The Privacy Paradox in the Context of Social Media and its Impact on the Online Advertising Industry
Scientific Essay 2015 14 Pages
Targeting has proven to be more effective than the standard run-of-network advertising. However, primarily due to the vast aggregation of consumer data, it arouses certain privacy concerns among internet users. This study proposes the necessity of digital advertising regulation by the means of allowing consumers to opt out of online tracking. It is also argued that such regulations will not affect the advertising industry in a negative way due to the existence of the privacy paradox.
Keywords: privacy, privacy paradox, targeted advertising, personalization, opt-out
Since December 2009, when Google introduced its “personalized search for everyone” (Pariser, 2011), the Internet has been progressively growing to suit the needs and interests of individual users, rather than audiences at large. The simplest illustration of this is the case of contextual advertising where networks choose which advertisements to display based on the contents of a webpage. The more complex mechanism of targeted advertising grants advertisers the access to a vast amount of information about internet users. Using that information, companies can show certain advertisements solely to those people that are most likely to respond to them.
Targeted advertising is considered to be substantially beneficial for advertisers and publishers. However, it presents both advantages and downsides to internet users. In case their previous behavior has been accurately tracked, the advertising consumers see on the internet will be tailored to their needs and interests. Nevertheless, collecting and leveraging users’ personal data leads to legitimate privacy concerns among them. As a result, many governments are now trying to come up with new privacy legislation which will regulate the collection and usage of consumer personal information. The results of previous research have shown that any attempts to put such regulations on advertising inevitably leads to the loss of its effectiveness (Tucker, 2011). Therefore, advertisers will have to find a solution to the problem of users’ online privacy concerns which justifies the topicality of this study.
At the same time there have been several attempts to self-regulate the industry, allowing users to choose whether they want their online behavior to be tracked or not. Nonetheless, advertisers and publishers have been reluctant to implement this option on their websites, mostly due to the apprehension that the advertising effectiveness may decrease.
However, multiple works have been describing the so-called privacy paradox, which suggests that while internet users tend to be highly worried about online privacy, their behavior does not go in compliance with their beliefs. This means that most of the times when consumers have privacy concerns they do not act upon them. For the online advertising industry this could suggest a way to avoid possible regulations of the targeting mechanisms or at least alleviate their consequences.
The subject of this research paper is the regulation of digital advertising, while the object is the influence of the privacy paradox on targeted advertising regulation.
The aim of the research is to find out whether online privacy concerns of internet users are able to hold back the development of online advertising industry which relies heavily on behavioral advertising.
In order to achieve the aim of the study, the following objectives need to be attained:
- to give a comprehensive account of the targeting mechanism and the ways it leverages consumer personal data;
- to point out the major privacy concerns of social media users;
- to define the privacy paradox in the context of social networking sites;
- to identify the attitudes of social media users to personalized advertising in social media;
- to provide expert opinion on the problem of interdependence between online privacy concerns and the development of online advertising industry;
- to examine the major strategies for targeting regulations;
- to develop the guidelines for online advertising which uses consumers’ personal data.
The following statement can serve as the hypothesis for the research: due to the existence of the privacy paradox, enabling the opt-out option for tracking will not deteriorate targeted advertising performance as opposed to government regulations on consumer data collection.
Problem statements of the research are constituted by the following:
- despite being highly effective as opposed to run of network advertising, targeting raises privacy concerns among internet users;
- government regulations damage digital advertising performance and the advertising-supported web in case they are put on user data collection;
- due to the existence of the privacy paradox, the majority of internet users will not utilize the opt-out option if given a chance;
- the opt-out option should become obligatory as it will both ensure the observation of consumers’ rights for online privacy and sustain the effectiveness of personalized advertising.
Theoretical significance of this work lies in the fact that while the majority of academic works investigate the factors that cause privacy paradox to appear in the first place, this research focuses on the effect that it has on the online advertising industry. At the same time the works that explore the influence of online privacy concerns on online behavioral advertising do not touch upon the topic of the privacy paradox.
The guidelines that are going to be suggested for carrying out targeted advertising and minimizing consumers’ online privacy concerns at the same time will constitute the practical value of this study.
A number of studies by Network Advertising Initiative (2010) have found that advertising that uses targeting mechanisms is more efficient than standard run-of-network advertising (RON), as it happens to be more useful for consumers and has obvious benefits for companies. Conversion rates for this kind of advertisements are almost three times as big as for the RON advertising. According to eMarketer (2010), targeted advertising spending has been steadily growing since 2008. However, despite its effectiveness, there is a major threat perceived in the industry for targeted advertising which is constituted by customers’ online privacy concerns and governments’ moves to protect their privacy (Goldfrab & Tucker, 2011).