Study: Even Moderate Privacy Regulation Reduces Ad Effectiveness
- by Wendy Davis @wendyndavis, May 18, 2010
A new study by two marketing professors concludes that banner ads are less effective in Europe, where online privacy laws restrict ad targeting, than in other parts of the world.
"The empirical findings of this paper suggest that even moderate privacy regulation does reduce the effectiveness of online advertising," states the paper, authored by University of Toronto's Avi Goldfarb and MIT's Catherine E. Tucker.
Europe's data protection laws ban marketers from tracking users via Web bugs or cookies without notifying people and obtaining their consent. It's not clear whether that consent must be opt-out or if opt-in will suffice. But the report authors speculate that marketers responded to the ambiguity by adopting a "conservative legal interpretation" and curbing their use of targeted ads.
The study draws on surveys of 3.3 million Web users who had been exposed to a total of 9,596 online ad campaigns between 2001 and 2008. Researchers asked one group of users who had seen particular ads whether they intended to purchase the products marketed; researchers also asked a control group who hadn't seen the ads whether they intended to purchase the products marketed to the first group.
The researchers measured effectiveness by looking at the difference in purchase intent among the two groups. The report authors compared the results for users in EU countries and non-EU countries and concluded that Europe's laws reduced effectiveness, as measured by purchase intent, by over 65%.
They also concluded that Web sites that had general news saw a larger drop in effectiveness than specialized sites like travel or parenting sites. "Customers at travel and parenting websites have already identified themselves as being in a particular target market, so it is less important for those websites to use data on previous browsing behavior to target their ads," the report states.
While the authors attribute the results to a drop-off in marketers' use of targeted ads, other explanations are possible. Pace University's Catherine Dwyer speculated that the shift could also have occurred as a result of greater consumer awareness in the EU about targeted ads, and not necessarily because marketers stopped using them.
Goldfarb responds that even if that's the case, the greater awareness still seemed to come about as a result of regulations, which means that privacy laws contributed to a drop in ads' effectiveness.
"There might be lots of reasons why you care about privacy regulation, but it has a cost," he says. "The cost is in how effective the online ads are."
In the U.S., Rep. Rick Boucher (D-Va.) recently floated a proposal requiring that companies notify people about ad targeting and obtain their consent (opt-out in many cases). Goldfarb says that proposal could result in less effective online ads in the U.S., but perhaps only on a temporary basis. "At least in the short run, the U.S. online ad industry would be affected. In the long run, they might adjust," he says. "They might figure out how to do the right kind of advertising that works, but that doesn't violate the privacy regulations."
The study may have a flawed design. Citizens in the EU are historically more sensitive to privacy concerns.
(Recall that citizens in the EU have first-hand knowledge regarding the abuses of sensitive information).
Therefore, it is probable that the results of the study are inaccurate. My statistics prof regularly pointed out that correlation does not imply causation.
All reports from the EU--including from both the EU and UK Interactive Ad Bureau, case studies from major online ad companies, and research reports from online marketing companies based there, etc.--show an increase in online ad effectiveness. Indeed, we believe that despite the privacy laws, online marketers are aggressively pushing the data collection and online marketing paradigm process in the EU. I look forward to reviewing the paper. But I do note that both Prof. Tucker and Prof. Goldfarb have received grants in the recent past from the Google and Microsoft connected Net Institute.
I'm confused at the press on this study because, based on how the study is portrayed, it has nothing to do with BT or cookie-targeted advertising. Article Quote:
"The study draws on surveys of 3.3 million Web users who had been exposed to a total of 9,596 online ad campaigns between 2001 and 2008. Researchers asked one group of users who had seen particular ads whether they intended to purchase the products marketed; researchers also asked a control group who hadn't seen the ads whether they intended to purchase the products marketed to the first group."
It doesn't appear this study has anything to do with BT and cookies? This was "exposed" or "not exposed" to advertising. Not, "BT targeted" versus "non-BT" targeted. Obviously, if someone was exposed to an ad, there is a higher likelihood of them increasing purchase intent.
I can't find the correlation between privacy law and this study. It seems it's a study on online ad exposure versus no online ad exposure.
It feels like more industry rhetoric against enacting consumer protection and privacy laws.
The law only restricts certain types of behavioral tracking and prospect bucketing. There are still other methods, which have been shown conclusively to work and produce significant increases in ad effectiveness. Also, there is a behavioral targeting company which has proven performance results from Germany. So the law only shut down one avenue and there are others which are effective.
The stats are certainly concern worthy. While I agree that the privacy of users should always be respected, I think that if consumers took a step back and really examined the process of <a href="http://www.adroll.com">retargeting</a> (provided it’s done properly, with the use of tools like frequency caps), they would realize that it can actually benefit them in the long run. The truth is we’re always going to be exposed to ads whenever we surf the web. Wouldn’t it make more sense for those ads to be for things we like and can actually use? Once consumers come to this realization, their privacy concerns will likely be eliminated.