As the EU begins adopting new, rigorous consumer data guidelines, at least one top Wall Street analyst has revised his outlook on the impact it will have on major digital platforms, such as Google and Facebook, from “marginally positive” to “slightly negative.”
The analyst, Pivotal Research Group’s Brian Wieser, also makes the case that a pronounced reduction in the percentage of consumers these platforms can effectively target using their data will drive CPMs -- or cost-per-thousand -- advertising rates down.
The EU’s new rules, known as the General Data Protection Regulation, or GDPR, is scheduled to take effect May 2018.
Wieser projects it could impact CPMs by increasing the amount of inventory platforms need to allocate in order to generate the same returns on ad spending they delivered with access to more targeted consumer data.
“For a highly simplistic (and probably extreme) example, assume a niche product has a target audience of 10% of the total population and pays a publisher a $50 effective CPM to reach its target,” Wieser writes in a note sent to investors this morning.
“If the publisher has highly precise data on users, ads are only delivered to the target audience, which means the publisher also receives $50 CPMs,” he continues. “If under GDPR the publisher secures consent that only allows the data to be used in a less targeted way, perhaps it takes twice as much inventory to find the same audience. With the same absolute amount of spending, the publisher might now receive only $25 CPMs for the advertiser to continue to experience $50 effective CPMs.”
Such scenarios could materially impact the revenues generated by digital publishers, because they need to utilize more of their inventory to meet the ROI goals of advertisers.
Wieser estimated the EU ad market -- including the U.K. -- account for about 30% of Alphabet’s revenues, 25% of Facebook’s, 20% of Twitter's and as much as 15% of Snap’s.