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EU Lawmakers May Want to Think Twice Before Banning Targeted Ads

laptop computer on glass-top table

German baby gear company, Mami Poppins, is one of the many European small businesses that use targeted ads to find customers. The online retailer uses digital analytics to boost views of its online ads and it generates up to half of its revenue through targeted advertising. 

What would happen if the use of targeted advertising suddenly became limited or non-existent? The proposed EU Digital Services Act (DSA) might show us. The DSA aims to create a safe online experience, guided by proposed transparency measures, to ensure that consumers have better insight into how online advertising works. While transparency is a welcome development, some European policymakers want to take it to the extreme, by imposing an outright ban on targeted advertising. Such a measure would limit the ability of small businesses to develop new business, which in turn would offer European consumers less choice. 

So how might the proposed DSA provisions affect Europeans?

Small businesses less likely to compete with larger companies, a less competitive Europe

The European Commission recently highlighted how important targeted advertising is for small businesses to enter markets and to scale up. Research shows that 68% of small businesses find that using targeted advertising is an effective way to reach new customers. Fewer barriers to market access means more competition and a more competitive Europe overall. Conversely, restricting online ads would hit small businesses with small marketing budgets and customer recognition the hardest.

European media depends on online ads

Restricting targeted ads would cut off a vital revenue source for websites and news publishers that all rely on ads to fund journalism and other content creation. Advertising accounts for 81% of revenue for online European media according to a recent study. Without sponsorships, publishers would need to turn to other income sources. Only 28% of Europeans say they would pay for news. Surely, the DSA shouldn’t lead to less accessible news in Europe?

Access to the Internet could become costly for Europeans

Imposing a ban on targeted ads could also mean the end of free access to content-platforms (e.g. Spotify, Youtube) who offer free versions of their services using ads. The estimated cost of the ban on ads could be up to €106 billion per year, or €237 for every European citizen. This creates an unequal balance in favour of online users who can pay for premium platform services. As a result, there would no longer be access to limitless content online, creating a gap for users who cannot afford to pay these extra premiums. Doing so would moreover conflict with the EU core principles of equality, freedom and democracy.

From relevant to random online ads

An important aspect of online user experience is personalisation, which is lost in the proposed terms of the DSA. According to a recent European Commission presentation, consumers prefer to see ads that align with their interests, rather than content that is randomly placed in front of them. When considering the advanced analytics that decide what users see based on their past engagement, it becomes evident that users are losing an opportunity to learn more about sites and services relevant to them. 

How can lawmakers better address concerns with targeted ads in the DSA?

Lawmakers have legitimate questions about protecting users’ privacy from invasive ads. Questions include how to better inform users that they have been targeted by ads or how to control  this sort of data collection. However, there is already EU regulation in place which addresses these concerns. The EU’s recent data protection framework sets out extensive rules on the collection and processing of personal data, as well as user rights. That is not to say that there couldn’t be a more consistent interpretation and enforcement of the GDPR across EU Member States. However, it would be odd to add last minute amendments to the DSA that aren’t aligned with existing EU data protection regulation.

The DSA can provide more user transparency and control online. However, severely restricting or even banning targeted ads would be an overreaction. Hopefully, lawmakers will keep the interests of European small businesses, consumers and news publishers in mind as they finalise the DSA in the coming weeks.

European Union

DisCo is dedicated to examining technology and policy at a global scale.  Developments in the European Union play a considerable role in shaping both European and global technology markets.  EU regulations related to copyright, competition, privacy, innovation, and trade all affect the international development of technology and tech markets.