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InContext / An inside look at the business of digital content

ePrivacy and marketing budgets

August 17, 2017 | By Don Marti @dmarti

This article was originally published on Don Marti’s blog on 16 August 2017


As far as I know, there are three ways to match an ad to a user.

User intent: Show an ad based on what the user is searching for. Old-school version: the Yellow Pages.

Context: Show an ad based on where the user is, or what the user is interested in. Old-school versions: highway billboards (geographic context), specialized magazines (interest context).

User identity: Show an ad based on who the user is. Old-school version: direct mail.

Most online advertising is matched to the user based on a mix of all three. And different players have different pieces of the action for each one. For user intent, search engines are the gatekeepers. The other winners from matching ads to users by intent are browsers and mobile platforms, who get paid to set their default search engine. Advertising based on context rewards the owners of reputations for producing high-quality news, information, and cultural works. Finally, user identitynow has a whole Lumascape of vendors in a variety of categories, all offering to help identify users in some way. (the Lumascape is rapidly consolidating, but that’s another story.)

Few of the web ads that you might see today are matched to you purely based on one of the three methods. Investments in all three tend to shift as the available technology, and the prevailing norms and laws, change.

Enough background.

Randall Rothenberg of the IAB is concerned about the proposed ePrivacy Regulation in Europe, and writes,

The basic functionality of the internet, which is built on data exchanges between a user’s computer and publishers’ servers, can no longer be used for the delivery of advertising unless the consumer agrees to receive the ads – but the publisher must deliver content to that consumer regardless.

This doesn’t look accurate. I don’t know of any proposal that would require publishers to serve users who block ads entirely. What Rothenberg is really complaining about is that the proposed regulation would limit the ability of sites and ad intermediaries to match ads to users based on user identity, forcing them to rely on user intent and context. If users choose to block ads delivered from ad servers that use their personal data without permission, then sites won’t be able to refuse to serve them the content, but will be able to run ads that are relevant to the content of the site. As far as I can tell, sites would still be able to pop a “turn off your ad blocker” message in place of a news story if the user was blocking an ad placed purely by context, magazine style.

Privacy regulation is not so much an attack on the basic functionality of the Internet, as it is a shift that lowers the return on investment on knowing who the user is, and drives up the return on investment on providing search results and content. That’s a big change in who gets paid: more money for search and for trustworthy content brands, and less for adtech intermediaries that depend on user tracking.

Advertising: a fair deal for the user?

That depends. Search advertising is clearly the result of a user choice. The user chooses to view ads that come with search results, as part of choosing to do a search. As long as the ads are marked as ads, it’s pretty obvious what is happening.

The same goes for ads placed in context. The advertiser trades economic signal, in the form of costly support of an ad-supported resource, for the user’s attention. This is common in magazine and broadcast advertising, and when you use a site with one of the (rare) pure in-context ad platforms such as Project Wonderful, it works about the same way.

The place where things start to get problematic is ads based on user identity, placed by tracking users from site to site. The more that users learn how their data is used, the less tracking they tend to want. In one survey, 66% of adult Americans said they do not want marketers to tailor advertisements to their interests, and when the researchers explained how ad targeting works, the percentage went up.

If users, on average, dislike tracking enough that sites choose to conceal it, then that’s pretty good evidence that sites should probably ask for permission to do it. Whether this opt-in should be enforced by law, technology, or both is left as an exercise for the reader.

So what happens if, thanks to new regulations, technical improvements in browsers, or both, cross-site tracking becomes harder? Rothenberg insists that this transformation would end ad-supported sites, but the real effects would be more complex. Ad-supported sites are already getting a remarkably lousy share of ad budgets. “The supply chain’s complexity and opacity net digital advertisers as little as 30 cents to 40 cents of working media for every dollar spent,” ANA CEO Bob Liodice said.

Advertising on high-reputation sites tends to be a better investment than using highly intermediated, fraud-prone, stacks of user tracking to try to chase good users to cheap sites. But crap ad inventory, including fraudulent and brand-unsafe stuff, persists. The crap only has market value because of user tracking, and it drives down the value of legit ads. If browser improvements or regulation make knowledge of user identity rarer, the crap tends to leave the market and the value of user intent and context go up.

Rothenberg speaks for today’s adtech, which despite all its acronyms and Big Data jive, is based on a pretty boring business model: find a user on a legit site, covertly follow the user to a crappy site where the ads are cheaper, sell an ad impression there, profit. Of course he’s entitled to make the case for enabling IAB members to continue to collect their “adtech tax.” But moving ad budgets from one set of players to another doesn’t end ad-supported sites, because marketers adjust. That’s what they do. There’s always something new in marketing, and budgets move around. What happens when privacy regulations shift the incentives, and make more of advertising have to depend on trustworthy content? That’s the real question here.

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