^{Democracy & Technology Blog} Creative destruction in online advertising

An item in the Wall Street Journal by Emily Steel notes how software application developers could radically alter the online advertising business that has allowed firms like Google and Facebook to prosper. Consumers are downloading independently-produced apps which allow them to customize their Facebook page or optimize their Google search results. In the process, these consumers begin to see ads that do not originate from Facebook or Google.

On Facebook, for instance, big splashy ads appear along the border and in the middle of the pages, pushing content–and the advertising actually sold by Facebook– further down the page. The applications can similarly interfere with search results, placing new sets of ads above the ones bought, say, by Google advertisers.

This is the beginning of a major trend, in my opinion. Here is another example: I just downloaded an iPhone app from Harris Teeter, my neighborhood food market, which will allow me to receive offer notifications directly from HT without the need for an intermediary like Google. This retailer already keeps track of all my purchases, the frequency of my visits, the time of day I typically shop, etc. It knows far more about my grocery preferences than Facebook or Google — like which specials I fall for every time, and also the high-margin staples I tend to pick up while I am there.
Imagine what will happen when consumers like me download similar apps from all of our favorite retailers? If retailers do not need Facebook or Google to serve targeted ads to their best customers, Facebook and Google could be up against some serious competition. This is what happens when firms become exceptionally profitable. Highly profitable industries attract new entrants, who are frequently indirect competitors. This is an example of creative destruction, which frequently tends to escape the notice of antitrust enforcers.