First Empirical Study on the Impact of Targeted Advertising Ban: Spectrum of Apps Shrinks After Ban on Personalized Ads

Thu 12th Oct, 2023

The prohibition of using apps to collect data for personalized advertising could have a substantial impact on the availability of apps and the frequency of updates, reveals a recent study conducted by the Technical University of Munich (TUM). Focusing on the ban implemented for Android apps aimed at children, this research sheds light on the potential repercussions and can serve as a guide for businesses shaping their models and policymakers crafting regulations concerning targeted advertising.

A considerable portion of smartphone apps is available for free, with their providers funding them primarily through advertising, particularly through what is known as targeted advertising. Such apps gather user data, including usage patterns, location, and even personal media, to deliver tailored advertisements to individual users. While this practice has drawn criticism for infringing upon privacy, calls for its prohibition have grown louder. In response, the EU Digital Services Act is set to impose stricter regulations on targeted advertising, beginning in 2024, and similar plans are in motion in the USA. However, companies argue against these restrictions, contending that without the revenue generated by personalized advertising, sustaining many apps would become untenable, and there would be no incentive to develop new products.

The groundbreaking study, conducted by Prof. Jens Foerderer and Tobias Kircher of the Professorship for Innovation and Digitalization at TUM Campus Heilbronn, marks the first empirical inquiry into the potential consequences of eliminating personalized advertising on the spectrum of available apps. The researchers examined the aftermath of Google's 2019 ban on targeted advertising for Android apps designed for children, comparing the situation one year before and ten months after the ban was enforced.

Number of New Apps Reduced by One Third

The findings of the study point to the following outcomes following the ban on personalized advertising:

  • The number of new apps introduced by each provider decreased by over one-third.
  • The likelihood of apps being withdrawn from the market increased by more than 10 percent.
  • Providers issued 17 percent fewer updates, encompassing not only app enhancements but also maintenance and security updates.

This trend was observed across most providers, with a more pronounced effect on small and emerging companies, primarily start-ups. The exception to this pattern was exceptionally popular apps, which appeared to remain the focus of ongoing development. The researchers speculate that a similar decrease in the availability of apps would result from a ban on targeted advertising for adult-oriented apps.

"Find Out What Users Would Be Willing to Pay For"

Jens Foerderer emphasizes, "Enhanced data protection for smartphone apps is a significant stride, particularly concerning children. The question remains: How can we navigate the dilemma where consumers are accustomed to accessing apps for free, while companies hinge their business models on personalized advertising? How can we do this without diminishing the number of innovative and valuable apps available to users? Our findings can serve as valuable reference points for both policymakers and businesses in their decision-making processes."

In anticipation of possible legal regulations, companies are urged to prepare proactively. "In the event of a targeted advertising ban, companies must brace for substantial revenue implications," Tobias Kircher advises. "Therefore, it is imperative for them to identify, at the earliest possible stage, which app functionalities users would be willing to pay for. Additionally, they should devise strategies to bolster consumer willingness to pay."

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