showing them. This is why most of the video ads that you see will have people sitting in front of a Lamborghini making lots of flashy hand movements and making big promises very quickly. Or it will be some bizarre gameplay video that is nothing like the actual app they are advertising. If they can keep you distracted trying to figure out what you are watching for long enough for their ad to count, then their ad will be shown more often and they will have a better chance of finding more customers. The remarkable thing is that this entire process takes place in a fraction of a second between when you click on a video and when you start watching the ads.
The exact formula is a closely guarded corporate secret. And the way it works for YouTube video ads will be different from banner ads, which will be different from Facebook ads. But all these companies will be running an algorithm similar to the ad space auction house. Okay, but this doesn’t explain why these ads are all full of scams, right? Well, wrong, you’re so wrong and he’ll prove you wrong. Well, aside from the online advertising platforms have enabled scams big time. And it’s not because these companies want to advertise bad stuff. It’s because these companies are the best and only option that these advertisers have. This is a totally new species of power and influence. Ad space on television is very expensive because there can only be one thing playing on a channel at any time. This means that it’s not in the budget of the smaller operators pitching some new day trading seminars. Because a television channel can only have one thing playing at a time. Its audience is also broader than something like a specific interest YouTube channel or website.
For big companies with a broad appeal product like the iPhone, that doesn’t matter. But if a weird mobile game was to buy airtime on a TV channel, they have no way of making sure that the people watching the ad would be interested in mobile gaming. The ads are also much less likely to get approved for commercial or radio television because it is possible for a studio team to individually review each and every ad that will get played on their station during a time slot. Google and all other companies do have a review process as well. And I know they block thousands of ad campaigns before they are ever shown to viewers, but it simply cannot be as thorough as TV stations running one stream of content at a time. Some ads will slip through the cracks and some will get through because they are technically not doing anything illegal. To be clear, there is nothing wrong with people advertising and selling online courses or mobile games. It’s not against the law and it isn’t automatically unethical. If the course provides fair value for its price and the mobile game plays like it looks in the ad, then goes ahead. But there is no way for automated systems to make this decision. So most things get through. The specific reason that all of you, all of my wonderful subscribers, and viewers get fed an endless barrage of these ads is that you are the prime target of these questionable advertisers. They know when people are lonely. They know when people are depressed. They know when people are looking at photos of your ex-romantic partners.
They know what you’re doing late at night. They know the entire thing. You are mostly working-age men and women with an interest in finance. If anybody is going to buy a course on starting an online business, it would be someone that fits your description. Fortunately, you all know better. But the advertisers are still willing to give it a go because they are statistically going to have much better luck with you than they will with a kid trying to watch a Fortnite video. There is one other reason that these companies pick online advertising and that’s because it’s just better. They get to make sure that none of their money is going to waste. The accuracy with which they can reach their viewers is astounding and just a little bit scary. I have personally been fortunate enough to work with some legitimate businesses that have launched big online advertising campaigns. The targeting ability their platform offers means that none of that is going to waste, which is good for big companies, but crucial for small companies. I know you all just skip the ads that you see as soon as the option becomes available.
But if you do actually pay attention to them, you can notice a pretty sinister pattern. The get-rich-quick style of ads promising you a path to quit your nine-to-five job only gets played during weekday morning commute hours, lunch breaks, and the hours following the working day. The advertisers know that people are more likely to make a bad decision and give an overpriced course a try if they are dreading another hour of the office or if they just got home from another day of being yelled at by their boss. You can’t reach these people in moments using a TV. Normally, when people sit down on the couch, they are going to be in a better mood than when they are scrolling through YouTube on their way to work. It’s much harder to sell someone the dream of changing their life if they happen to be enjoying their life at that moment. It really is no wonder that TV is a dying platform, although they are not doing much to help themselves. I mean, just look at the History Channel. Have you ever wondered how it went from making world-class documentaries to garbage conspiracy theories? Well, go and watch my video on how history works to find out.
