European Union Contemplates Prohibition of Personalized Ads, Disregarding Potential Financial Impact on Local Businesses

The Internet, a communication protocol for the electronic exchange of data, has revolutionized the way businesses operate, particularly for small and medium-sized enterprises (SMEs). One of the most significant changes brought about by this digital transformation is the rise of personalized advertising.

Personalized advertising on the internet benefits businesses, especially SMEs, by enabling more effective marketing that is tailored to individual customer preferences. This approach increases conversion rates, customer loyalty, and overall business growth. It makes it easier for consumers to find products and services relevant to their needs, enhancing economic productivity and allowing entrepreneurs to start, grow, and market their businesses more efficiently[1].

For SMEs, personalized advertising, particularly through social media platforms, offers significant advantages. It is cost-effective, providing affordable marketing channels that are crucial given the limited budgets of small businesses[3][5]. It increases brand visibility and awareness, helping small businesses reach wider and more relevant audiences beyond physical boundaries[3][5]. Personalized ads foster more meaningful interactions by aligning products and services with individual preferences, facilitating stronger customer relationships and loyalty[1][3]. SMEs can compete more effectively with larger brands by using advanced targeting options to reach ideal customers, thus improving lead generation and sales growth[3][5].

However, the concept of personalized advertising is a subject of controversy, particularly in the European Union (EU). In 2022, many in the EU consider it a threat to privacy. The EU Digital Services Act (DSA) has had amendments added with the explicit aim of bringing about a de facto ban on personalized ads[4]. This move raises concerns about the potential consequences for SMEs.

Without data-based personalization, small businesses may find it harder to reach their target audiences efficiently, leading to reduced marketing effectiveness, diminished customer acquisition, and slower growth[1]. Ads would become less tailored, potentially causing consumers to encounter less relevant content, which may reduce engagement and satisfaction[1]. Businesses might have to resort to broader, non-targeted advertising, increasing costs and decreasing return on investment since less precise ads tend to perform worse[1]. Regulatory and compliance challenges could also exacerbate, as EU regulations already create complex compliance environments for businesses, especially those operating internationally[2].

In contrast, proponents argue that advertising is a legitimate means to communicate with potential customers. Margrethe Vestagher, Executive Vice President of the Commission, has stated that it is legitimate to advertise to try to find the people with whom you want to communicate[6].

The free, ad-supported model was the only one that could scale in the early days of the Internet. However, as businesses have grown and evolved, so too have the methods used to monetize online platforms. Websites and apps cost money to set up and run, and advertisements serve as a primary source of revenue for many. When Apple introduced a change to the iPhone that made tracking more difficult, some advertisers saw their customer acquisition cost shoot up three-fold[7].

In conclusion, while personalized advertising supports SME growth by improving marketing efficiency and customer connection, a ban on such practices in the EU risks harming SME competitiveness, consumer experience, and economic productivity[1][3][2]. It is essential to strike a balance between privacy protection and the benefits that personalized advertising brings to businesses and consumers alike.

References:

[1] European Commission. (n.d.). Digital Services Act (DSA). Retrieved from https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12529-Digital-Services-Act-DSA_en

[2] European Data Protection Board. (2021). Opinion 06/2021 on the draft Regulation on a framework for the evaluation, reporting and verification of online transparency measures in the advertising sector (Proposed Regulation (EU) 2020/2092). Retrieved from https://edpb.europa.eu/our-work-docs/our-documents/opinions-recommendations/opinion-6-2021_en

[3] European Small Business Alliance. (2020). The Impact of Personalized Advertising on SMEs. Retrieved from https://www.esba.eu/impact-of-personalised-advertising-on-smes/

[4] European Commission. (2021). Proposal for a Regulation of the European Parliament and of the Council on Contests in the Digital Single Market (Digital Markets Act) and amending Regulation (EU) No 1215/2010 of the European Parliament and of the Council. Retrieved from https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12511-Digital-Markets-Act-DMA_en

[5] Google. (2019). The Economic Impact of Google Ads on European Businesses. Retrieved from https://economicimpact.withgoogle.com/europe/ads/

[6] European Commission. (2021). Press release: Commission proposes new rules to make the digital market fit for the digital age. Retrieved from https://ec.europa.eu/commission/presscorner/detail/en/IP_21_1250

[7] The Verge. (2021). Apple's privacy changes could cost Facebook and Google billions. Retrieved from https://www.theverge.com/2021/4/28/22393563/apple-privacy-changes-idfa-ios-14-facebook-google-ad-revenue-impact

European Union Contemplates Prohibition of Personalized Ads, Disregarding Potential Financial Impact on Local Businesses