The Digital Services Act (DSA) is one of the first major updates of Europe’s digital rules in over two decades. It’s big, ambitious, and likely to have profound effects the entire digital ecosystem in Europe for years to come. If we are not careful, it could also have a chilling effect on digital advertising, online content, and technology investment. This is already a strong argument for policymakers to make sure that they get the DSA ‘right’, the first time.
It’s important to set the context for advertising. Advertising is a key driver of economic growth and competition. Studies have shown that for every euro spent on advertising generates €7 for the economy. It supports nearly 6 million jobs across the EU, and it helps with bringing new products and services to market and it helps SMEs to reach new customers.
Advertising also funds sport, media, and culture. It also plays an important role in the democratizing access to information for all citizens and funding of the free and open internet.
Digital advertising is a complex ecosystem–Many brands, digital advertising and marketing agencies, digital publishers, ad delivery networks, online measurement and verification companies play an important part of this ecosystem in addition to social media and search engines.
Digital advertising is already heavily regulated in Europe, but the recent IMCO report introduces several new provisions and obligations that could needlessly damage thousands of businesses that depend on digital advertising across Europe. It also proposes to expand the definition of what constitutes an ad to explicitly include direct and indirect promotion of messages. Aside from the fact that indirect promotion of messages is an important method of raising brand awareness for businesses, how would this be defined and enforced? For certain it will increase regulatory complexity and raises the costs for European businesses.
Amongst the new provisions is a proposed opt-in for targeted ads. Personalised advertising has been portrayed as an exploitative practice that offers little in return for online consumers. But the evidence suggests that many consumers prefer some form of personalisation of the ads they are presented with. This makes sense, why advertise a beef burger to a vegan for example?
Personalized advertising has also been used for public health messaging to encourage vaccine take-up and reach marginalised groups to give up smoking.
Additionally, many EU SMEs benefit from personalised advertising as it is a cost-effective and efficient method to reach new customers and markets. EU SMEs already struggle to compete for more expensive ad space and if we relied on contextual advertising alone, we would struggle to discover the new and innovative products and services that they provide.
SMEs are key to Europe’s economic recovery and future prosperity
Fundamentally, personalized ads are part of a wider advertising ecosystem that supports the provision of online content and services that are available at low or no cost to users.
Publishers, who provide their content for free, rely on personalised ads. Studies have shown that average revenues decreased by more than a half when controls for personalized advertising is disabled. This has serious implications for the sustainability of news media.
In a report published earlier this year, the Interactive Advertising Bureau Europe (IAB) examined the potential outcomes if online services were required to introduce charges to cover the loss of revenue from restrictions on targeted advertising. By a huge majority (75%), Europeans prefer the current commercial model for the internet, which is funded largely by personalized advertising.
The alternative scenario is an internet full of paywalls and subscriptions.
Fewer than half of Europeans (49%) are willing to pay for more than three such subscriptions in total if they were to come about.
The DSA is supposed to update Europe’s online rules for the 21st century not to leave us with an unsustainable online environment that will fail to meet the needs of businesses and consumers alike.
It’s time to have a proper debate about the DSA and personalized advertising.