While many decry the use of targeted online advertising, it is nothing new. When done well, this practice helps connect consumers with goods and services while also keeping most of the internet free to its users. Ultimately, targeted advertisements enhance consumer welfare by allowing people to find products best tailored to their individual needs and helping provide an internet that is not entirely reliant on subscription fees.
Retailers have always had an incentive to understand and communicate with their customers. Doing so helps businesses customize their products and services to what customers want, as well as attract new customers through more effective advertising. By better understanding their customers’ needs, businesses can more accurately predict demand and use this understanding to create new products, thereby providing customers with more choices.
Targeted advertising also helps to direct advertisements to people who would be most interested. Instead of wasting consumers’ time and attention on irrelevant products and wasting business money on uninterested people, targeted ads facilitate a more efficient advertising system. This helps businesses find customers at lower costs and increases consumer welfare by introducing customers to products about which they would otherwise likely not hear.
Despite the benefits of targeted advertising, there have been proposals to regulate it in the US and abroad. In 2022, legislation named the Banning Surveillance Advertising Act was proposed in the US which would have limited almost all targeted advertising. Not even the EU or Australia have proposed going so far as their proposals would require Meta to get consent to target ads or require companies to provide an option to opt out of targeted ads and have your data deleted. Instead of protecting consumer choice, the US proposal would eliminate options for consumers and businesses alike.
Even proposals that are not as limiting as the 2022 US legislation can put extensive limits on advertising, and risk pushing many online services to subscription fees, which would reduce consumer welfare instead of increasing it. Preventing all targeted advertising would likely force many online services people use daily to require or increase service fees, greatly increasing the cost of using the internet for everyone.
Advertising is an ever-evolving industry, and businesses have incentives to use targeting in a way that consumers don’t find invasive or even “creepy.” Interest in purchasing an item drops by 24 percent if people think the data used to pick it came from “unacceptable third-party sharing.” Customers’ interest in a product fell 17 percent if they thought the advertiser was trying to infer information about them from other data.
Customer concerns have prompted companies to offer information on why they are seeing specific ads and provide options to manage or turn off targeted advertising, without government intervention. Apple allows targeted and location-based advertisements to be turned off and Instagram has a variety of options for consumers to manage targeted advertising. These tools allow consumers more flexibility and control over their advertisements.
Advertising is part of what keeps most of the internet free. More efficient advertising enhances the internet and consumer welfare. Targeted advertising connects consumers with products and services that are relevant to their interests and that are more tailored to the consumers’ needs. Even without legislation, companies like Apple are already providing that option to consumers because it is in their interest to meet all their customers’ needs.
While some people choose to opt out, the service as a whole is on the mark for enhancing consumer welfare.
This article was also published in the Economic Standard here.
Justin Leventhal is a senior policy analyst for the American Consumer Institute, a nonprofit education and research organization. For more information about the Institute, visit www.TheAmericanConsumer.Org or follow us on Twitter @ConsumerPal.