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Can EU regulations stop targeted advertising?


Targeted advertising by profiling consumers has been the holy grail in digital marketing in the past decades. Now some EU policymakers want to put a stop to that. If it was up to the European Data Protection Board (EDPB) and the European Parliament (EP) personalized ads based on pervasive tracking will be phased-out and prohibited as soon as possible. What does this mean for publishers, advertisers, brands and marketers?

First the crumbling of the third-party cookie, now the proposed ban on online profiling of consumers and targeted and personalised ads on the internet; the digital marketing industry was dealt quite a few blows recently. And although EU-regulations don't apply to businesses operating only in the UK or the US, companies based in those markets who are targeting users sitting physically in the EU need to adhere to it.

Huge impact
That's why new EU regulations on profiling and targeting will have a huge impact on the digital ecosystem, experts say. ,,Banning or restricting targeted ads would have far-reaching consequences. Data-driven advertising is crucial for small businesses that depend on it to find audiences as well as for website and app publishers, who rely on it for revenue," says Townsend Feehan, CEO of IAB Europe. "If profiling includes observing user interaction with content and advertising within a single site, even the large first parties - including the platforms - will be negatively impacted. Arguably, this would actually level the playing field in a way that a pure ban on cross-site tracking would not, while penalising even more heavily small advertisers who are looking to find new customers."

Irrelevant ads
Without profiling or targeting, consumers will be confronted with irrelevant ads again, says Michael Bottenheft, Head of Strategy at Online Company. He also thinks that a lot of content that is now free will disappear behind a paywall. "Many people understand that content is often only free because of advertising as a business model," he says. ,,Publishers who aren't able to track their audience have a problem. They can't get their business model right."

What is going on?
Cookies have become essential in digital marketing, allowing cross-site tracking, targeted advertising, retargeting and ad-serving, mostly on the web. The GDPR privacy regulation, the EU put into effect on May 25 2018, tried to put a stop to using personal data without consumers' consent or knowledge for marketing purposes. It made it more difficult to track consumers via third-party cookies, but with consent and agree buttons the industry managed to bypass this threat quite well.

The cookie crumbles
Browsers like Apple's Safari and Firefox have already blocked third-party cookies. They render approximately 30% of all available impressions. Google's Chrome has a market share of approximately 65%. With Google's announcement to ban third party cookies from its Chrome browser (delayed until 2023), headlines suggested the cookie was about to crumble. After Apple announced to kill the identifiers for in-app mobile tracking, advertisers were dealt another blow.

No personal data for advertising
To regulate the use and sharing of personal online data in the data economy the European Commission since November 2020 has presented several legislative proposals like the Digital Services Act (DSA) and the Digital Markets Act (DMA). By amending these proposals the European Parliament (EP) and the European Data Protection Board (EDPB) want to restrict the use and sharing of this data even more. In June 2020 a large majority of the European Parliament voted in favour of the proposal of Dutch MEP Paul Tang to ban personalized advertisements on the internet. In December 2021 the EP's Internal Market and Consumer Protection Committee (IMCO), voted 42-2 in favor of an amended draft DMA that includes a ban on targeted advertising. They didn't vote for a total ban on targeted advertising but it came pretty close. Large websites and platforms should refrain from combining personal data for the purpose of delivering targeted or micro-targeted advertising, the approved DMA states. However, the exception of a clear, explicit, renewed, informed consent gives opt-in or logged-in platforms lots of opportunities to bypass it again. For minors there are no exceptions. Their personal data shall not be processed for commercial purposes, such as direct marketing, profiling and behaviorally targeted advertising, the DMA states. Fines can exceed to 4% or 20% of businesses' worldwide turnover.

