The EU has hailed its Recovery Plan for Europe as a “once in a lifetime chance to emerge stronger from the pandemic”. But despite a commitment to making the Union more digital, the reality of Brussels policymaking paints a very different picture for the small and medium businesses (SMEs) that are the backbone of the European economy, for digital media, and ultimately for our broader society.
Covid-19 has demonstrated that for businesses, standing out from the crowd in an increasingly competitive online space is no longer a nice-to-have, but imperative for survival. Consumers have moved online, with the number of users who bought goods or services via internet surging by more than a third in some European markets. The ability to reach new groups of consumers likely to be interested in your products, also known as addressability, is critical for growing sales — and targeting ads is fundamental to that.
As key Committees of the European Parliament debate and discuss amendments to the Digital Services Act (DSA), it is clear that a common definition of targeted advertising is lacking. Also lacking is an understanding of the value of targeted advertising for growth and innovation online, which, combined with a perception that targeting only benefits big business, has led to urgent calls from some MEPs to introduce heavy restrictions or even an outright ban.
Such an approach to targeted advertising — which, under existing law, consumers can just reject anyway — is shortsighted. It is based on the misconception that such advertising takes advantage of users while offering them little in return. It also fails to take account of the wider applications of targeted advertising for Europe’s economy.
Indeed the European Commission reminded MEPs last week that the DSA was intended to be a ‘horizontal’ piece of legislation that avoided sector-specific mandates such as a ban on targeted ads and that such an addition could take away from the wider aims of the DSA such as fostering innovation, growth and competitiveness within the single market.
Not only would a ban on targeted advertising impact thousands of businesses across Europe, but it would result in unintended consequences for the EU’s efforts to promote a pluralistic media and deliver on the promise of a digital transformation of its economy and society. The potential for these unintended outcomes is laid out in a new report from IAB Europe’s Chief Economist, Dr Daniel Knapp.
The report highlights the importance of digital advertising for SMEs trying to find new markets and drive sales on tight budgets. For these companies, being able to effectively target ads helps ensure they reach relevant consumers, minimise waste and effectively measure advertising return-on-investment.
Targeted advertising also helps the producers of unique cultural goods to raise awareness and find customers across Europe. Think of a niche producer of foodstuffs in rural France, a small vineyard in Italy or a family-run clothing producer in Spain. They need the easiest, most cost-effective way to connect with potential customers across Europe who would otherwise be unlikely to know they even exist.
But the benefits of digital and targeted advertising extend beyond business. Such advertising is deeply interwoven with the protection of the free press in Europe. With the accelerating decline of traditional advertising revenues, publishers need to find new revenue streams. And as the pandemic has shown, reliable, robust media are needed now more than ever as citizens look for information from trusted sources.
Some of Europe’s leading publications have succeeded in building subscription businesses, but it’s worth noting that there are both winners and losers in taking this route: the European Parliament’s Culture Committee has warned that shifting to a subscription economy without advertising could lead to a decline in the availability of free quality information.
With 68 percent of European internet users saying they would never pay for news content online, publishers need to maximise the revenue they can generate from digital advertising alongside their subscription and other revenue streams. To do this efficiently, they need personalisation. Over two-thirds of digital advertising revenues in Europe already come from behavioural targeting, and evidence consistently shows that advertisers are willing to pay a premium for these ads.
The DSA will have significant ramifications for Europe for many years to come. A ban on targeted advertising would trigger significant long-term knock-on effects that far outweigh any short-term political ‘wins’.