There is something to be said about the state of advertising.

Increasingly it seems you must go to the almighty Google or Meta in order to launch any business.

We're looking to expand into a new business line and have out grown our pharmacy capacity.

The new business line will cost about $2M in software dev, and $3M for the new facility. The advertising budget? $40,000,000 (annual).

We can build 10 robotic pharmacies (~10 staff per 4000 fills daily, each) for the price of just the advertising.

Increasingly we wonder why America doesn't build more and here is why. You are going to give all your revenue to two platforms. Unless you operate in a business line with 50% margin you are screwed.

I don't know what the solution is, but its clear that the platforms are figuring out how much margin everyone has and slowly eroding it. Somewhere between 8-15% of the cost of all products we purchase is advertising spend.

Advertising spend being too high is a symptom of a supply glut. Too many products in the marketplace, not enough consumers to buy them.

In a different world where there are higher wages, more people would have more spending power. Then companies wouldn't have to spend as many dollars on advertising, which they could split between higher wages, higher margins and lower prices.

Alas, the short-term single-firm directional incentive for company decision makers in that world leads to marginal prioritization of higher margins. The loss of wages leads to loss of consumer spending power but it's spread across the economy. But every firm has the same incentive so they all do the same thing, and the good thing gets ruined.

This line of thinking leads to a Georgist-ish conclusion: The class conflict shouldn't be between workers and employers. They should be allies; the real cause of nobody being able to afford anything is rent extractors. (Writing in the 1800's, George [1] was most concerned about land rents; but the advertising monopoly of Google / Meta may be another form of extractive rent with similar characteristics.)

Maybe Henry Ford was on to something when he shocked the world by paying his employees enough to afford the product they were making (more than doubling many workers' wages)...

[1] https://www.astralcodexten.com/p/your-book-review-progress-a...

> The new business line will cost about $2M in software dev, and $3M for the new facility. The advertising budget? $40,000,000 (annual).

The reason the advertising budget is such a high number and a recurring charge is that effective advertising returns an ROI on each dollar spent.

If the software budget was increased 10X to $20 million, would the company get 10X as many customers? No.

What about the facility? If you 10X the facility budget to $30 million would you get 10X as many customers? No.

However, advertising is a customer acquisition activity. Every dollar you spend on advertising provides additional customers. This is saturable, but the ceiling is very high. Much higher than spending on software or facilities.

The reason your ad budget isn’t so high isn’t because Google and Meta invented the discoverability and distribution problems or basic economics. It’s because it has been determined that acquiring new customers via advertising has a high ROI and therefore it’s a smart move to pour as much money as possible into customer acquisition.

If every $1 you spend on advertising produces $2 in customer LTV then your company should be maximizing ad spend until evidence of saturation starts appearing.

This commonly frustrates engineers who think it’s a wasted investment. The question is: Compared to what? If you could have the same number of customers and same amount of revenue without advertising then you should do that! However, you can’t. This isn’t a licensing fee that’s being paid. It’s putting money into a machine that returns more dollars back than you put into it.

> I don't know what the solution is

Just spitballing, but how about a total ban on behavioral targeting?

In order to sell anything, people need to know about it. Google and Meta provide a way to make this possible. If they didn't exist, you wouldn't somehow have a more affordable way to get people to know about your product. However frustrating the current situation is, it is still more accessible than needing access to the airwaves or print media to try to sell anything new.

“Your margin will soon be my margin.”

The solution was/is and most likely will be antitrust but which administration will shatter the US tech market we are yet to see.

This is kind of broken logic. You’re not required to advertise. If you want to scale your business into millions in revenue, then you’ll likely need to advertise. The best ROI is generally google/meta, but you have countless other options. You can buy ads directly from most websites, it just doesn’t scale.

Doesn't this point more to a saturated market and the need to manufacture demand to keep growing?

That is very good framing for the problem with advertising today.

It also says that if you can find an audience to build a new ad platform, the incumbents have created enormous margin for the new platform.

“ Increasingly we wonder why America doesn't build more and here is why.”

Building another advertising network isnt like building a factory or a bridge. Its not something money can magically make appear.

You need to build something that is either very very addicting to use or an universally useful online product like ChatGPT or a new search engine.

If it was that easy, capitalists would be building another new advertising network in droves

Just to verify--as I truly do have a contempt for big tech oligopoly that extract rent from everyone to do anything at all, but am just unsure this specific problem is a ramification of such--are you sure you would not have had a large advertising budget pre-Google, or even pre-Internet? You used to pay to pay for limited space in newspapers and limited time on TV/radio stations, which also had high theoretical per-unit margins, or for a massive pile of physical mailers and door hangers, along with the cost of the delivery.

To the extent to which our current situation costs more, I'd think it might merely be because of increased worldwide competition: it used to be that the people trying to advertise to any specific random community were also likely local, and probably had a legit attempt at a business model... only, now, the rise of online companies funded by speculative venture capital means that an attempt to advertise a restaurant to people who live in a 10 mile radius must compete against a company that raised $400m to sell an online engagement platform that cares not one iota who uses it as long as the conversion cost is cheap, bidding up ads everywhere.

(One place that does seem to me to be uniquely the fault of these modern tech companies, though, is that if a newspaper published a scam ad, whether or not they had legal culpability, I think they and their surrounding community did at least strongly feel that they had some level of moral culpability. In the current tech environment, people seem to want to believe Meta/Google should be allowed to indiscriminately publish ads from bad actors, so you now must also compete to bid for limited attention with obvious-to-most-but-not-all scams and grifts that make money out of nothing but bullshit and are thereby willing to again bid up prices anywhere and everywhere.)

Advertising is a tax that goes to an oligopolistic cartel.

Rent seeking is all Capitalism is about.

They call it a moat.

Meta, TikTok and social media create the cultural celebration of thinness that makes it possible for you to sell 25mg semaglutide tablets to everyone. In my opinion, they deserve more than 50% of your margin: you didn’t invent the drug, the FDA is basically letting you break the exclusivity policy for no particularly good reason, and you didn’t create the audience.