The Ad-Blocker Shakedown

The digital ad industry is a never-ending cat-and-mouse game where consumers install better and better ad blockers while advertising networks continuously fight to circumvent the blockers.

Ad networks like Google’s DoubleClick get paid by brands and agencies to deliver targeted ads to publisher web sites. But the purveyors of ad-blocking software have families to feed, and they need a business model too. Adblock vendors offer to whitelist certain ad networks, for a fee. Eyeo, creator of Adblock Plus, purportedly charges something equivalent to 30% of the network’s ad revenue to let the ads through. Nice.

Advertisers want in on this racket. Google plans to introduce an ad-blocker in its Chrome web browser, and Microsoft may follow suit. The hope is that if browsers preemptively block ads, then consumers will stop installing third-party blockers. At the same time, Microsoft and Google have a way to force more advertisers into their own network, since they’ll obviously whitelist themselves.

Google’s claim is that they’ll only block “unacceptable” ads, but acceptability is a fuzzy idea determined entirely by a closed consortium of ad networks. Adblock Plus also claimed to adhere to acceptability standards, but the company had no qualms whitelisting Taboola – the ad network best known for Three Weird Tricks to Remove Belly Fat. Google might not whitelist Taboola, but its criteria will certainly have something to do with money. Google built the most popular web browser in the world; of course it wants to extract rent from the ads delivered therein.

Taboola’s “non-intrusive” ads.

Consumers have a lot of different reasons for running adblockers, which is why there are many blockers to choose from. Allowing one company to determine which ads make the cut will invariably leave a lot of advertisers screwed. There are a lot of things wrong in the digital media industry, but giving Google greater monopoly control will help none of them.

Man-in-the-Middle in the Victorian Age and Today

It’s all ads!

In Victorian England, people often communicated by placing ads in the paper. Stamp tax was increased during the Napoleonic Wars, and the price of postage could add up to more than a worker’s daily wage. Personal ads, on the other hand, were free.

Ad placements could avoid the cost of letter delivery, but the downside is that everyone can read your messages. To keep communications private, correspondents used coded text.

Early ciphers relied on simple substitution, replacing single letters according to a fixed system. Charles Babbage and his buddies Sir Wheatstone and Lord Playfair would decipher strangers’ messages to mess with them. Playfair recorded one such instance:

On Sundays we generally walked together, and used to amuse ourselves by deciphering the cipher advertisements in The Times. An Oxford student who was in a reading party at Perth was so sure of his cipher that he kept up a correspondence with a young lady in London. This we had no difficulty in reading. At last he proposed an elopement. Wheatstone inserted as an advertisement in The Times a remonstrance to the lady in the same cipher, and the last letter was, “Dear Charlie, write no more, our cipher is discovered!”

This is what we call a man-in-the-middle attack. A postal letter is sealed to prevent interlopers from getting all up in your business, but an ad in the paper is a public broadcast, protected only by the hope that no one will understand it but the intended recipient.

Today, pretty much everything we do on the internet is public broadcast, and a modern-day Wheatstone might insert a message asking the young lady for her bank account password. More commonly, malicious internet service providers like ATT and Charter examine your web traffic and inject ads into your browser.

Why the hell is FCC.gov displaying pop-up shoe ads?? Oh, it’s AT&T.

The good news is, encryption technology is much better now than it was in Wheatstone’s day. It’s no coincidence that unbreakable encryption was invented just after the advent of radio communications, where everything is a public broadcast.

During WWI, the French got their asses kicked, but had the foresight to destroy their telegraph lines upon retreat. This forced the advancing German army to communicate by radio, and gave the Allies plenty of messages to decode.

A weakness of substitution ciphers is that if the codebreaker figures out the pattern used for substitution, the whole message is revealed. Joseph Mauborgne of the US Army figured out that if the pattern was random, the code would be unbreakable. That seems obvious now, but random substitution was such a great idea that it was used to encrypt messages on the Moscow-Washington hotline until the 70s.

One-time pad used by the NSA. It’s a lookup table with a random key. The sender and recipient have a book of these, and use a new page for each message.

