Data Privacy Hurting Businesses

Aug 26, 2023

Online data privacy is a hot-button issue. As data privacy improves, small businesses are getting squeezed. Without access to browsing history, past purchases, and shopping cart contents, digital advertisers now have to spend 37% more to gain new customers. These barriers disproportionately hurt smaller brands selling niche products.

Quick history

Digital advertising has long been a feature of the web in the 90s. In that decade, the "cookie" was invented, a piece of code planted in web browsers. The cookie tracked people's browsing history. Marketers relied on cookies to aim targeted ads at consumers. When the iPhone was introduced in 2008, advertisers began to collect data across apps. Through the 2010s, distrust began building. In 2021, Apple began prompting its users to opt out of sharing data. 80% of iPhone users opted out of tracking worldwide. While this move was lauded as a win for consumer privacy, it cost big tech $142B overnight.

How does this hurt smaller businesses?

Targeted advertising works by sending ads to potential customers. While some brands have wide appeal, niche brands require a more targeted strategy to reach their customers. Take big retailers for example. They share their purchasing data with Facebook which uses that information to send targeted ads to new customers. This process is known as offsite conversion optimization. The loss of access to consumer data forces smaller brands to leave Facebook entirely, leaving big brands to dominate the online advertising space with generic ads. To survive in a privacy-conscious internet, niche brands are pushing the cost onto consumers. When Apple blocked some ad tracking, Facebook campaigns became less effective, resulting in less reach and conversion. To offset declining sales, brands raise prices on their product.

Where is the breakthrough?

Understanding the value of consumer data adds nuance to future regulation. One viable path is giving individual consumers more ownership and education of their data to allow them to engage with brands. The narrative so far has been shutting down data sharing. However, the value of data sharing has undeniable benefits for consumers and brands. Instead, the focus should be on how to share data in a way that is optimized for everyone involved. This comes at a cost for big tech and big advertisers. However, new technologies such as blockchain can provide the next step toward better tracking and honest use cases of consumer data. This helps the everyday consumer maintain their anonymity and still benefit from the personalization they expect.

The world of digital advertising continues to change around us. Privacy shifts are putting smaller brands at risk. To adapt, smaller brands need to explore innovative approaches to reaching and engaging their consumers. This includes shifting the public discourse from not allowing data sharing to distributing the value of data sharing in a privacy-conscious way.