There are a handful of large tech companies that hold a lot of power in digital advertising. They control access to vast amounts of user data and dictate key factors like ad placement and user engagement metrics. These, in turn, impact how advertisers allocate budgets, choose platforms and fine-tune campaigns for maximum reach and return on investment.
The European Commission (EC) has recognized the need to regulate these companies to ensure fair competition, protect users’ privacy rights and promote transparency. The EC developed the Digital Markets Act (DMA), which came into force on November 1, 2022 and imposed restrictions and obligations on these tech companies, which it designated as “gatekeepers”. These companies are:
- Alphabet (Google, YouTube, Android)
- Apple (iOS, App Store)
- ByteDance (TikTok)
- Meta (Facebook, Instagram, WhatsApp)
- Microsoft (LinkedIn, Windows PC OS)
The EC continues to review other companies and their platforms and services, and may designate more companies as gatekeepers in time.
The Digital Markets Act impacts consumers in the European Union (EU) and/or European Economic Area (EEA), as well as companies that collect user data and use gatekeepers’ platforms and services within those regions.
In this article, we examine gatekeepers’ influence on digital advertising, the changes that the Digital Markets Act aims to bring, and how advertisers can comply with new privacy regulations.
The power of gatekeeper companies in digital advertising
A look at the revenue streams for gatekeeper companies tells us just how integral advertising is to their bottom line. As of June 2023, 98.4% of Meta’s revenue came from advertising. For Google, 78.2% of its revenue is generated from ad spend.
In 2002, Google and Meta earned a combined US $300 billion from ad revenue. (Sources: Google / Meta) Despite these staggering numbers, there was a significant shift in 2022. For the first time since 2014, Google and Meta saw their collective share of the advertising market dip to 48.4%. Analysts forecast this number will continue to decrease to approximately 43.9% by 2024.
While Google and Meta are losing some of their grip, other gatekeeper companies are filling the void. TikTok and Amazon have seen a rise in their market share. Apple and Amazon have invested in the growth of their advertising teams, and Microsoft entered into a partnership with Netflix to power the streaming platform’s ad-supported tier.
These numbers and developments signal a gradual shift in the balance of power, but the power still remains largely in the hands of the gatekeepers.
Why you’re advertising with gatekeepers
Gatekeepers dominate the digital advertising space, and there are undeniable benefits to using their advertising services, including an unparalleled global audience, precise targeting capabilities and advanced campaign tools.
Access to a massive global audience
When it comes to the number of users worldwide, gatekeepers are in a league of their own. Meta-owned Facebook has nearly 3 billion monthly active users (MAU) as of mid-2023, and Instagram reached a milestone of 2 billion MAU at the end of 2021. TikTok reached 1.7 billion MAU in 2022, which is expected to increase to 2.25 billion by 2027.
Advertisers can tap into a global audience that’s unparalleled in size — and reliable engagement — with an enormous variety of interests, ages and locations. It opens doors for many advertising strategies, from hyper-targeted campaigns to wide-reaching brand messages.
These billions of users create vast amounts of user data every day. Google, for example, can draw from search history, location, and even device type to hone in on a particular audience segment. Meta enables advertisers to target users based on the accounts they follow, what they share or like, and what events they’re attending. Advertisers can use this data for campaigns that are deep, hitting the mark with ads that speak to individual interests and needs.
Advanced campaign tools and analytics
Gatekeepers invest heavily in developing advanced advertising platforms. They offer advertisers a wide range of tools and features, such as comprehensive analytics, optimization tools and audience insights, to build campaigns that are anything but one-size-fits-all. This level of sophistication enables ongoing strategy refinement and, ultimately, a better return on investment.
The Digital Markets Act: A solution to power imbalance?
The Digital Markets Act is poised to shake things up for dominant tech companies by targeting their operational practices in online advertising. The regulation seeks to introduce more stringent data collection rules and greater transparency requirements, with the goal of providing smaller competitors with better opportunities to compete, while holding the major players more accountable.
Impact of the Digital Markets Act on competition
The DMA requires gatekeepers to treat their own services and those of competitors more equally, especially when it comes to ad placements and search results.
It also stipulates that gatekeepers must supply advertisers with the tools and data they need to independently verify the performance of their ads on the platform. This creates a more transparent environment by making sure that businesses have what they need to validate the reach and impact of their ads without having to rely solely on the gatekeeper’s own metrics.
