Digital Privacy and Who Pays for the Internet?

I missed this great piece on the tension between digital privacy and firms on Madison Avenue from Brian Chen of the New York Times when it was published late last month.

Chen summarizes the recent privacy changes implemented by FANG companies and the impact on the effectiveness of digital marketing for big and small businesses.

In April Apple implemented the ability to turn off tracking for particular apps on iOS devices. Google announced plans to block cookies to its Chrome web browser in June. And Facebook announced last month plans to target ads to users without knowing any user specific information.

These changes have come about through a willingness of governments to regulate big tech more, the most well-known example being Europe's GDPR legislation, and through shifting consumer preferences toward privacy.

However Chen rightly points out that this change impacts the effectiveness of digital marketing spend, providing the example of Georgia pastry shop Seven Sister Scones whose Facebook advertising became significantly less effective after Apple's iOS changes, resulting in a drop of monthly revenue from $40,000 to $16,000 in May.

Naturally the implications here are that if digital marketing becomes less effective, then naturally more spend is required to sustain the same conversions and revenue, and thus cost of acquisition increases.  For businesses with tight margins, this may mean switching to more traditional forms of marketing in preference to digital, or if that is untenable, price increases.  Indeed, Seven Sister Scones raised prices 25%.

In this respect, these privacy changes couldn't come at a worse time for the economy, as treasury bond yields begin to increase and inflation fears begin to take hold. 

Advertising revenue sustains a great deal of the internet, so the question becomes - if digital marketing becomes too expensive, who pays for advertising-supported digital products and services?

When the Internet Knows Too Much

I was just thinking about how targeted internet marketing is becoming and wondered if targeting could be dangerous. From what I gather, the more I use the internet, the more the internet knows about who I am. Apparently, something called cookies keeps track of where I’ve been, what I’ve looked for, what I might want in the future, and who knows what else. It’s just like I’m building an online identity over time! Creating an identity is probably a fairly harmless activity considering it’s what you and I have done over time since we were born. But can it be a problem if the internet knows who you are too well?

Often times, when I do a search, I can type in a few letters and the search bar will guess the rest of what I’m looking for. The website thinks it knows me. And maybe it does. In real life, my identity consists of what I choose to show others. But the cookies in some mysterious folder on my laptop might know some things about me that I would not even tell my best friends, parents, siblings, or even my dog. The situation reminds me of what I envision would be the relationship I might have with a shrink.

(In theory,) We are supposed to be able to disclose private information to professionals like psychologists, doctors, or lawyers with a certain amount of assurance that those disclosures will be kept confidential. Confidentiality serves an important purpose in such relationships because the information can be crucial to effective servicing. Given the importance of such services to society and the importance of confidentiality to the effectiveness of such services, there are regulations in place to ensure that the privileges of information are not abused.

You may disagree with the analogy, and confidentiality alone is not a complete solution, but I think similar concerns about abuse apply to information collected through our use of the internet. I’m not trying to make any apocalyptic suggestions about the effects of the under-regulated collection of personal information, but I think we ought to consider the responsible use of information collected on the internet more. As the ability to target an audience on the internet gives rise to opportunities for marketing, it would be in the interest of opportunity seekers to prevent abuse lest the internet-users become wary of sharing their information at all.