Digital advertising monopolies and user privacy

Big Tech in-fighting has highlighted the tension between privacy and digital marketing. Personally, I prefer not to be tracked, profiled and targeted. I also appreciate and have depended on targeted digital marketing to build products. So, while I’m undecided on where we should draw the line, here is a summary of how I see the current situation.

Advertising platforms collect most user data through tracking scripts on ecommerce and media websites. Business owners willingly install these scripts on their websites so that they can track conversions and user behaviour. This tracking, amongst other things, allows them to see which off-site ads prompted their users to purchase a product on their website. Advertising platforms combine this data with other data they have on these users to refine their profile of each user and improve their targeting. This data collection technology, which relies on third-party cookies (i.e., a method to match a single user across multiple websites), is actually relatively simple and is not just used by the juggernauts like Facebook and Google. For example, most email marketing apps use similar methods to determine which email campaigns best convert email recipients into paying customers.

This ability to attribute sales to specific marketing campaigns was the first great innovation of the online marketing and advertising platforms. Prior to this, it was difficult to determine whether sales results were actually due to advertising campaigns (e.g., on TV or a billboard). Attribution made internet advertising a superior medium and targeting was the next great innovation.

Advertising platforms like Facebook and Google collect data about users so that they can refine their targeting capabilities. The more they know about an audience, the more targeted they can be. The more specifically targeted each ad is, the more supply they can squeeze into their audience. Ultimately, this results in lower advertising costs and less complexity for advertisers (see Lookalike Audiences), which lowers the barrier-to-entry for businesses wanting to promote their products. Many great businesses, especially ecommerce and software startups, would not exist today if it weren’t for these innovations in advertising.

Apple has recently blocked third-party cookies in the Safari web browser, and the writing is on the wall that they’ll be going further to further restrict the type of tracking that enables the marketing platforms to track users across websites. Firefox lead the charge and even Google Chrome has decided to head in the same direction. Google’s compliance should ring alarm bells for anyone cheering Apple’s move given Google benefits greatly from this type of tracking and are unlikely to have had a change of heart on the ethics of cross-site tracking. Indeed, there are other ways to track users across websites using server side events, which are much more effort but a no brainer for website platforms to support for the likes of Google and Facebook. Google is also uniquely positioned to utilise first-party data to profile users. If anything, this cements the dominance of the major players in digital advertising while raising the barrier to entry for competitors.

Another important detail to consider when criticising the big players in online advertising is the alternatives. Google and Facebook have competitive incentives to protect user data as their ability to segment audiences is their major competitive advantage. Other players in this space do not have the same scale and therefore have a lot more to gain from selling the data they collect.

Ultimately, there is tension and nuance when it comes to tracking on the web:

• While the dominance of Google and Facebook is bad for competition in the advertising space, their capabilities are very good for small businesses wanting to grow through advertising. Before targeted digital advertising existed, the monopoly was held by large advertisers.
• Recent changes, driven by the likes of Mozilla and Apple, are more likely to solidify the dominance of Google and Facebook, who have huge first-party properties they can rely on. While this is bad for competition in the advertising space, it is potentially good for users from a privacy perspective, as these companies are the most capable and incentivised to protect actual user data.
• A world without targeted advertising would be a step backwards for small businesses and competition in all industries (other than the advertising industry).