The Value of Personalized Advertising in Europe

Benjamin Mueller Daniel Castro November 22, 2021
November 22, 2021
Banning personalized ads would threaten about €6 billion of income for the European app economy—a sector that employs 1.5 million people in the EU.

Online advertising, particularly targeted advertising, is a fundamental enabler of the Internet economy. Not only do targeted ads allow marketers efficient access to specific audiences, but the higher revenue from these ads helps pay for the vast array of apps, content, and services that consumers access for free online. Some European lawmakers are pushing to ban personalized online ads, claiming that they harm consumer privacy. Given the EU’s extensive existing data privacy framework, consumer privacy is not at risk. However, banning targeted ads would hurt advertisers, app developers, media companies, content creators, and consumers by making online advertising less effective. A ban on targeted ads would reduce the €16 billion of spending on data-driven ads in the EU, threatening about €6 billion of advertising income for app developers. As a result, European consumers would face the prospect of a radically different Internet: more ads that are less relevant, lower quality online content and services, and more paywalls.

Online advertising has played a key role in the development of the Internet. It was unclear in the early days of the Internet which business model would prevail. Some businesses tried to monetize their online services by charging subscription fees, but most found that offering free access supported by advertising revenue was more sustainable. Initially, Internet advertising consisted of simple banner ads displayed across the top of websites. Soon after, companies like Yahoo realized that they could offer more relevant ads based on keywords in user online searches. However, it was not until the introduction of cookies (small text files placed by a website in a user’s browser) that the potential of targeted advertising became clear. Cookies enabled websites to recognize users across multiple sessions and therefore websites could begin offering users a personalized experience. Not only could e-commerce sites use cookies to promote products that returning users had looked at or purchased before, but advertising platforms could use cookies to develop profiles about users based on their browsing history, for instance, understanding if someone is likely to be interested in travel or sports or gardening, and serving ads to these users based on their profiles. Because targeted ads are more relevant to users, people are more likely to engage with them, and thus advertisers are willing to pay more for those ads and publishers can earn more revenue. The click-through rate (the ratio of users who click on an ad to the number who visit a webpage) for personalized advertising is 5.3 times higher than for non-personalized advertising. For re-targeted consumers (those who have previously shown an interest in a product) the click-through rate is 10.8 times higher.

Over the past two decades, targeted online advertising has grown rapidly and evolved for both desktop and mobile users as Internet usage patterns have changed. For example, the share of advertising on social media has increased steadily, as have digital video and audio ads, as streaming and podcasting have become more popular among Internet users. At every stage, revenue from targeted online advertising has supported the development of innovative and no-cost online products and services, including social media platforms, mobile apps, games, news media, and more.

Thus, proposals to ban or restrict targeted advertising would significantly harm the EU Internet ecosystem by cutting off an important source of revenue for ad publishers—a group that includes app developers, media companies, and content creators. Banning targeted ads in the EU would make it more expensive for advertisers to reach their target audiences, reduce revenues for publishers, and limit the availability of free and low-cost content for users. Not only are these proposals harmful, they are also unnecessary to protect consumers and uphold European values: targeted online advertising is already subject to a wide-ranging and well-entrenched set of laws that address everything from the content of ads to the protection of personal data. These rules ensure that advertising platforms respect that rights of European consumers when they collect and use personal data for advertising and that advertising platforms do not sell copies of consumer data to advertisers.

The Value of Personalized Advertising in Europe