Prohibition of targeted advertising
The European Data Protection Board (EDPB) also considers that online targeted advertising should be regulated more strictly to protect the privacy of consumers. In November 2021 it published a statement saying online advertising based on tracking people with, for example, tracking cookies should be phased-out leading to a prohibition of targeted advertising on the basis of pervasive tracking. The profiling of children should overall be prohibited, the EDBP states. Vice-president Aleid Wolfsen called personalized ads 'perverse'. "Big tech companies and countless smaller advertising companies are making gold by spying on us on the internet, creating files about our interests and thereby selling advertising space to other companies," he said. The negotiations with EU governments about these EP and EDPB proposals start in the first semester of 2022

Not a bad actor
Townsend Feehan, sees a lack of enforcement of the GDPR as one of the reasons why policymakers are now drawn to the idea of further restrictions. "This industry can be regulated, but there has been a gross failure of GDPR-enforcement in the advertisement sector. The failure to take enforcement action against specific companies acting as data controllers leaves my industry continuously exposed to the charge that everybody is a bad actor,", she says.

Implications not thought through
Michael Bottenheft is also concerned about the EU trying to further restrict the digital advertising market. "On the one hand, the industry has not properly regulated itself. That's why we get these kinds of restrictions. But it's getting worse. They want to protect the consumer, I get that, but they haven't thought through the implications of this," he says. "Cookies are used for everything, for example also for storing passwords. If you abolish these kinds of techniques, the internet will no longer work properly. In addition, even more marketing budget will go to Facebook and Google, because their users are logged-in."

Biggest change sinds 2009
In 2020 IAB Europe presented its 'Guide to the Post Third-Party Cookie Era'. Experts from its Programmatic Trading Committee (PTC) called the blocking of third-party cookies the single biggest change to the digital advertising ecosystem since the introduction of real-time bidding in 2009. Without third-party cookies some campaign techniques are no longer possible. Frequency capping – measuring the number of times a user sees ads – is largely based on third-party cookies and will no longer be available in its current form. That means it will be more difficult to control the media spend per user. The same applies to audience targeting. Retargeting and most forms of dynamic creative targeting will become unworkable. Also attribution to determine which ad led the customer to a sale or lead will no longer be possible.

In its guide IAB Europe presents several alternatives. The blocking of third-party cookies doesn't mean the end of all cookies. There are always first party cookies, stored by the website that a user visits directly. By reorganizing their audience data collection and extension strategies, publishers need to ensure that their technology can continue to identify their users and deliver targeted digital advertising. IAB is working with several ID consortiums to develop new user ID solutions. Mobile Advertising IDs (MAIDs) can be an alternative for third-party cookies in mobile advertising. Feehan: "There is going to be a range of alternatives, covered in our guide. There are going to be lots of options for sites that can get logged-in users. Some sites may be able to do well with contextual advertising. It's unclear how that market is going to evolve."

First party data
Bottenheft also sees first party data from publishers and platforms as an alternative to third-party cookies. "With this data from logged-in users you can also build an audience and profiles. A ban on first-party cookies wouldn't be fair and I don't expect the EU to go that way. There is not enough support for that. You can't say by law: you can't send personalized ads. What they are doing is more like curing the symptoms. By doing this you drive advertisers even more to parties that offer data from logged-in users within their own platform. Amazon, Facebook and Google or in the Netherlands," says Bottenheft.

SME's under fire
The EU-proposals can have more impact on the industry than the disappearing of third-party cookies, IAB states. Feehan: "In general terms, a ban would result in: Less revenue for local news outlets and small media publishers. Less access to news and media for European consumers, especially those that cannot afford to pay for multiple subscriptions. And inability for small and medium businesses - who particularly need to optimize their ad spend because they have very limited budgets - to promote their products and services to relevant audiences."

Less choice
She predicts a consolidation of ad spend on a limited number of large, data-rich first parties - platforms, large media, dominant players in the non-media space. Smaller parties awaits a concomitant loss of revenue, most notably generalist news media, who will need to rely on non-advertising revenue streams or advertising revenue streams that do not entail x-site tracking. There's also a risk for exploitative pricing by the remaining first parties. Feehan: "The impact for advertisers, internet users and marketers will be: less choice. It will just aggravate the already disproportionate spend on the large data-rich first parties. They will benefit from this. That can be platforms as Facebook and Google but also a limited number of large national publishers who have the possibility to invest money in lifestyle, features, sports and other things for contextual advertising."

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