Advertising as an Externality Do We Need Go Daddy Cap-and-Trade Regulations

Advertising as an Externality | Do We Need Go Daddy Cap-and-Trade Regulations?

Externalities are a challenging, yet important concept in economics. How responsible, if at all, is a company for polluting a region’s water supply if no regulations are in place to dictate that they can’t? To what extent are firms liable for medical treatments directly attributable to unchecked emissions? Is it right to legislate the opening of legal, legitimate businesses such as liquor stores and nightclubs whose presence has been empirically shown to raise localized levels of crime?

In each of the above scenarios there is a common thread: explicit harm is being inflicted unwillingly upon an individual or group. Nobody questions that the cancer diagnoses, environmental damage and drunk driving incidences that result from the above are legitimately tragic, unjust and preventable. The conundrum in each of these scenarios is how to properly attribute responsibility for externalities and identify the most effective and efficient ways to minimize future collateral damage while maintaining a rightful balance of liberty and freedom.

Pollution is one of the most commonly-cited and easily understood examples of an externality. The damage caused by pollution is so immediately visceral and the party bearing the cost is so unambiguously detached from the transaction resulting in harm that it’s no wonder pollution is the de facto standard for describing the concept of an externality as a whole.

As I have progressed through my career, however, I have increasingly come to view horrific, dreadful advertising as an externality whose harm is far more intangible than the damage inflicted by pollution, but similarly debasing to our culture.

Advertising as an Externality | Progress | Cap and Trade

Progress isn’t a dirty word.

Can Culture Be Harmed?

If you’re going to adopt the viewpoint that terrible advertising harms our culture, you first have to establish that our culture can be harmed. To do this, you have to be able to identify periods of time where the health of our culture has demonstrably differed.

At a high-level, this is easier than you think. Despite oft-repeated lamentations that America is only steps away from becoming a modern-day Sodom and Gomorrah and perpetual longing for a return to the “good old days“, barely any objective reflection is needed to reach the conclusion that our culture today is significantly more just, rich,  and healthy than it used to be:

  • Just 150 years ago, it was legal to own another human being as a slave. Enough people believed in the legitimacy of owning another human being as a slave that our nation went to war over it. While we certainly have much progress to make, racism and slavery are, at a minimum, far more culturally unacceptable than they used to be.
  • There still significant work that needs to be done to close the disparity between male and female income inequality. That said, the female-to-male earnings ratio in the United States increased from 60 to 77 percent over the past fifty years (source, page 11). Perhaps more notably, less than 100 years ago, women weren’t even allowed to vote in the United States. In fact, the Senate vote allowing women to vote in the United States only passed by a 56-25 margin!
  • While many peaceful, law-abiding American-Muslims were subject to prejudice and discrimination based solely on the color of their skin and religious preference following 9/11, just 70 years ago, our nation authorized the detainment of 110,000 Japanese-Americans in internment camps following Pearl Harbor under similar pretenses. This represented the detainment of nearly 90 percent of the Japanese-American population.

It’s important to remember that because we as a culture still have progress to make in significant areas, that does not negate the gains we have made over time. Yes, television about the Kardashian family draws shockingly high ratings. Our military chose to fire six Arabic linguists, professionals whose skill is extremely limited in supply, due to their homosexuality. A Florida distributor made the decision to produce and sell Trayvon Martin-based gun range targets. Worse – they sold out in two days.

But for every high-profile step backward we take, our culture historically has taken multiple steps forward. The murder rate in America is at an all-time low. Life expectancy in the United States has never been higher. The percentage of our income that we spend on food has never been lower. Overt racism, sexism, homophobia and discrimination is rightly considered intolerable and unacceptable.

Because our culture can be viewed comparatively in terms of health, we can reasonably assume that culture can be either bettered or harmed by society’s attitudes, beliefs and actions. And what better affects society’s attitudes, beliefs and actions than — you guessed it, advertising!

Responsible Advertising | Advertising As an Externality

I don’t feel that it’s an advertiser’s responsibility to elevate or better our culture, just as I don’t believe that a factory has an inherent responsibility to have a net positive effect on the ecosystem. An advertiser’s ultimate responsibility is to achieve his or her marketing goals just like a factory’s responsibility is to fulfill the mission of its builders (profits, changing the world, or otherwise.)

At the same time, however, I believe a factory has a responsibility to not pollute the region in which it operates. I believe that a factory is culpable for the harm it inflicts on third parties through the costs it unknowingly passes, whether those costs are borne through a polluted water supply or increased amount of toxins in the air.

Similarly, I believe that advertisers have a responsibility to do no harm upon our culture. Advertisers should not be allowed to justify messaging that has a regressive effect on our culture under the guise of strategy or effective marketing.

So what constitutes messaging whose byproduct is a regressive effect on our culture?

You don’t need to be a senior account planner to know the thought process that goes into Go Daddy advertising.

“You know what sells? Tits and ass. Always has, always will.”

For years now, Go Daddy has been producing advertising like the above. Insipid writing. Overt sexism. Ham-fisted calls-to-action to view unrated web content. Obnoxious jingles. Surgically extract any dignity, class and pride that advertisers take in practicing their craft from a campaign, and you’ve distilled the very essence of Go Daddy marketing.

Unfortunately, here’s the problem: Go Daddy advertising works. Founded in only 1997, Go Daddy’s cash flows have grown to nearly $1 billion. Go Daddy is four times the size of its nearest competitor, Network Solutions. At this point, it seems unlikely that anybody is going to successfully convince Go Daddy CEO Bob Parsons that grace and dignity in corporate messaging is worth more than the elephant he killed in the now-famous video.

