Privacy and Performance in Digital Ads

Much ado about privacy and performance in digital advertising this week, from the DOJ suing Google for monopolizing digital ad technologies to CEO David Cohen’s speech at the IAB Annual Leadership meeting.

On January 24th, the DOJ alleged that Google has engaged in a course of anticompetitive and exclusionary conduct over the past 15 years, "neutralizing or eliminating ad tech competitors through acquisitions; wielding its dominance across digital advertising markets to force more publishers and advertisers to use its products; and thwarting the ability to use competing products." Moreover, "Google pockets on average more than 30% of the advertising dollars that flow through its digital advertising technology products" Weird to me was the timing of this lawsuit. First, the government failed to stop Google from such actions when it approved it buying Doubleclick back in 2007. Should antitrust not get better in preventing e.g. Facebook from buying Instagram and WhatsApp instead of trying to break it up later? Second, government intervention can have unintended consequences: dr. Garrett Johnson presented this Monday at Northeastern University his research that GDPR temporarily harmed smaller ad providers. He also synthesizes in his public comment to the FTC the convincing body of literature (see above table) that restricting third party cookie and mobile app identifiers lowers digital ad performance, while the harms and benefits to some consumers are not yet rigorously quantified, but ‘the net effects are plausibly positive for some consumers’. Finally, the lawsuit comes at a time where Google’s dominance of the digital ad market is actually slipping. Why pay so much for digital ads in a general search engine when you can advertise on ecommerce sites where consumers actually come to explore and buy products? As Neerav Vyas commented: “From the rise of Amazon Ads to the new emergence of retail media networks, advertising is changing. Advertisers are gaining many more options, and consumers are getting to have more control of their data.”

‘Control of your data’ brings me to the second point: why aren’t digital service providers giving me more options to do so? We all have different tradeoffs between privacy, price and convenience, but companies, officials and pundits appear to assume we are all the same – either

(1) fully embracing third party cookie and app ID sharing and being chased around the web in return for free services, or

(2) stumbling along as clueless victims of manipulation without any understanding of such tradeoffs.

During the IAB Annual Leadership meeting, CEO David Cohen described as ‘insane, dystopian nonsense’ dr. Shoshana Zuboff’s claim that digital advertising “violates the inner sanctum as machines and their algorithms decide the meaning of my breath and my eyes, my jaw muscles, the hitch in my voice, and the exclamation points that I offered in innocence and hope (....) It is no longer enough to automate information flows about us. The goal now is to automate us.” This hyperbole aside, my 2019 reading of  “The Age of Surveillance Capitalism” was not that is was ‘nonsense’ but that is was ‘common sense’: the book taught little new, and it was tediously long and sensation seeking at the same time.

My fundamental problem though was the implied lack of consumer agency – this idea that we are like sheep who can’t make up our own mind and have to be protected from big bad wolves who intentionally want to hurt us. Much of this philosophy shines through in today’s research stream of ‘dark patterns’, i.e. “tricks used in websites and apps that make you buy or sign up for things that you didn't mean to.” Obviously, I am against bad actors, which includes the FTC’s classifications of (1) misleading consumers and disguising ads, (2) making it difficult to cancel subscriptions, (3) burying key terms and junk fees, and (4) tricking consumers into sharing data. However, I do want to get more relevant ads, I do want to get notified when my favorite product is running out of stock, and I do want to decide for myself whether I want to pay more for options with more privacy (as e.g. YouTube allows me to do). So the interesting and unanswered question is how specific consumer segments trade off these parts of offers by legit companies. Such companies need help in understanding when they should accept lower profit performance for better consumer privacy, and when offering higher privacy actually leads to better performance. For instance, I don’t find it creepy when my trusted ecommerce site recommends me products based on my past browsing history with them. I do find it creepy when I write about something in Gmail and get Facebook ads for it right afterwards. Such ads also do not ‘work’ for me – and research shows that retargeting is a lot less effective than many managers believe. Instead, conversion is twice as high for ads that are content-integrated, i.e. fit with the reason the consumer is browsing the site (see below figure from this published paper). Thus, I agree with this week's point of Sean Downey, Google’s VP of media platforms, that, often, “privacy is not at odds with performance.

How to reconcile the privacy paradox? On one hand, the majority of consumers choose free and ad-supported versions over paid ad-free options for many online services – or at least do not opt-out of ad personalization. On the other hand, most consumers tell us in surveys they value privacy a lot, and they do not opt-in when their phone operating system asks them about ad tracking. Where is my consumer option to stop sharing data with third parties, Meta and Google? How can you find out my willingness to pay for such option if you never ask me? Moreover, I do want to continue using apps on my iPhone without Apple taking 30% of the developer’s revenue and thus stifling innovation and the metaverse. Where is my option to do that, Tim Cook? As IAB CEO David Cohen put it during last week's IAB meeting “Apple is fine with advertising, as long as they get to control it on their terms — while destroying anyone else’s ability to profit from it.”

Bottom line: the world of digital advertising is complex and should not be reduced to the extremes that sell books or steamroll legitimate privacy concerns in the name of ‘protecting the industry’. Let’s research how different consumer segments actually trade off privacy and other considerations. Let’s give consumers options that reflect choices among price, convenience and privacy. And let’s strive for more relevance of content and ads. As Beth Evans, VP of media and channel marketing at The North Face put it at the IAB annual leadership meeting: to date, when it comes to digital ad targeting “for most of us it’s felt creepy”. Going forward, it’s about “getting away from the creepiness and finding the relevance.” And it starts here.