A few years ago, the GDPR, the EU’s landmark data privacy law, came into force. Despite having one of the strictest data protection regimes globally, certain political groups are attempting to shoehorn a ban on personalized advertising into the EU’s planned Digital Services Act. To examine the issue further, the Center for Data Innovation organized a discussion of the role data-driven advertising plays in the European economy.
David Osimo of the Lisbon Council stressed that concerns around targeted advertising began to crystallize after the Cambridge Analytica scandal, which generated widespread fears that micro-targeting Internet users with ads can lead to subliminal behavioral manipulation and undermine the electoral process. It is ironic, then, that all the wild claims around Cambridge Analytica’s ability to influence elections are thoroughly debunked. However, this has hardly altered the public perception that microtargeting is deliberately being employed to control and subvert the minds of Internet users.
Greg Mroczkowski of IAB Europe explained that the European Parliament’s rapporteur for the Digital Services Act, MEP Christel Schaldemose, has declared a ban on personalized ads to be a personal priority. The technology sector is experiencing a public backlash after two decades of rapid growth. The so-called “techlash” now affects the online advertising industry to its detriment, without any empirical basis for the purported harms that online advertising allegedly generate.
Konrad Shek of the Advertising Association stressed that the current debate ignores the distinction between commercial and political advertising. Concerns around micro-targeting revolve around political ads but are projected onto all advertising—ignoring the fact that there are already many statutory tools regulating digital advertising in Europe. Moreover, the issues raised by MEPs and civil society around online political ads are already addressed by the Commission. Interfering with the wider commercial online advertising space is unnecessary.
Agata Boutanos of the Union of Entrepreneurs and Employers explained why SMEs, in particular, rely on personalized ads: it is by far the most cost-effective channel for smaller companies to advertise their products and services. Marketing in mass media or through non-targeted online ads requires large budgets that only large companies can afford. Personalized ads, by contrast, allow SMEs to reach customers that have exhibited specific interests related to the product being advertised or who come from a relevant demographic. Showing ads only to people who are likely to buy the advertised product makes the process much more efficient for advertisers. There is no substitute for personalized online ads that allow businesses with limited ad budgets to acquire new customers. Greg Mroczkowski highlighted how such ads are so ubiquitous as to power the free and open Internet: 81 percent of digital revenues of traditional newspapers and magazines come from online ads and would be threatened if personalized ads were to be banned.
Enrico Girotto of the Federation of European Data and Marketing pointed to Commissioner Vestager’s recent comment, “it is legitimate to advertise and try and find the people with whom you want to communicate.” This sums up the case for personalized ads well. They constitute a fundamental part of the SME and startup business model. Such businesses have small marketing budgets and thus benefit from tailoring their marketing campaigns to people most likely interested in their products. Removing this option will put small businesses at a significant disadvantage compared to well-established companies who benefit from brand recognition and the budgets to purchase mass-media advertising campaigns. So instead of creating a level playing field, a ban on online ads would increase digital marketing costs, erect barriers to entry for small players, and impair their ability to promote their products and services. This would have detrimental effects on the competitive landscape in Europe’s digital economy, at the very time the Commission wants to supercharge the EU’s online ecosystem with its Digital Decade plan.
The damage a ban on targeted ads would impose on Europe’s innovation landscape is significant. For example, a small tech startup with an AI-driven health solution would find it more difficult to identify the audience interested in its solution and advertise to them. A whole spectrum of small businesses and organizations—from traditional local shops to startups to charities—would be severely hampered in their ability to solicit new business or income if they could no longer make use of personalized advertising solutions. In addition, Mr Girotti pointed out that any such ban would hurt consumer welfare. Internet users would see more ads featuring less relevant content and receive reduced access to free content paid for by targeted advertising. Large online platforms would benefit because they would remain behemoths in the space of contextual advertising.
David Osimo stressed that personalized advertising is a classic example of a data-driven innovation that raises economic productivity. Data can help deliver a service more efficiently, and this principle has underpinned most of the Internet-enabled growth in the last few decades. Europe’s economy needs to harness this dynamic to ensure prosperity for generations to come. Only a clearly demonstrated harm that needs fixing justifies curtailing this dynamic. Policies that decrease productivity require solid arguments, which are absent from proposals to ban online advertising.
Ms. Boutanos further argued that such proposals represent scope creep, as they were not contemplated by the Commission when they drafted the DSA. The only risks related to digital ads the Commission cites in the recitals concern promoting illegal, harmful, or discriminatory content (and the financial incentives involved in publishing and amplifying such online harms). This justifies some interventions in the ad market relating to transparency and providing users with information about the parameters used to show ads. Other recitals of the DSA focus on the need for very large online platforms to provide public access to repositories of display ads to facilitate research and provide information. However, none of these measures is even remotely logically connected to an outright ban on data-driven advertising.
Mr. Shek summed it up neatly when he explained that personalized ads are about nothing more than advertisers understanding what audiences they are connecting with and suggesting products of interest. A better understanding of users prevents advertisers from, for example, showing burger ads to vegans. Another idea under consideration—further opt-in mandates to obtain explicit consent for targeted ads—would complicate compliance with existing rules under GDPR.
The panel thus concluded that a ban on personalized ads is an unnecessary and costly solution searching for a non-existent problem. Such a ban would have far-reaching consequences for Europe’s small businesses, startups, charities, and media publishers. Killing the digital advertising goose that lays so many golden eggs for the digital economy would go down as one of the biggest single acts of self-inflicted pain in the history of technology regulation.