How Privacy Rules Will Affect the Ad Industry

This year companies are expected to spend $333 billion globally on online advertising, with plenty of that spending driven by advertisers’ ability to target consumers based on their web-browsing histories, physical location, app usage, income levels and other information.

Source: WSJ | Published on June 17, 2019

But a surge in privacy regulation around the globe has marketers, publishers and platforms scrambling to make sure they are compliant with new laws and pending regulations.

Last year, the European Union began enforcing a sweeping set of data privacy rules called the General Data Protection Regulation, which restricts how companies can collect, store and use personal data. In the U.S., the California Consumer Privacy Act, which gives residents the right to know what data businesses collect about them as well as the ability to request that they delete the information, is expected to take effect in 2020. And other states such as New York are considering their own privacy legislation. Meanwhile, advertisers and others are pushing for a new federal law governing the way advertisers and others collect and use consumer data, in an effort to pre-empt regulation by individual states.

As regulations mount, big questions remain about how the highflying digital ad business will be affected.

What will marketing look like a few years down the road when privacy regulations fully take hold around the world? Will new restrictions hurt advertisers’ ability to achieve marketing goals, and what is coming next?

We posed those questions to players from different parts of the industry. Here are edited excerpts of what they had to say.

Rishad Tobaccowala

Chief Growth Officer, Publicis Groupe SA

There are three questions for anybody who collects consumer data—advertisers, platforms and media companies. Because one must anticipate that there will be more and more privacy legislation and if you can answer these three questions correctly, you are safer than if you cannot.

1. What data are you collecting and why do you have to collect it?

2. Can I see what you have collected about me, can I correct it, and will I have the right to delete it?

3. Besides giving me a service for that data, are you monetizing my data in any other way, and can I share in that monetization?

Platforms such as Facebook, Google and Amazon collect much more data than they need to. They don’t tell you how they use it. They limit how much you can correct the data or they don’t allow you to be forgotten. They make lots of money stripping you like a mine. The value they give you is a pittance of the value they give themselves. If you cannot be on the right side of people, as there is more and more legislation, you will get yourself into trouble.

It has become clear that once you have a lot of data, it creates a massive new barrier to competition. You can be helping the consumer by giving them free products, faster service and faster delivery, but you can also be destroying society. Data has become integral to society as we all become connected and machines and algorithms increasingly gain importance. The same targeting technology that allows one to microtarget consumers allows people to target, influence and activate white supremacists or antivaccine folks, avoid showing mortgage ads to minorities, and determine what you read and see.

As legislation increases, marketers will continue to join forces with each other to pool their first-party data [collected directly from their own customers] to reach people in order to reduce their reliance on platforms, which are taking ownership of their [marketers’] customers. Currently, the platforms basically own consumers and sell them back to the marketer.

All these years we have had amazing data and technology, why is it that so many marketers are struggling to grow? What has happened is the transfer of money from marketers to platforms.

Tanya Forsheit

Partner and Chair of Privacy and Data Security Group, Frankfurt Kurnit Klein & Selz

I think we will see a movement away from the highly personalized tracking that has become pretty normal these days. The regulators are trying to stop the creation of very robust consumer profiles.

I don’t think geolocation tracking will go away, but it will be less common for that kind of tracking to happen without transparency.

Online behavioral advertising, which uses cookies to retarget ads, isn’t likely going away, even though some of the regulators, especially in California, would like it to. What is likely is that consumers will have more control of their information. You are already seeing that.

Google is making changes in its Chrome browser to limit cookies for ad tracking, and Apple limits third-party tracking. Some of the bigger players are trying to get ahead of what they fear will be more mandated prohibitions on certain kinds of tracking. Apple is doing this for more of a competitive advantage and is promoting privacy as part of its marketing message. Google was not as likely a candidate to start doing this.

I think marketers and others in the ecosystem, including ad-tech companies, agencies, exchanges and intermediaries, will have to become more transparent. Marketers will have to rely more on first-party data, the information they get from having a direct relationship with the consumer. They will rely less on third-party data that they don’t collect directly. In order to avoid regulation that tries to stop all of this completely, there has to be a voluntary movement in that direction.

The players that will continue to exist are the well-established, recognized players that know how to communicate with consumers about this. Smaller players trying to enter the market, but playing fast and loose by not being as transparent with consumers about what they are doing, will have to change. I am not judging whether that is a good thing or bad thing because it has lots of consequences. It may be better for consumer privacy, but is it worse for competition?

