Banning Targeted Ads Would Sink the Internet Economy

Ashley Johnson January 20, 2022
January 20, 2022

(Ed. Note: The “Innovation Fact of the Week” appears as a regular feature in each edition of ITIF’s weekly email newsletter. Sign up today.)

Rep. Anna Eshoo (D-CA), Rep. Jan Schakowsky (D-IL), and Sen. Cory Booker (D-NJ) on Tuesday introduced the Banning Surveillance Advertising Act, which would undermine one of the key pillars of the Internet economy, targeted advertising. By banning targeted ads, this legislation would hurt businesses that rely on these ads to promote their goods and services, apps and services that use the increased revenue from targeted ads to offer services at a low or no cost, and consumers that use these free or low-cost online services and do much of their shopping online.

The Banning Surveillance Advertising Act would stop the practice of targeting online advertisements to users based on their online behavior, specific physical location, or demographics. It makes exceptions only for targeting ads to users based on their general location (city-level targeting is permitted, but more granular divisions, such as zip code, are not) and delivering contextual ads, which show goods and services relevant to the content a user is viewing or searching for.

Privacy fundamentalists portray targeted advertising as an invasive form of surveillance that takes advantage of consumers by “forcing” them to trade away their personal data in order to access certain websites and online services. The truth is, by and large, what websites and apps sell to advertisers is not personally-identifiable information; it is anonymous “eyeballs” whose owners are more likely to click on a particular ad. 

Moreover, consumers benefit immensely from the modern, mostly free Internet economy, which is powered by targeted advertising. Countless useful, convenient, informative, and entertaining apps and websites, from social media platforms to games to news sites, offer their services for free or for a lower price because they receive a significant portion of their revenue from targeting ads to their users.

In a world without targeted advertising, or where targeted advertising is less effective due to excessive restrictions on data collection and use, many websites or apps would earn less revenue. This would mean they have to start charging users fees or increase what they already charge for their services. This would disproportionately impact lower-income households. Wealthier households could bear the burden of paying for ad-free services. In contrast, households that could not afford additional subscription fees on top of their current expenses would be cut off from large swaths of the Internet. In other words, this legislation, if passed, would widen today’s digital divide. 

This paternalistic approach to privacy presupposes that everyday Americans need to be protected from themselves with laws that prevent them from “trading away their personal data.” In truth, 67 percent of American consumers are unwilling to pay more for ad-free services—and indeed, many opt to use free, ad-supported services rather than pay for ad-free alternatives. Legislation like the Banning Surveillance Advertising Act would take this choice away from consumers and make it for them, leaving many worse off in terms of their access to online services. The belief underlying this bill is that consumers can and should be able to “have their cake and eat it too”; in other words, receive the same quality of Internet services, without an increase in price, with no targeted ads. This fantasyland is surely appealing, but not reality. 

Beyond the impact on consumers, banning targeted ads would also negatively impact the thriving U.S. digital economy: both the apps and websites that rely on targeted advertising as a source of revenue and the businesses that rely on it to advertise their goods and services more cheaply, efficiently, and effectively. This would come at a time when many businesses are still suffering or recovering from the ongoing COVID-19 pandemic and related recession and when many consumers are doing the bulk of their shopping online to prioritize their health and convenience.

There are less destructive ways to solve purported problems posed by targeted ads without eliminating their many benefits. To protect consumer privacy, Congress should pass comprehensive federal data privacy legislation in 2022. Congress should also require greater transparency in online advertising to address deceptive practices that scammers and other bad actors use to promote questionable products and services or spread political disinformation. Finally, Congress should provide law enforcement agencies sufficient resources to take action against advertisers that violate anti-discrimination statutes in areas like housing and employment. These measures would protect consumers without raising the cost of online services, widening the digital divide, and damaging the Internet economy.

Twitter Image: 
Banning Targeted Ads Would Sink the Internet Economy