Amid high-profile breaches of consumer data at several notable companies, governments around the world are taking action to crack down on how personal data is being collected, stored, and used. In 2018, the EU passed the General Data Protection Regulation (GDPR). Starting in January of 2020, California will have a similar regulation in place, the California Consumer Privacy Act (CCPA). I don’t know if these new regulations will help consumers, but it could be very beneficial to the EU – violators may be fined up to 4% of the firm’s annual worldwide revenue. That would put Google on the hook for about $5.5 billion for a single violation. Cha-ching.
The digital advertising ecosystem has long relied on first- and third-party data to track consumer behavior and target internet users with relevant advertising messages. I’m sure you’ve seen a product you were recently browsing, or maybe recently purchased, show up on cnn.com or in your Instagram newsfeed. The data collected from your previous web browsing allows advertisers to “follow” you around the web and even across devices. Of course, this becomes a problem when you share a computer with your spouse and they see ads for all of their gifts before unwrapping them. Oh well, it’s not perfect.
The ability to target people with data that’s collected without their implicit consent is in question with these new regulations taking effect. Data aggregators and web publishers are going to find themselves in a tough spot. Does browsing behavior constitute personal data? So far, companies are erring on the side of caution.
These new regulations will have a profound effect on the advertising landscape. I believe we’ll see two major developments as a result.
The first will be even less competition in the digital advertising space. The companies that own first-party user data use it to target specific audiences. This data-driven audience targeting capability is why advertisers in the US have spent more money on digital advertising than they did on television advertising this year.
According to eMarketer, 68.5% of all digital advertising dollars go to (Google parent) Alphabet, Facebook, and Amazon. Each of these companies collects a tremendous amount of personal data. And unlike many smaller companies that rely on third-party data, each of these has terms of service agreements with their users that give them permission to use the data for ad targeting purposes. The inability of smaller companies to provide targeting capabilities at the same level makes it virtually impossible to compete. I believe we’ll see the big three continue to dominate the landscape and potentially take 75 cents for every dollar spent in digital advertising in 2020 as their competitors’ business models are challenged by regulation.
I should note, there’s another factor that could throw a monkey wrench into this industry’s future – antitrust regulations. There have been widespread reports of investigations into Amazon, Facebook, and Alphabet. Google especially is a target as their dominance of the digital landscape spans much further than their advertising practices. They own the most popular operating system on smartphones, the most popular web browser, the most popular search engine (by far), and the largest digital video portal. With that said, they’ll likely survive these threats. Each of these companies spent record amounts on lobbying in 2018. According to Bloomberg; Google, Amazon, and Facebook spent $21 million, $14.2 million, and $13 million on lobbying activities respectively. That’s a lot of steak dinners, even at Washington DC prices.
The second major development will be a burden that falls on the advertisers themselves. Unable to rely on third-party data from publishers and data aggregators, advertisers will be forced to collect and use first-party data from their customers.
Major brands and advertisers have huge databases full of customer information. This can be used to advertise directly to consumers who have already had an interaction with the brand. Based on past purchase behaviors, brands can use strategic messaging and targeting to drive repeat business and foster brand loyalty. Companies and advertisers without massive troves of data will struggle to keep up. This will again lead to a decrease in competition.
Consumer privacy will continue to be a focal point in 2020 and beyond. One big technology company, Apple, has found a way to leverage this issue. Recent commercials elude to the fact that iPhones do a much better job of keeping your data private than smartphones with an Android operating system. I believe the claim to be true because Apple doesn’t have a large stake in the advertising industry. Meanwhile, it’s funny that the other big tech companies are promoting products that spy on consumers. Would you like a Google Home, Portal by Facebook, or Amazon Echo? I’ll pass. I think these companies know enough about me already.
Originally published by the Rochester Business Journal