For smaller advertisers, the DMA could open up new avenues for market entry and competition. As the regulation creates more transparency and restricts monopolistic behavior of dominant players, smaller firms might find it easier to gain visibility and access to consumers.
Impact of the Digital Markets Act on user privacy
The DMA introduces stringent measures to ensure that gatekeepers handle user data responsibly and in line with the General Data Protection Regulation (GDPR). As a result, advertisers who use their platforms will also have to follow these rules or risk being cut off from using the advertising platforms.
Gatekeepers must obtain explicit consent from users before collecting their data. They are also obligated to disclose the full scope of their data collection efforts, including what the data will be used for, how long it will be stored, and how it may be shared. The regulation narrows down the legal bases that gatekeepers can use to collect data, making user consent a crucial element.
Under the Digital Markets Act, user data from different gatekeeper platforms and services (or third-party services) can’t be combined for the purpose of profiling for targeted advertising. These limitations may lead businesses to reconsider their approach to targeting and audience segmentation, including adopting consent-based marketing practices and contextual advertising.
Impact of the Digital Markets Act on the digital advertising landscape
New rules set by the DMA could make advertisers think about using different ways to get their message across. For example, constraints on data sharing between two or more platforms or services mean contextual advertising — an approach that’s less dependent on personal data and profiling — might become a better option for reaching people.
In light of these changes, advertisers will need to take a second look at how they measure success. It may even prompt businesses to look beyond the major platforms and invest in alternative advertising methods that comply with new regulations. For example, greater focus might be placed on partner content, influencer partnerships or formats like email marketing, as these could offer better compliance with DMA guidelines.
The need for regulations and transparency in digital advertising
The implementation of the DMA highlights the crucial need for regulations and transparency in the online advertising industry, both for stoking competition and building user trust. The industry relies on the confidence of users to engage with ads and on having a range of companies able to advertise in the first place. If that user base doesn’t trust what’s happening with their data, they’ll disengage. Likewise, if smaller advertisers can’t compete due to market dominance by a few big players, options become limited for everyone.
A balanced approach can preserve both user privacy and fair competition. Regulations that are too loose could compromise user trust, while those that are too restrictive could stifle innovation and reduce options for advertisers. Striking this balance is tricky but crucial to the long-term viability of the online advertising ecosystem.
The Digital Markets Act aims to strike this balance by enforcing certain standards on data handling and transparency that promote trust and enable healthier competition among advertisers. The goal is not to place undue limitations on gatekeepers, but rather to ensure they operate in a manner beneficial to everyone, including users, advertisers and the platforms themselves.
Steps to get ready for the Digital Markets Act
With the DMA’s compliance deadline of March 6, 2024 looming, advertisers also have a ticking clock to review, and, if necessary, modify existing advertising practices to align with the new regulations. Advertisers can take proactive measures to get a head start.
1. Review data collection and usage practices
Advertisers must review how they collect, use and store user data to see if it aligns with the regulation’s requirements. This means reviewing cookie consent banners for easy to understand language that tells people exactly what data is being collected and for what purpose. They must also ensure that they obtain consent using opt-in consent banners without preselected or manipulative consent options. Advertisers can use a consent management platform like Cookiebot CMP to obtain valid user consent per regulatory requirements.
2. Revise privacy policies
To comply with the Digital Markets Act’s transparency requirements, advertisers need to evaluate and update their privacy and cookie policies. The first point of action is visibility. The policies should be easily accessible on websites and via the cookie consent banner. In terms of content, the language should be simple but comprehensive, and the policies must clearly outline what kind of data is collected, for what specific purpose, how long it will be stored, and who may have access to it.
3. Conduct regular compliance checks
Compliance is a long-term and ever-evolving game, and advertisers should put a schedule in place for regular internal audits. The focus here should be on data protection impact assessments (DPIA), evaluating how personal data is processed, and ensuring it aligns with the Digital Markets Act’s guidelines. This should also include staying current with updates to existing regulations or the implications of new ones and making corresponding changes in practices.
4. Consult legal professionals
Advertisers should get legal advice from qualified legal professionals and privacy experts, like a Data Protection Office, to steer clear of compliance missteps. These experts can evaluate specific areas of risk and offer actionable steps to meet privacy compliance requirements, while also ensuring responsible data handling and that companies get the data they need for advertising and other marketing operations.
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