Is Digital Advertising a New Form of Market Manipulation?

New applications of big data and digital technology are a form of “market manipulation,” contends new research from the University of Washington School of Law.

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Social networking and digital advertising are colliding at a dizzying rate.

Facebook, which has over 1 billion users (and which bought Instagram last year) introduced news feed and mobile ads in 2012. This year, it’s launching video ads. And it’s forecasted that Facebook will triple its mobile ad share this year, putting it second only to Google, still the “big kahuna” in the digital ad space.

Twitter, which has more than 200 million users, just bought MoPub, a digital advertising platform that essentially creates an ad space that is sold and delivered in milliseconds, every time a user views a page.

Instagram, which boasts 150 million monthly active users, is kicking around the wheres and hows of enabling digital advertising on its platform by year’s end.

What does this all mean for the relationship between businesses and consumers? The short answer: the looming “sea change in the way companies use data to persuade” creates an ever-increasing opportunity to really exploit users, according to new research out of the University of Washington School of Law.

In his paper entitled “Digital Market Manipulation”, professor M. Ryan Calo (who is also an affiliate scholar at The Center for Internet and Society at Stanford Law School) suggests that the concept of market manipulation, first floated by researchers in 1999, is outmoded. Calo updates that framework to include the realities of a marketplace that is “mediated by technology” — the laptops, tablets, smartphones and other devices consumers use to get online.

According to the study, advertisers collect data about consumers and, increasingly, use that data to personalize every aspect of their users’ experience. They not only can take advantage of a general understanding of cognitive behavior — and limitations — but can “uncover and trigger consumer frailty at an individual level.”

For the record, Calo and other researchers define market manipulation as essentially “nudging for profit.” They believe that companies will use what they know about human psychology to “set prices, draft contracts, minimize perceptions of danger or risk, and otherwise attempt to extract as much rent as possible from their consumers.

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Topics

Competing With Data & Analytics

How does data inform business processes, offerings, and engagement with customers? This research looks at trends in the use of analytics, the evolution of analytics strategy, optimal team composition, and new opportunities for data-driven innovation.
See All Articles in This Section

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