Covid-19 has been a time of great upheaval and change for businesses around the world, and as the recent emergence of the Omicron variant has shown, we’re not out of the woods just yet. In the midst of the uncertainty, previously fast-growing Central and Eastern European economies, including our own, have suffered.
Throughout the upheaval and uncertainty, small and medium enterprises (SMEs) have needed access to all available tools to maintain their businesses – one of which has been targeted advertising. Targeted ads have proven an effective and affordable way for businesses to increase sales: both online sales and online advertising spend were up in the pandemic. According to IAB Romania’s most recent Internet Advertising Revenue Report, the online advertising expenditure grew in 2020 with 115% compared with 2019.
But with the increase in targeted ads came misconceptions about how they work and who they serve: principally, that targeted ads take advantage of users and offer them nothing in return. This quickly became the prevailing narrative amongst some Members of the European Parliament in Brussels, who proposed to ban all forms of targeted ads in the EU’s Digital Services Act (DSA). And while a wholescale ban on targeted ads was thankfully dropped by MEPs in a key committee vote last month, key questions linger about the potential impact of the DSA on a key tool that is vital to the way we use and fund a free internet.
In particular, sweeping new language introduced in that vote that would aim to address the so-called ‘dark patterns’ could unnecessarily overlap with the existing legal provisions in the EU consumer law, as well as the privacy and data protection framework, carrying a significant regulatory burden and eventually implications for digital advertising. Indeed, members of the Tracking Free Ads Coalition in the European Parliament have signalled an intention to use restrictions on dark patterns to ultimately ban targeted ads. As the DSA heads for a full vote in the European Parliament next week, the scope of measures on dark patterns must be more clearly defined.
Similarly, proposals in the DSA relating to consent around the use of personal data in targeting risk duplicating and overlapping with existing legislation. What is needed is proper enforcement of the EU’s world-leading General Data Protection Regulation and providing constant information and education to users level on what is and how targeted advertising works.
There are also open questions around practical implications of a ban on targeting minors, with an underlying concern about whether age verification of users’ will be allowed under the new rules. If a robust, reliable and affordable method of age verification cannot be used, these measures could potentially amount to a full ban on targeted advertising.
These are just some of the concerns that remain for SMEs and online businesses as the DSA moves forward. But why is targeting so important?
As a report last year by IAB Europe’s Chief Economist Dr Daniel Knapp showed, heavily restricting targeted advertising would bring with it a raft of unintended consequences, with the potential to materially hamper growth and profitability for the SMEs that are key to our post-pandemic recovery.
Here in Romania, SMEs really do drive the economy, making up more than 99% of total companies in the economy employing almost two-thirds of workers, and, with a total revenue surpassing the 42 bln € they are contributing with 12% to the total revenue of all companies in Romania. We need SMEs to thrive for our economy to grow and for our country to prosper.
With the government’s stated goal to make Romania a well-known, year-round tourist destination by 2030 (outlined in the 2018 National Tourism Development Strategy), tourism businesses need the ability to reach new, paying customers in the global market of travellers. And in the tourism industry, targeted advertising is no longer simply a ‘nice-to-have’, but a vital component of an online marketing strategy and a fuel to bounce back after the major hit of the pandemic in this sector.
Targeted advertising is also deeply interwoven with the promotion of a pluralistic media landscape and a free and open internet. It is no understatement to say that advertising funds a free internet, and without it, publishers would be forced to seek alternative funding models for which consumers have only a limited appetite. Research by IAB Europe found that fewer than half of internet users would be willing to pay for more than three subscriptions.A similar study conducted in Romania in the second half of 2021 revealed that 76% of the Internet Users would reduce significantly their online activity if prompted to pay for services, content and apps and 78% of internet users prefer the ad-funded Internet, as it is today.
There are implications for innovation too. In 2020, Romania was named as one of the world’s best markets for tech companies based in the US and UK, citing the regulatory landscape, availability of skills and quality of infrastructure and connectivity. Amazon, IBM, HP, Microsoft and Oracle all have a significant presence. We’re also home to many startups, with three unicorns – unlisted startups valued at a minimum of USD $1 billion – to our name. Harsh restrictions on targeting would stifle growth, and harm our ability to compete on a global scale.
The debate around targeted advertising is not just about advertising. Heavy restrictions on targeted ads, either directly or indirectly, could have significant and potentially irreversible ramifications for Romania’s economy, media and cultural diversity.
The European Parliament voted last week in Strasbourg a number of amendments that give cause for concern for those who support a prosperous, innovative and secure European digital market. IAB Romania will continue engaging with Romanian MEPs and the Romanian government officials highlighting the potential unintended consequences of the DSA for the Romanian digital advertising industry and the economy. We collaborate on this important work with our colleagues in IAB Europe and support IAB Europe’s statement on these latest accepted amendments.