Home PublicationsCommentary With Online Ads, Europe Wants to Have Its Cake and Eat It Too

With Online Ads, Europe Wants to Have Its Cake and Eat It Too

by Patrick Grady

With a de facto ban on targeted political advertising in the EU on the way, Meta, the parent company of Facebook and Instagram, is considering limiting its targeted ads business in Europe, in response to steep fines from Ireland’s Data Protection Commission, which requires users to accept targeted ads. The company will give users of these services the option to opt out of targeted ads based on what videos they watch, or which links they click, instead only customizing ads based on their general location and age range. This will reduce advertising effectiveness and revenue.

Meta, like all organizations, needs revenue to provide and improve services. When one region limits that revenue, consumers in other nations bear the cost. Other nations will see targeted ads and thereby provide revenue to Meta, while EU users will be free riding. And if more regions adopted similar rules, companies like Meta would need to start charging for services.

An inconvenient truth for privacy advocates is that advertising business models built the Internet. And targeted adverts mean consumers see items more relevant to them than those seen in traditional media, such as billboards, newspapers, and television. This is why, for advertisers, online ads are more cost-effective than conventional forms of marketing—especially for small and medium-sized enterprises (SMEs), as research by the European Parliament shows.

Billions of consumers use search, messaging, maps, reviews, entertainment, weather, and email for free because people sometimes click an advert while surfing. It is an essential part of the digital economy and will continue to be. But if advertising rules continue to make ads less effective, this model will cease functioning, and companies will need to start charging fees to subscribers. For those who cannot afford subscription-based services, strict rules will cut off their only means of accessing the Internet.

The rationale that banning targeted political advertising is necessary for privacy is meritless. Many campaigners for such a ban cite the Cambridge Analytica scandal, incorrectly believing it showed that social media companies sold user data. They still tout this falsehood and echo dystopian tropes such as “you are the product.” But third parties do not pay for data about the individual, they pay for the ability to put ads in front of individuals with specific characteristics or interests.

Indeed, Cambridge Analytica violated the terms of service of Facebook by accessing personal information about individuals. When a person sees a targeted ad on their feed, it’s almost always because an advertiser was willing to pay (more) to put an ad in front of a person who is likely to be interested in the product or service. The advertiser does not know the identity of the person seeing the ad. Calmer heads have acknowledged these details. Věra Jourová, the European Commission’s vice president for values and transparency, recently defended targeted advertising saying, “We should enable the online space to be used for political ads; if we ban microtargeting, the marketing method will not be possible to use.”

Critics of targeted advertising often claim they are willing to pay for an alternative, ad-free experience—but they then balk when facing the real costs. Meta—following other social media platforms, including Twitter, Snapchat, and Telegram—is experimenting with a subscription service. The backlash to these paid services suggests that Europeans want to have their cake—free access to social media services—and eat it too. It puts EU consumers, who are among the most affluent in the world, in a position where they contribute the least. Meanwhile, the EU’s digital platforms, which are struggling to compete against rivals from North America and Asia-Pacific, are less able to “monetize eyeballs.”

The GDPR was supposed to create clearly defined rules to ease doing business in the EU. Instead, it has temporarily privileged the bloc: Users in the EU can enjoy the same product as their counterparts from the rest of the world, but digital services are unable to anonymously use EU data to fund the service. This cakeism is unsustainable. When both sides of the Atlantic are accusing each other of setting divergent rules and where leaders are setting new norms fragmenting the Internet by taking swings at foreign apps, EU policymakers should correct the path toward harmonization with its allies.

Services may eventually force EU users into alternative business models to continue operating in the bloc or even abandon ad-based business models globally if forced to adopt EU-style rules everywhere. Europe should not expect the rest of the world to subsidize its online services but should instead ensure privacy rules allow targeted-ad-supported business models to continue flourishing.

Image credit: OpenAI

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