Home PublicationsCommentary European Policymakers Should Not Ban Personalized Advertising

European Policymakers Should Not Ban Personalized Advertising

by Christophe Carugati

Some European policymakers want to ban personalized online advertising as part of the proposed Digital Services Act (DSA) package. Although the DSA would impose additional transparency rules for online advertising, they argue that these do not go far enough, and instead demand an outright ban of personalized online advertising. They are wrong about the risks to consumers: few policymakers understand that most targeted online advertising does not reveal personal data to advertisers. Rather, advertising platforms show ads to people who meet certain criteria. The advertisers almost never know who sees their ads. Moreover, personalized online advertising lowers the effective cost of advertising for businesses while increasing revenues to fund the vast number of free apps and online services used by European businesses and consumers. Unless European policymakers want to reduce ad effectiveness and limit free online apps and services, they should continue to allow firms to use personalized ads.

First, a ban will negatively impact businesses as many businesses will be unable to easily reach specific consumers. For example, a company selling tennis gear will spend money putting ads in front of golfers. These businesses will have to pay more for less effective advertising, raising costs for consumers. Even the European Executive Vice-President in charge of digital policies and competition, Margrethe Vestager, who has often taken an adversarial approach to tech companies, has agreed with this point.

Second, a ban would reduce revenue to the vast array of free online apps and services that consumers use daily, including social media and news. With less revenue from advertising, many services might need to charge for their services or discontinue them. Middle and upper-income EU residents might find that slightly annoying, but they would still be able to pay. Lower-income EU residents would likely have to stop using the apps or services.

Third, banning targeted ads will leave consumers worse off as they will receive less relevant ads. Because less relevant ads earn publishers less revenue, those that do not decide to charge users more, will need to show more of these ads to maintain the same level of revenue or use more intrusive features such as pop-up ads. Thus, the net impact of a ban on targeted ads would be a worse user experience.

Critics of personalized advertising often suggest more companies use contextual advertising. Contextual advertising shows ads based on the content a user is looking at on a webpage or a user’s search keywords. For example, advertisers may show readers of an article on a Tuscany wine, wine-related ads, or show ads related to photography to users searching for a specific camera. However, in many contexts, contextual advertising is not very useful. For example, a restaurant wishing to reach users of a particular age and in a specific area might not be able to do it efficiently without personalized advertising, as there will be no way to identify users with those characteristics.

It makes no sense to prohibit personalized advertising as it will adversely impact businesses, consumers, and innovation. Instead of banning personalized advertising, European policymakers should focus on improving transparency rules that make consumers better off without making businesses worse off.

Image credit: picpedia

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