rope. Instead, it suggests that, coincident with the timing of the enactment
of European privacy regulation, advertising at Web sites in Europe became
less effective.
This drop in ad effectiveness was
not uniform across all types of Web
sites and advertisements. In fact, many
Web sites and ad formats were barely
affected. We did not see any significant
decline in ad effectiveness on Web
sites that had specialized content, such
as baby and automotive Web sites. It
was Web sites that did not have content that was easily matched to a specific product (Web sites like CNN.com
and Dictionary.com) that drove the
measured drop in advertising effectiveness. We believe this result is driven by
the difficulty of matching a customer
to an ad on such Web sites because the
Web site content does not reveal specific preferences. In contrast, it is easy to
target advertising to a visitor at a Web
site for parents of babies, even without
data on browsing behavior.
Large, intrusive ads also showed
little decline in effectiveness. Instead,
the fall in ad effectiveness in Europe
was largely driven by plain banner ads.
This makes sense because more discreet ads rely on the inherent interest
of a customer in that kind of product,
rather than on a striking ad design. 1
Limitations
Before concluding, we clarify some of
the limitations of this analysis:
˲ ˲Our measures of advertising effectiveness are representative only for
people who are willing to answer an
online market survey. Though respondent demographics seem representative of the general population, they
our results provide
some of the first
empirical evidence
about the likely
consequences of
privacy regulation.
may be unusual in dimensions we do
not observe. Therefore, a conservative
interpretation of our results is that we
measure a decline in a measurement
of advertising effectiveness commonly
used by the online advertising industry.
˲ ˲ The campaigns we study are representative of those launched by large
firms who had substantial resources.
We do not know how privacy regulation affected smaller firms. On the one
hand, the costs of compliance may
have been higher for such firms. On the
other hand, small firms may have been
less careful about compliance.
˲ ˲The campaigns we study were
placed directly by the advertiser on
particular Web sites rather than being
distributed through an advertising network—a common distribution channel for online advertising. It is possible
that advertising networks were better
able to invest resources to mitigate the
effects of privacy regulation, and therefore experienced less of a decline.
˲ ˲We do not know whether the
change in advertising effectiveness
affected advertising revenues. This
would depend on substitution patterns
between online and offline media.
˲ ˲ It is not clear whether our results
generalize to Web sites that explicitly
offer users control over their privacy
settings, such as Facebook. Such proprietary opt-in Web sites may even
benefit from regulation of this kind, if
it means they are more efficient at delivering ads than their competitors.
What It means
Notwithstanding these limitations,
our results provide some of the first
empirical evidence about the likely
consequences of privacy regulation.
This is important because of recent
developments in the U.S. concerning
regulation. In their preliminary staff
report, the FTC made the following
proposal: The most practical method of
providing such universal choice would
likely involve the placement of a persistent setting, similar to a cookie, on the
consumer’s browser signaling the consumer’s choices about being tracked and
receiving targeted ads. Commission staff
supports this approach, sometimes referred to as “Do Not Track.”
Obviously this persistent “opt-out”
is a different approach from the EU
regulation that we study. However,
any decline
in advertising
effectiveness that
results from the new
regulation will not
be borne equally
by all Web sites.
our estimates suggest that one could
reasonably expect a large drop in advertising effectiveness for consumers
who choose to opt out of targeting.
Therefore, the likely effects of the
proposed regulation depend on the
number of consumers who would ultimately choose to persistently opt out,
which in turn will be driven by the specifics of the regulatory framework.
Crucially, our empirical findings
suggest any decline in advertising effectiveness that results from the new
regulation will not be borne equally
by all Web sites. In the long run, this
may change the kind of Web sites and
firms that prosper on the advertising-supported Internet, perhaps leading
to fewer free (ad-supported) general-interest Web sites. Our results also
suggest that advertisers may move
toward more visually arresting types
of advertising in order to compensate
for their inability to target. Therefore,
the potential benefits to consumers of
increased privacy should be weighed
against the consumer benefits of a
potentially broader advertising-supported Internet that has fewer visually
distracting ads.
References
1. Goldfarb, a. and Tucker, C. online display advertising:
Targeting and obtrusiveness. Marketing Science.
Forthcoming.
2. Goldfarb, a. and Tucker, C. Privacy regulation and
online advertising. Management Science 57, 1 (Jan.
2011), 57–71.
Avi Goldfarb ( agoldfarb@rotman.utoronto.ca) is an
associate professor of Marketing in the rotman School of
Management at the university of Toronto.
Catherine Tucker ( cetucker@mit.edu) is Douglas Drane
Career Development Professor of Information Technology
and Management and an assistant professor of Marketing
at the MI T Sloan School of Management, Cambridge, Ma.