The reason that Go Daddy advertising is effective, however, is the same reason that it’s cost-effective for a factory to pollute the air and water of the region in which it operates. From a pure profit-maximizing perspective, a factory that pays no heed to pollution will be able to produce widgets cheaper and sell them more profitably than a factory committed to bearing the costs of reducing its environmental footprint. If all you care about is profit, what rational reason is there to take on the costs associated with reducing pollution when those costs can be easily passed on to others?

Similarly, Go Daddy advertising is an exercise in brute advertising principles. Sex sells. Dudes by domain names, and dudes love hot chicks. Have a call-to-action that gets them on the site. A college freshman who has taken a singular marketing class is armed with the principles needed to understand how Go Daddy advertising is made. Why spend all that extra money on strategic nuance and smart advertising when results can be achieved with a lot less thinking. If all you care about is profit, what rational reason is there for Go Daddy to take on the costs of not polluting our culture when doing so has no impact on the bottom line?

Now in reality…many factory owners are committed to environmental protection and sustainable practices. In some instances, this commitment is motivated by differentiation and profit (you should buy from us because, unlike Widgetcorp down the street, we actually care about not killing the environment and members of the community.) In other cases, the executive team has a strong moral belief in not passing off the social cost of externalities. Many meaningful corporate decisions regarding externalities are made with considerations that extend beyond bloodlust for profit.

But you don’t need to be a sophisticated, critical thinker to have a sense of what Bob Parsons’ attitude towards his environmental footprint were he to be the head of a factory.

Unfortunately, the line that delineates horrific advertising is reminiscent of the old axiom on obscenity: “I know it when I see it.” And not all horrible advertising derives its malfeasance from sexism or racism. While the big budget filth of Go Daddy is more resonant in its regressive impact, the “long tail” of poor quality advertising is equally debilitating, but in a different way.

The Tragedy of the Commons describes a scenario in which multiple individuals act independently and rationally in their own self-interests, but the accumulated behavior of these individuals ultimately works against them. The Tragedy itself refers to a scenario where multiple farmers permit their cows to overgraze in common areas, ultimately destroying the land. Even though this behavior is rational on an individual level, when extrapolated to a society, it highlights the paradoxical need to restrict the pursuit of self-interest for the greater good.

In the context of marketing, virtually every business needs to advertise. Good advertising requires time and expense to produce….time and expense that is not always justifiable given business conditions. The Tragedy of Eagleman isn’t that Eagle Insurance didn’t need advertising, but Eagleman, like many terrible advertisements, was a another drop of water serving to erode consumer trust in corporate messaging. Consider that:

  • Trust in television, newspaper and magazine advertising declined by 24, 20 and 25 percent respectively from 2009 to 2011 (Nielsen)
  • More than half of people have a less favorable opinion of an advertiser when their advertising appears on a web page they perceive as cluttered. (BurstMedia)

The Eagleman on its own does not have anywhere near the harmful impact that Go Daddy advertising is capable of inflicting. Millions of Eaglemen over time, however, are more than capable of felling the mighty cliff of consumer goodwill. Searching for the phrase “worst ad” returns 157 million results on Google Video Search alone. It’s difficult to believe that waning faith in traditional media doesn’t derive at least in part from the “long tail” of bad advertising that consumers are barraged with each day.

Sadly, despite how embarrassing Eagleman was for Eagle Insurance and everyone involved, the earned media alone made it one of the most cost-effective ads ever. That’s probably why Eagle Insurance decided two release not one but two sequels. As a rational agent, it made sense for Eagle Insurance to keep making these bad ads, as for very little money, as they were able to achieve more exposure creating bad ads than they would have making good ads.

But if everybody made ads like Eagleman (and more do than probably should), it wouldn’t matter how good Arrested Development or Community was – television would be a nearly unwatchable experience. Viewership would likely decline significantly, hampering the attractiveness in the eyes of advertisers. Less revenue would flow to the networks, which would likely result in lower-quality programming, which would only compound the problem of declining viewership. Television, at least as we understand it, would devolve into cultural irrelevance.

Bad advertising credits | Cap and trade

Bad advertising credits | Cap and trade

An interesting, if entirely unrealistic and impractical approach to the externality of advertising would be to enforce cap and trade regulations on terrible advertising.

In this scenario, Go Daddy might be allowed to purchase X hours of media time for terrible advertising. The amount of hours, X, would be set at a predetermined amount based on a company’s annual revenue. If Go Daddy reaches its maximum of terrible advertising, it must purchase additional offset credits or it must develop higher quality advertising.

Eagle Insurance would also be allowed to purchase Y hours of media time for terrible advertising. Y for Eagle Insurance would be much smaller than X as they are a much smaller company than Go Daddy. As such, Eagle Insurance would be more motivated to not create messaging that’s an affront to civility and dignity.

An international governing board might determine a target amount of bad advertising across all networks with the goal of reducing the amount of bad advertising produced by Z percent.

The problems with a scenario a bad-advertising cap and trade program are too numerous to count. Who determines what is bad advertising and what is the defining criteria? How are the caps enforced? Who regulates the trading of credits? Is this really an efficient or effective solution? Is bad advertising even actually a problem?

I can’t answer these questions. But a guy who longs for a world without Go Daddy and Eagleman can dream, right?

Tell me your thoughts on bad advertising as an externality!

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One Response to Advertising as an Externality | Do We Need Go Daddy Cap-and-Trade Regulations?

  1. Nick Aster says:

    Great article. This is something I’ve never really thought about in exactly this way. Granted it’s awfully difficult to quantify something like this and you’ll pretty quickly get in to subjective territory.

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