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Policy / DCN perspectives on policy, law, and legislative news surrounding digital content

Apple and California are pushing advertising to adapt. That’s a good thing.

March 24, 2022 | By Chris Pedigo, SVP Government Affairs – DCN @Pedigo_Chris

For far too long, many have falsely equated the value of digital advertising as the ability to track consumer behavior. This belief, and much of the marketing strategy it inspired, eroded consumer trust, which hasn’t been a win for anyone. Regulation is catching up and efforts are now being made to align business practices more closely with consumer expectations.

Regulation is catching up and efforts are now being made to align business practices more closely with consumer expectations. Unfortunately, this has a lot of pundits opining about the negative impact of privacy governance on marketing. The reality is that digital advertising has much more than tracking to offer consumers, marketers, and media companies. The changing landscape is a necessary evolutionary step, and an opportunity to get things right.

CPRA in effect

Later this summer, California regulators will spell out draft rules for how companies should comply with the California Privacy Rights Act (CPRA), which builds on and strengthens existing California privacy law. One of the biggest changes will be the ability for consumers to opt out of being tracked with a single click. The CPRA specifically requires companies to honor an opt out signal generated from a global privacy control in a browser or device.

Interestingly, this new provision in the CPRA mirrors Apple’s approach with App Tracking Transparency (ATT), which it rolled out in 2021 as part of its update to iOS 14.5. Under ATT, apps must ask consumers for permission to track them. The results have not been surprising: 81% of consumers have chosen the option not to be tracked.

So, what will happen when Californians have the same ability to opt out as Apple users have today?

It’s not unreasonable to assume that Californians will opt out of tracking at similar rates. Given that there are more than 39 million California residents, an 81% opt out rate translates to 31,590,000 people. And really, if even half that opt out, it is not a small number. Advertisers will understandably want to find new ways to reach these consumers. The industry is already feeling the impact of consumers’ privacy preferences and advertising must evolve accordingly.

Dominant companies dented

Since the launch of ATT, companies that depend on web-wide tracking of consumers have suffered. Facebook warned investors that Apple’s improvements to privacy will cost them $10 billion in revenue this year.

It’s interesting to note that ATT’s impact is felt solely in Apple’s platform, which has provided Google with the unique calling card to advertisers of being the operating system and browser still “all-in” on tracking. However, CPRA will apply to everyone. Given that Google, like Facebook, has built an advertising empire based on invasive tracking, it seems inevitable that the company will see an impact on its ad revenues as well.

Some have noted that Apple has also seen revenue climb from its own App Store search ads. However, they are quickly reaching capacity constraints in the app promotions category, so this is unlikely to serve as a major growth category for Apple.

Ad innovation

Of course, despite limits to tracking, Apple users still see display ads as those ads just aren’t targeted using behavioral profiles. Apple allows ads to be targeted to cohorts or by using first party data. So, I believe that we will start to see more innovation in how advertising is targeted to consumers. First party targeted ads seem like an obvious winner. In particular, ad innovation on Apple platforms could yield significant success because those audiences have long been seen as a more valuable consumer demographic than Android users.

Premium advertising alignment

Consumers frequently complain about creepy ads that follow them around the web. Those kinds of ads are not subtle. In fact, they are viewed by many as the digital equivalent of junk mail. And, as such, they don’t match well with premium content.

However, ads that are based on first party data might be better suited to a premium environment. For starters, the consumer is likely to realize that they are seeing a certain ad because of data they shared with the publisher. They are also likely to have a more favorable view of that ad because of the context. That’s because – instead of focusing solely on targeting a user at the lowest cost – the advertiser has instead intentionally aligned themselves with the relationship the publisher enjoys with the consumer. The ad is, therefore, likely to leverage that premium context to greater effect. In a world where third-party profiling is restricted, we could start to see higher quality ads in premium contexts – and ads that are more effective as a result.

Valuable consenting consumers

While it is a relatively small number, the 19% of consumers that intentionally opt-in to data sharing with sites and companies they trust will become extremely valuable. Trusted, well-respected brands promise to be the main beneficiaries as they are those most likely to gain consent from consumers. Obviously, advertisers would pay a premium to reach these audiences. It’s also interesting to consider how premium publishers could find new ways outside of advertising to monetize their most loyal consumers.

If past is prologue, big tech lobbyists and lawyers will forebodingly warn that the CPRA will cause irreparable damage to the advertising industry. They will bemoan the impact on small businesses and diverse voices. However, it is critical to remember that their real goal is to blunt the hit to Google and Facebook’s bottom lines, which is already driven by upwards of 70% of the digital advertising market.

The future is good advertising

Ultimately, we need to focus on the fact that consumers want, and will get, more control over how their data is shared across the web. As Carnegie-Mellon economist Alessandro Acquisti points out: When consumers are empowered with more privacy, welfare doesn’t evaporate, it shifts and reallocates towards a new set of winners.

The adaptation required from ATT and CPRA are likely to shake up digital advertising and shift advertising revenue from current channels. Like Apple’s tracking prevention last year, CPRA is poised to have a huge impact on the companies dominating digital advertising by logging every aspect of a consumer’s behavior. At the same time, these shifts promise to expand opportunities for trusted, premium publishers; They will stand out to consumers by offering something consumers actually want: valuable news and entertainment, delivered in a way that respects them and their wishes.