Google and dodgy ad placements on YouTube? It’s far worse than that

The general unaccountability of tech companies to our governments, and ultimately to us as citizens, is the bigger issue, writes Communication Partners UK’s Roy Jeans

In Dave Eggers’ “The Circle”, the near future sees the merger of all the leading tech companies into one giant – dominating every aspect of life. There is no escape. Imagine a scenario where Google buys Facebook, or vice versa, or where Amazon takes over Microsoft. Of course, this process has already started – Google has purchased YouTube and Deep Mind; Facebook owns WhatsApp; and Microsoft has snapped up both LinkedIn and Skype.

The real power of “The Circle” lies in its plausibility, and the knowledge that we are only two or three takeovers from the scenario it depicts. The danger it focuses on is how intrusive The Circle would actually be, but while this fictional world describes a company that intrudes into every nook and cranny of our daily lives, in the real world there is a curious disconnect between the influences that these companies have on our societies, and how they describe themselves in relation to them.

In the year ending June 2016 Google generated £6.2Bn of revenue in the UK. It paid circa £25m in corporation tax (an effective rate of 0.004% on the gross revenue). Despite being one of the largest revenue generating companies in this country – in any sector – for legal reasons it is considered as having “no permanent establishment” here. The revenue is routed through Dublin, then onto the Caribbean.

This, of course, is all perfectly legal, and to remain so requires two distinct sets of people to allow this to happen – of which more later. Google is omnipresent in our lives but is legally rootless. And as far as the UK is concerned – despite its massive building in Kings Cross, its thousands of employees here and its £6.2Bbn of revenue (and growing) – it is also legally stateless.[advert position=”left”]

The overwhelming core of Google’s revenue is funded through advertising. Recently, as we know, the UK’s national press has used its editorial columns (rather than its ad sales departments) to detail the ongoing highly visible mismanagement of ad placements on YouTube.

Starting with the Times, followed by the Daily Mail, and subsequently the Sunday Times, the amount of negative editorial regarding Google has increased significantly over the past two months.

The national press has suffered badly from a loss of display revenue as the tech companies have grown, so it is not difficult to discern their motivation here.

However, despite the marketing community’s response, with many suspending their presence on YouTube, there is a bigger issue here than the – relatively small – flow of monies to seriously undesirable groups (however bad this is).

While I have no doubt that Google will solve this particular issue in time, the far more important one is the general unaccountability of these companies to our governments, and ultimately to us as citizens.

Our daily lives have clearly been transformed by these tech businesses. They offer compelling solutions and save us hundreds of hours every year – they are part of how we live, but legally consider themselves aside from us for tax and accountability reasons. A good example is how Google have responded – so far – to these current concerns about YouTube.

Last week, Google’s chief business officer, Philipp Schindler, offered this response in a Bloomberg piece about the ad community’s concerns:

“We switched to a completely new generation of our latest and greatest machine-learning models…we had not deployed it to this problem, because it was a tiny, tiny problem. We have limited resources.”

Philipp Schindler

Nothing could better sum up the disconnect between how Google sees it obligations to the community (ad and beyond), and how others see Google. Particularly amusing here is the phrase “We have limited resources”.

Schindler can get away with this sort of stuff because of the ongoing acquiescence of two sets of people who up until now have sat on their hands – namely our governments, and the ad community itself.

Facebook, Apple, Google and Amazon are global innovators, developing at breakneck speeds. They are staffed with many of the global intellectual elite, who are ruthlessly sought, recruited and nurtured.

These companies exist because of single-minded visionaries (or two in Google’s case). They are fiercely meritocratic, successful over a sustained period, and are dominant.

It is hard for governments to keep up – to legislate, or even to understand this rapidly changing digital landscape. Also, in any line-up of sides you have a clear mismatch. Governments function through compromise, and can be slow, cumbersome, potentially anti-meritocratic and divided. Governments also face elections. Facebook and Apple do not.

Therefore, the global tech elite has stayed ahead of our global elected elite, and has been able to define itself as rootless, inchoate, and beyond boundaries, despite functioning within them. It may be entirely legal to describe Google as having no “permanent establishment” in the UK, but it is also utterly absurd.

At the recent ISBA conference the new director general, Phil Smith, was right to point out that it was no longer good enough for the advertising community to sit on its hands when it came to brand safety on YouTube. For too long the major advertisers have allowed expediency to drive their decision making here, in the hope of driving increased sales.

But it’s worse than that. It is also about how tech companies legally avoid tax on the back of this expediency. It is the ISBA companies that directly allow this to happen and are culpable – they largely fund it. This group of ad-funded seven or eight global tech companies abdicates its societal and moral responsibilities, and we are all allowing this to happen.

There are two ways to respond – through legislation, or by the power of cold hard cash. Governments are stirring. The new 2018 EU GDPR directive is one example. Advertisers should demand absolute transparency along the whole buying chain before spending any money at all. Unfortunately, I suspect that this is an ask too far though.

In the absence of these there is also a third option. I would simply levy a turnover tariff on these companies – they are self-defining and therefore easy to identify. Taking Google’s gross revenue of £6.2Bn as an example I would assume – for the purposes of the tariff – a net profit margin of 30%.

Therefore, I would calculate a UK profit of £1.86Bn. 20% of that is £372m. Google can then take part in funding some of our hospitals and nurses by paying the UK £372m. In one year.

We have collectively sleepwalked into this situation. Tech company needs do not override sovereign ones. We need to act.

Roy Jeans is chairman of Communication Partners UK