Online ad industry must step up the pace to ward off regulatory threats

By Konrad Shek, Strategic Policy Advisor, The Advertising Association

Online advertising has been a stellar growth story in the UK over the last decade, and at the Advertising Association, we are rightly proud of that. As reported in Advertising Pays: UK Advertising’s Digital Revolution earlier this summer, advertising spend topped £138 billion in 2018 in the UK and online advertising made 57% of that amount and is predicted to grow to 62% by 2020.

This means the UK is now the largest online advertising market in Europe and third in the world behind the US and China. Let’s not forget too that online advertising has been crucial for keeping most of the internet free.

However, the online advertising industry faces the biggest challenges yet to its model and from multiple fronts too. It is clear online advertising has to change; here’s why and how this change will come about over the coming months.

Online advertising is what economists call a two-sided market, as we have buyers and sellers of advertising inventory interacting through a platform. It has fundamentally changed the way ad inventory is traded. In theory, Real Time Bidding (RTB) takes advantage of the efficiencies of this model and it also helps publishers to access a greater pool of ad buyers.

But it is also true to say that the industry has been beset with its own unique set of problems. Whenever demand outstrips supply and the incentives are not set correctly, it provides opportunities for bad actors to engage in ad fraud, encourages arbitrage, and risks brand safety for advertisers.

It’s also been found in research by UK advertising think tank Credos that people feel annoyed by excessive frequency of advertisement and being bombarded by ads. Whilst this problem is not unique to online advertising, consumers do feel creeped out by ads that follow the around on the internet and from device to device.

Moreover, there are concerns around data collection for online behavioural advertising and its compatibility with GDPR.

In the regulatory spotlight

So, perhaps it is no surprise that online advertising is attracting intense regulatory scrutiny by both the Competition & Markets Authority (CMA) and the Information Commissioner’s Office (ICO). The Government also recently announced that it was conducting its own review into online advertising.

Our broader concern is that regulators come in heavy handed from different directions without really addressing the underlying issues.

We’ve seen that privacy has become a major battleground for the tech giants and perhaps the biggest casualty in this war could be the third-party cookie. What the implications of this long term is anyone’s guess, but the immediate impact will be to curtail the ability of advertisers to independently verify and measure their campaigns.

Whilst we are not predicting the death of online advertising, far from it, we do believe that we are reaching a nexus point about the future of the industry.

There are a number of headwinds developing such as a slowing global economy and Brexit. And just to explain why Brexit does matter, if we leave the EU without a deal, personal dataflows, the lifeblood of the industry, could be ruled illegal overnight. There will certainly be a gap between leaving and the UK getting decision on data adequacy from the European Commission.

To maintain this growth, it’s important the industry does adopt change and continues to adapt. That’s not to say that it hasn’t already achieved some major step changes in doing so. IAB Europe has recently released version 2.0 of its Transparency & Consent Framework (TCF) – it has gone through a revamp, and the view is that it is a real improvement and moves the industry in the right direction.

It received a real boost when Google announced it would integrate with it by Q1 next year. Other great initiatives like IAB Gold Standard, Ads.txt, JICWEBS and TAG certification have been instrumental in reducing ad fraud and increasing brand safety.

Time for action

With all this in mind, it’s clear that the industry can continue to do more and, to be blunt, has to do more to avoid heavy-handed regulatory intervention. We need to work fast and so we have established a Digital Advertising Working Group to focus on the broader implication of the ICO’s Ad-tech report. This group will consider the views of the tripartite of the industry: the advertisers, media and agencies.

We’ve had good success with this model in recent years, for example our Data & e-Privacy Working Group assisted the advertising industry to get ready for GDPR, Brexit and it monitors the draft e-Privacy Regulation discussions at the EU-level, which could have major implications for our industry even after Brexit because of its extra-territorial nature.

The Digital Advertising Working Group meets monthly at the Advertising Association. If you want to find out more about the group and our work to tackle online advertising’s biggest challenges, please drop me a line.

Konrad.shek@adassoc.org.uk

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