The Internet was built on advertising. Advances in search, webmail, social media, music streaming, mobile apps, and more have all come because of business models dependent on revenue from online ads, especially targeted ads. They have had a huge impact—creating billions for both the businesses that use them to generate sales and those that monetize their services with them. Yet European policymakers are seriously considering banning them. So, it is worth understanding what would happen if the EU were to enact such a policy.
One immediate impact would be a loss in revenue for many of the big advertising platforms like Google and Facebook. They would certainly still make money from ads, but many of these ads would be less effective, and therefore earn less revenue. Still, “good riddance!” many MEPs might say, ignoring the fact that these companies employ tens of thousands of employees in Europe with high-paying jobs. In addition, a loss in ad revenue for these companies would imperil future tech job growth in Europe.
Consider Facebook, which recently announced plans to add 10,000 jobs in the EU over the next 5 years as it builds the metaverse—its vision for a fully immersive digital world. These investments do not come cheap. The company has told investors it plans to lose $10 billion on it in 2021 alone and more in the years to come. Moreover, with Big Tech plowing billions into important technological advancements such as quantum computing and sustainable data centers, a revenue crunch would likely have knock-on effects globally by slowing the pace of digital innovation.
But it is important to remember that while Big Tech gets a share of targeted ad revenue, so too do countless developers, content creators, and news publishers. Right now, the vast majority of free content on the Internet—everything from apps, games, news, and entertainment—is paid for with online advertising. For example, Google pays out around two-thirds of its revenue from personalized ads to the website owners that host the sites displaying those ads. So, restricting targeted ads will force many European businesses that earn revenue from online advertising to take a serious financial hit. The reason is simple: Studies show that non-targeted ads generate 50-70 percent less revenue than targeted ads because they are less effective.
To make up for lost revenue, European businesses have a few options. One is showing more ads. But putting too many ads in their products creates a worse user experience and they will likely lose customers—if that was not the case, then businesses would simply overload their apps with ads today to increase their profits. Another option for European businesses, which is the most obvious response, is straightforward: They could adjust their business models to start charging European users fees to access their products and services. Indeed, there is precedent for such a shift. After the introduction of the GDPR, some news publishers introduced a special fee for European subscribers to offset their compliance costs and avoid having to pass them on to non-European readers. Many developers, content creators, and news publishers would face a similar scenario if they could not monetize their products and services with targeted ads.
For the average European, the most tangible impact of banning ads would likely be on their pocketbook. Indeed, many apps already use a “freemium” model where users can pay to have ads removed. App developers, media sites, and more could simply adjust that business model with geofencing to require all European users to pay to get past the paywall if they want to keep using it.
MEPs are paid good salaries, so most of them likely won’t complain about having to pay a few euros a month for apps to check the weather or play games. But the extra fees will sting as they start to add up for many individuals, including students, retirees, immigrants, and low-income workers, especially in less wealthy EU member states. The result will be an online economy that divides Europe into digital haves and have-nots, preventing many from enjoying the benefits of technological progress.
The MEPs pushing the proposal to ban targeted ads are selling the idea as a necessary step to protect consumers, but that is a red herring because the EU already has extensive data-privacy regulations. The campaign to ban targeted ads is an egregious example of false advertising, given the disastrous impact it will have on the Internet and consumers.
Image credit: Flickr user Christoph Borer
