Clicks, Compliance, and Consumers in the Tug-of-War Between Data Privacy and Advertising Personalization
Tormenting consumer eyes with irrelevant product advertising—like The Smart Clapper—on television shows with unclear audiences is an outdated practice. Now, advertising can be precision funneled to the correct audience, and we are all the better for it. Not only has digital advertising accelerated businesses’ ability to reach complex markets and impact economic growth, but it has fueled the internet’s rise. However, the very reason advertising is highly effective—inferences learned from consumer data—is why it evokes negative perceptions. Notably, an individual’s privacy can be compromised by these inferences, too. Undoubtedly, privacy intrusions were an impetus for several states to curb suspect behaviors in online advertising and enact comprehensive data privacy and security laws. Any privacy regulation, whether directly or through broader comprehensive privacy legislation, on digital advertising and products must be carefully crafted to prevent market disruptions and allow for beneficial uses, while also protecting consumer privacy.
Digital advertising creates economic efficiencies
Generally, economic efficiencies are present in most strong economies. They allow businesses to allocate minimal resources for maximum gain. For example, a local realtor might “spray-and-pray” their mail adverts to a neighborhood that might or might not have interested home buyers or sellers. The cost might include postage fees, design work, and flyers. This type of marketing would be ineffective, with low conversion rates, and a waste of resources. In comparison, a realtor using digital advertising could use contextual advertising by targeting interested home buyers and sellers who have previously visited websites like Zillow or Realtor. This marketing strategy allows a business to avoid the inefficient costs of targeting uninterested individuals and any costs from flyers, postage stamps, or other tangible items. Theoretically, realtors could reallocate any savings to other areas to increase productivity or sales pipeline.
Digital advertising provides consumers access to products and services
Before the internet, many individuals lacked basic access to information, products, and services. For example, to complete a school research product, home access to a complete encyclopedia collection would cost thousands of dollars, or one would have to hope that a local library would be within walking distance. Now, like never before, information is readily accessible to users, ignoring socioeconomic restraints, largely because of the digital advertising ecosystem. Further, while some new video games can cost $70, many popular video games like Roblox and Fortnite can be played for free, subsidized by digital advertising. These games allow users to purchase digital items within the game, such as unique characters or clothing. While these in-game “microtransactions” have their own concerns, it does subsidize the cost to consumers. Finally, after watching a short—and usually tailored—digital advertisement, a user can watch almost any topic on YouTube for free.
Concerns about the data ecosystem harm to consumers
No system is perfect. And while digital advertising has brought extraordinary economic growth and opportunity, it is not without flaws. The value of data has exponentially increased the potential harm to consumers because more consumer data, including sensitive data, is collected and stored. There have been numerous examples of businesses accumulating and storing mass amounts of data, ignoring data security best practices, or outright using data unethically. Currently, the United States is without a comprehensive federal data privacy and security law, which could help alleviate some of these harms. For example, a comprehensive federal privacy law that preempts state laws could alleviate the compliance burdens for a business trying to comply with the current state patchwork of privacy laws, because the compliance costs are substantial. However, it will be important to carefully craft provisions around digital advertising to ensure a continued positive economic impact and consumer benefits, while mitigating unintended consequences.
Recommendations
Privacy legislation can help cut down on advertising practices that do not follow privacy best practices. This can include deceptive or false privacy policies, tracking consumers who have opted out, and failing to implement strong data security to protect any collected data. However, any legislation aiming to do this must clearly state which practices are permitted and which are not, allowing businesses in the digital advertising space a path to compliance.
The use of data in digital advertising is important. This can include contextual advertising, targeted advertising, or even advertising measurements. Policymakers should not only have a strong understanding of the impact they intend to have on advertising, but the impacts they might have on the advertising industry unintentionally. For example, a policymaker should ask and answer what type of consumer experience they intend to invoke with any regulation aimed at digital advertising. Do they intend to prevent a consumer’s data from being collected across different websites when they were given clear notice of that practice and chose not to opt out? Preventing that type of consumer data use can be a detriment to consumers. For example, there is a consumer benefit if, over the course of a week, a consumer visits several websites about attending a baseball game and is shown third-party advertising for (potentially cheaper) tickets and affordable paid parking near the stadium. If the consumer has not opted out, this type of advertising should be permitted.
Legislation should explicitly allow ad measurements. Digital ad measurements are very similar to the well-known Nielsen rating system, which measures the popularity of American television programs by calculating how many people watch them and providing businesses with critical information for television advertising. Similarly, in digital advertising, ad measurements can be vital to ensure businesses, especially small and medium-sized businesses, can track the progress of their digital ad campaigns. Measurements can relay information like “click rates” and “conversion rates” to a business to ensure economic efficiency and viability.
Sensitive data must be subject to a heightened standard in privacy legislation because it poses heightened privacy risks. However, defining “sensitive” isn’t always straightforward. We need to draw the line carefully between sensitive and non-sensitive data to avoid accidentally restricting useful information. For example, if a privacy law considers “gender” as sensitive data, it could disrupt the user experience from searching for “boys’ shoes” on an online retailer site. Further, certain categories of sensitive data should be exempt when solely used for ad measurements. For example, data on race, ethnicity, and religion are generally considered sensitive data in most privacy laws, requiring users to opt in. Even something innocuous like a URL for a religious organization’s website could be considered sensitive data, but URLs are also an important element for ad measurements because they are critical for running successful digital advertising campaigns and improving the user experience.
Thus, any privacy legislation attempt must consider the nuances of a provision that could affect digital advertising, market efficiencies, and the consumers’ overall benefits, and take a narrow and effective approach to any limits. Importantly, even apart from mandates industry should be proactive with effective privacy and data security practices, especially in advertising.