In the short term, I believe regulation could hurt advertisers’ ability to achieve marketing goals. When California’s new law goes into effect, every website is likely going to have a link that says “Do not sell my personal information.” So when someone clicks “Do not sell,” the authors of the law interpret that to mean the company must stop using third parties for cross-site tracking. Unless we see something dramatic happen and that law changes, companies are going to comply and include the “Do not sell” link on their websites. A lot of people are going to click on it because they do not know what it means. They may think if they don’t click, something bad will happen like their Social Security number will get sold.

David Kenny

Chief Executive Officer, Nielsen Holdings PLC

The regulators are just reflecting what citizens want in terms of privacy. Regulation is about empowering people to control their data and control how it is used. A lot of the regulations declared what is going to happen but not necessarily how. For the next few years we are going to see the how. The how that is going to work is when consumers give their permission.

As long as companies are providing value to someone, people are going to share more data. It is going to be far more transparent versus being opaque about how consumer’s data is being used. Marketers will be looking for ways where they are adding more value. They will make sure they are delivering an offer or a piece of content that people want because then consumers will agree to share their data. It will be far more permission-based.

Companies will also have to depend more on panels, which is when people agree to share data about everything they watch and buy, as a representative of other people like them. This is agreed by contract. It is used only for research, and people’s identities are never divulged beyond the researcher. Consumers have long opted in to sharing massive amounts of data with panel research. Companies can get some consumers to opt in to panels then can extend that sample out by modeling. A marketer can have targeting and ad-measurement models that provide accuracy and respect privacy at the same time.

As consumers take more control of their data, they are often opting out of ads altogether. In this environment, creative messages are essential to creating something people want to watch and share. Math and the ability to target people cannot work without a compelling message.

Erin Matts

Chief Executive Officer, U.S. unit of Hearts & Science, an ad-buying firm owned by Omnicom Group

If consumers were more aware of how advertisers are using data, they might accept some level of tracking. I, for one, do not want to get erectile-dysfunction drug ads anymore because I have gone onto too many sport sites and the assumption is I am a 64-year-old man.

The more education that we can give to consumers, the better. We need to let them know how we are handling their data and how we are improving their advertising and content experiences with that data. I could be Pollyanna about this, but I think everyone wants a better experience overall.

Look at what Apple and Google are doing with privacy restrictions such as dismantling completely or limiting the ability to use third-party tracking cookies. [A cookie is a small text file stored in an internet browser that lets companies silently follow a user around the Web, gathering information such as which sites a person visits and what ads they have viewed or clicked.] It’s designed to protect consumers, but I don’t know if it’s going to improve the consumer experience. The challenge is, if we go back to the inability to use third-party cookies, that could be extremely challenging for advertisers who are going to be faced with a lot of waste in terms of ad dollars.

I think the walled gardens, Google and Facebook, benefit from stricter privacy regulation because they solved the identity issue. If you are an advertiser and you haven’t made a commitment to an e-commerce approach or a first-party data ecosystem, your reliance on third parties is to your detriment. That is the biggest challenge.

For some advertisers such as retailers, who have long been able to manage their own internal databases, this is less of an issue. For those who don’t have first-party data, they will have to do advertising the way we did it 25 years ago, which was find relevant environments to put their ads, regardless of who they are reaching. You want to reach basketball enthusiasts, so you put your ad on ESPN.com. If you are using targeting such as third-party cookies, you are able to find those people in other sites, which could be more efficient than buying ESPN.

Bob Rupczynski

Vice President of Global Media and Customer Relationship Management, McDonald’s Corp.

Consumers will be more knowledgeable about data collection, but the masses still won’t do anything different. A few consumers may opt out of sharing data, which will decrease scale. However, it will be more of an inconvenience than a desire from the consumers. The hope is that as technology continues to advance, consumers will grant companies access to their data in exchange for value.

In reality, any change will be regulation-driven, and marketers will just continue to be driven to further dependence on the current duopoly [Facebook and Google]. As marketers, there will be a renaissance in first-party strategies as third-party data sources become less scalable. Marketers’ skills sets and backgrounds will evolve to keep up with regulations, but their campaigns won’t be discernibly different to consumers interacting with their brands.

In the short term, some marketers will lose the ability to understand their customer through third parties [data providers], which may hurt their ability to target, measure and optimize. For those companies, it will require dependence on Facebook and Google to do what was previously achievable through third parties.

However, in the long term many companies will take this as an opportunity to build their own first-party data. The challenge becomes internal as marketers will need to navigate infrastructure, talent and investment as most companies aren’t currently set up to own this today. Overall, those who are acting responsibly today and working toward self-governance should be ahead of the policy changes that will definitely come. It will continue to be a cat-and-mouse game, but the companies that take this topic seriously will set up their relationship with consumers for long-term success.