Now, when we create passwords, they’re usually not random strings. But the server that stores your password will combine it with a random salt and then hash it. That way, even if the database is breached, the hacker can’t actually access the passwords. The random salt is important, because a hashed password without salt can simply be looked up in a hash table. LinkedIn famously neglected to do this, so hackers got to the plaintext passwords and then applied the same login to break into users’ accounts on other sites. Same thing happened with Yahoo hack.

And that’s why we should never reuse our passwords.

Juice in a Bag!

People are making fun of Juicero’s $400 juicer because some journalists figured out that you can do the same job with your bare hands.

Juicero sells $8 packs of vegetable pulp, but you’re supposed to first pay for the $400 machine in order to use them.

The public backlash was enough to compel Juicero CEO Jeff Dunn to defend his product with the following response:

The value of Juicero is more than a glass of cold-pressed juice. Much more.

The value is in how easy it is for a frazzled dad to do something good for himself while getting the kids ready for school, without having to prep ingredients and clean a juicer.

That’s dumb. If you want a convenient juicebag, Capri Sun solved the problem decades ago. Juicero is a product that addresses a completely different need — That of, How do I best convey that I have an obscene amount of disposable income so that people will want to mate with me?

Dunn’s blog post has a video demonstrating the futility of extracting juice from vegetable pulp by hand.

I don’t know why Dunn is marketing his product this way. It would be like if Louis Vuitton advertised handbags with a woman struggling to contain her cell phone, keys, wallet, and Wellbutrin all in two bare hands.

“The value of Louis Vuitton is in how easy it is for a frazzled mom to transport her items without having to pick them up one at a time,” the CEO might proclaim.

No, this is how you sell a Louis Vuitton:

As Miranda from Sex and the City would say: “If you’re not wearing something [others] can’t afford, how will they know to look up to you?”

Mr. Dunn’s biggest mistake was in cutting the price of a Juicero from $700 to $400. He should have doubled it. The only time you cut the price on a status symbol is to encourage sales of a premium version that costs even more. Like the iPhone 5C: Apple made it very clear that ‘C’ stands for cheap, and encased the phones in gaudy crayon colors to underscore that point.

The value of Juicero is that few people can have one. When the juicer was first launched, the founder restricted the supply and would only deliver to residents in three states. At Recode, Kara Swisher praises the product and explains:

This is an area of interest because there’s a lot of juice going on in San Francisco and now it’s sort of spread like a virus across the United States — avoiding the Midwest, of course.

See? That’s the real value of a Juicero.

Unfortunately, Juicero’s new CEO is a former president of Coca-Cola. His strategy is to get sugary beverages into as many faces as possible. Joke’s on them for believing that any sort of juice is healthy.

See Also: Veblen Good

People Love Complaining About Bitcoin Payments

Here’s a 2007 video of Howard Lindzon trying to buy food in Manhattan using Canadian dollars. He tells people that CAD is a commodity currency, backed by Canada’s oil and gold, and Americans should treat his money as a valuable asset. None of the street vendors want his Canadian dollars and it is all very sad.

CANADIAN DOLLARS HAVE FAILED AS A PAYMENT SYSTEM, is a blog post we might see in the WSJ.

Just kidding. But here’s the umpteenth article about how Bitcoin sucks because merchants don’t accept it and customers don’t use it. American merchants don’t accept bitcoin for the same reason New Yorkers don’t take Canadian dollars: They have to pay their employees and landlords in USD. Beyond that, everyone in this country has one very big US dollar creditor in common, and that’s the IRS.

Eventually Howard manages to get two raspberries for $20 CAD. He’s basically getting screwed, but the fruit vendor isn’t much better off. The vendor will have to go through the asspain of changing CAD for USD to pay his raspberry suppliers. The only reason this exchange can occur is because the fruit vendor values his time even less than Mr. Lindzon does.

A few years ago, retailers like Overstock and Microsoft made a point of adding bitcoin payments so that they could look cool and innovative. It was a good effort, but few customers ever chose the bitcoin option. When using bitcoin, the customer has to pay an extra transaction fee to the miners. With a credit card, the merchant covers transaction costs. On top of that, many cards reward their customers with airline miles for sticking it to the merchant. If presented with bitcoin versus credit card, a customer should choose the credit card every time — it’s cheaper!

