What regulators misunderstand about consumer data and the future of the internet

The internet is paid for with relevant advertising. How will moves to protect consumer privacy affect this model?

Jeff Green
CEO, The Trade Desk
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In January, California will implement its Consumer Privacy Act, aimed at enhancing privacy rights and controls for state citizens. This follows the broader GDPR regulations in Europe, as well as preemptive moves by companies such as Apple and Mozilla to restrict the power of internet cookies. Some within the advertising industry are even preparing for a so-called cookieless future.

What’s often missing from the ongoing debate about such regulation and legislation is any consideration of how the internet pays for itself. As you read the news online or watch the latest binge-worthy series on your smart TV, you are likely paying for it by watching advertising. The more relevant that advertising is to you, the more valuable it is to the advertiser and publisher, and the more it can be used to fund great content.

For the select few, such as Netflix and The Wall Street Journal, a subscription-based business model works, for now. But in the great scheme of the internet, these subscription success stories are outliers and they will become increasingly rare. The latest research from Deloitte suggests that almost half of US consumers are already starting to experience subscription fatigue.

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For all but the small minority of content providers who can currently sustain a subscription model, the internet is paid for with relevant advertising. This is no different from the way content has been monetized for decades. Whether it was soap companies marketing to 1950s housewives during hour-long daily television dramas or Pepsi sponsoring the Superbowl halftime show, almost all consumer content has had an advertising attachment.

While the balance between advertising and premium content has always been the value exchange of premium content, it is being tested in a more robust way on the internet, where data can be applied to make the relevance of advertising more precise. Indeed, it is estimated that the internet is funded by advertising to the tune of more than $35 per US consumer, per month.

But therein lies the emerging, thorny issue of consumer data control and privacy, now rumbling through the tech industry and consuming the time of regulators worldwide. When Facebook was marched to Capitol Hill to explain, in part, how data is used to understand consumer audiences in granular detail, politicians started to appreciate how digital marketing works and the wealth of consumer data that is being mined.

These are valid concerns: consumers should have comfort that their data is not being misused. Every time you search for something on the web, research or make a purchase online or express your views on social media, data about you is being gathered and stored. As more of that data is aggregated by a few companies, the argument goes, not only is your privacy compromised, but tech giants can use that data to exert growing control over the ad process, driving revenue to and from specific publishers.

That’s scary, but advertisers come at this from a different perspective and it’s important to consider how they approach funding great content while protecting the consumer. Many of the world’s leading consumer packaged goods and automotive companies, for example, have a decades-long relationship with their most loyal consumers. They know that this loyalty can be destroyed in an instant if the consumer worries that their privacy has been compromised. At the same time, those consumers who understand their side of the value exchange are willing to engage in loyalty programmes, sharing information about themselves, in return for targeted value.

Advertisers understand this and have come to appreciate that privacy and relevance can co-exist in a digital world awash with data. That means using advances in technology to drive relevance and value in advertising without abusing consumer data. Some advertising pioneers are innovating with technology that will allow them to build anonymized patterns that represent their loyal customer base and understand where those patterns show up elsewhere in the market. In these emerging cases, relevance is all about anonymous patterns and associations rather than any specific form of identifiable personal information. These innovations have the potential to improve the consumer experience – perhaps we will finally get to a point where we don’t all have to sit through hundreds of new car ads when only 5 million people in the US are actively looking for a new car at any given time. Perhaps we’ll get to watch fewer, more relevant and more valuable ads.

This value exchange is not lost on big tech either: as Google implements changes to its Chrome browser to improve consumer privacy controls, it is doing so in a way that protects the ability to drive advertising relevance. Google understands the crucial role that advertising plays in funding the internet as we know it today and it won’t do anything to destroy that value.

While new regulations can be helpful to consumers and businesses alike, we have to be careful about the consequences for the vast majority of digital content that is ad-funded. Without valuable ad dollars much of today’s content, including great journalism, will not be sustainable. It is in the advertisers’ interests to make their products as relevant to you as possible and to make your web experience as pleasant as possible. At the same time, they have a similar interest, and the technological ability, to ensure the responsible management of consumer data.

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