Web advertising “65%” less effective because of privacy laws

We’ve just finished reading through a very interesting study which looks into the effects of the 2002 ePrivacy Directive on banner advertising, and finds that after the law was in place, adverts on EU sites were 65% less effective – quite a large difference, and one that perhaps helps to explain the differences between the EU and other areas of the world when it comes to developments on the web.

The study, done by Avi Goldfarb and Catherine E. Tucker, examined nearly 10,000 web campaigns from 2001 to 2008, and measured their perceived effectiveness on web users. They found that ads placed on European sites were affected by the tighter rules on consent for use of cookies, bugs and so on, and so were less effective.

The authors point out that ads seen by Europeans on non-EU sites were not any less effective, and non-Europeans looking at EU pages also found them less effective.

There are two things that we found particularly interesting:

1. The estimated spend on web advertising is currently around $8bn, but if privacy rules were tightened, advertisers would have to spend $14.8 billion to maintain the same impact – and this would probably mean more and more intrusive adverts on websites.
2. The effect of privacy rules was more profound on general sites like news, meaning that tightening privacy rules affects this already hard-hit sector.

As Commissioner Reding prepares to announce her proposals for a revision of the European privacy rulebook, this study provides interesting empirical evidence of the potential economic impacts of those rules on one of the important cornerstones of people’s Internet experience.