A medium of exchange will only be successful if it lowers the transaction cost for both the customer and the merchant. Stripe is a payment processor that charges 0.8% to process a bitcoin payment, and 2.9% + 30 cents to process a credit card payment. A Stripe merchant could potentially offer a 2% discount to bitcoin users and still come out ahead, but that’s pretty weak. You don’t want your customers deliberating a 2% discount at the final stage of the checkout process.

Bitcoin will never become a mainstream payment system, because mainstream retailers already have access to low-cost payment processors. Spending bitcoin at Overstock is like trying to spend Canadian dollars in New York — it increases the transaction cost for both parties with no benefit.

Bitcoin isn’t competing on low-cost processing. It’s competing on settlement risk, which is a cost suffered by the merchant when a customer payment falls through. There are some businesses that mainstream payment processors refuse to serve, because of legal risk or because the business operates in an industry that sees a lot of fraud. Stripe gives a pretty good overview of high-risk industries here. Online pharmacies, crowdfunding, gift cards — This is where bitcoin adds the most value.

If you’re in the business of selling anonymity tools, you have a pretty high risk of being paid with stolen credit cards.

High-risk industries attract high-risk customers, which means merchants get a lot of payment disputes and chargebacks. That’s expensive. Bitcoin’s biggest benefit is that chargebacks are impossible. If you want to know how much this is worth to a merchant, check out some of the scuzzier parts of the internet: Online pharmacies typically offer discounts of 25% or more for choosing bitcoin. Bitcart sells Amazon gift cards for 15% off, and Purse.io offers around 20% off for bitcoin. The customer gets a big discount, the merchant avoids the risk of chargeback, and everyone is happy.

Bitcoin is a perfectly fine payment system, just like the Canadian dollar is a perfectly fine currency. You just have to find the right place to spend it.

The first thing people do with stolen credit card numbers is buy gift cards to launder into cash. For this reason, many card processors refuse to serve gift card resellers.

See Also:
The Value of Settlement Finality

We’re all Turning into Cats

I have a cat named Kurt. Sort of. There’s this creature that comes to my yard every few days and meows plaintively until I feed him to go away. You might call it a shakedown, if Kurt was a cop.

There’s a theory that cats were domesticated for their infantile faces. Wild felines don’t meow, but housecats evolved to do so because it makes them sound like fussy babies. Over tens of thousands of years, humans selectively bred the ones that were most pitiful and convincingly helpless. I don’t like cats, but I can see how a childless spinster might be moved by something like this:

Speaking of learned helplessness, here’s a new Stanford admit whose college application essay was nothing but #BlackLivesMatter copy-pasted a hundred times. The rest of the application was a treatise on his lifelong struggle to overcome systemic oppression as a Muslim. The kid’s father runs a billion-dollar hedge fund, but don’t let that detract from his disadvantaged status.

A racist hate site that I never visit is praising the kid’s incredible ability to convince the world of victimhood despite living a life of privilege. They point out a similar student in China during the Cultural Revolution. Zhang Tiesheng (張鐵生) was a former Red Guard who moved to a rural commune as a production brigade leader. In 1973, Zhang went to take a university entrance exam to get the hell out of the countryside. Zhang didn’t know the answers to the exam questions, so he left the answer sheet blank and on the back wrote a statement about how entrance exams are a tool for the educated elite to oppress honest laborers like himself. The statement was reprinted in all the papers, 張鐵生 became a national hero, and today he’s a multimillionaire who somehow acquired New Zealand citizenship despite always living in China.

That’s what happens when you feed the cats.

Note:
A competing theory is that cats were domesticated to chase out rodents, but I don’t buy it. If early humans needed a mouser, they would have bred a dog to do it. We have pickle-shaped dogs that can dive into rabbit burrows and drug dogs that can smell a joint in my pocket. Chinese merchant ships carried hairless dogs for rat control. The lack of fur reduced disease-carrying fleas, which is why you would want to kill rats in the first place.

Despite their utilitarian superiority, Chinese rat-catching dogs aren’t very popular because they’re ugly.

Just kidding. All dogs are beautiful.