Does Meta’s €390m GDPR fine spell the end of days for personalized advertising as we know it?
Earlier this month, Ireland’s Data Protection Commission (DPC) levied a €390 million (£343m) fine against social media giant Meta – the parent company of Facebook, Instagram, and Whatsapp – for unlawful data processing operations in relation to the EU’s General Data Protection Regulations (GDPR).
This is the most recent addition to a list of privacy-related fines, and one that may mark the end of its ad targeting model, which is central to its business – and most of the advertising ecosystem.
So how did this happen?
At present, 80% of Facebook’s revenue stems from personalized ads. To preserve this working model, Meta Ireland – the part of the business impacted by this latest ruling – made the processing of personal data a “contractual necessity” when GDPR came into effect in May 2018. This meant that users had to agree to the terms of service to use either Facebook or Instagram.
However, privacy campaign group Noyb, led by activist Max Schrems, triggered an investigation against the company, arguing this did not give users a true choice in the matter – in effect, ‘forcing’ individuals to consent.
As a result, while the DPC had originally ruled in favor of the company, the European Data Protection Board (EDPB) reversed this decision, a verdict Meta Ireland plans to appeal, maintaining that as ‘inherently personalized’ platforms, personalized ads are “a necessary and essential part” of the unique user experience.
Data collection post-GDPR
According to the DPC’s press statement, Meta Ireland acted in contravention of transparency and fairness obligations, Articles 12 and 13(1)(c), and Article 5(1)(a) of GDPR law.
The company made steps toward providing users with more control over their data in 2020 by rolling out an Off-Facebook Activity tool, clearly displaying where identifiable information had been linked to their personal account through external apps, websites, and businesses (accessed through a Facebook login, for example).
But, crucially, this didn’t include the ways in which Facebook itself collected data on its users – an issue that was at the heart of this most recent legal debate.
Read more: Do consumers actually trust advertising?
Meta Ireland has now been given three months to transform its operations to meet compliance regulations, which includes giving users the choice to “opt-in” to having their data used for targeted ads. But since the tech giant plans to appeal, real changes may not come into effect for years to come.
This latest blow to its business model, following the $10 billion hit dealt by Apple’s privacy changes, could signal an end to personalized advertising as we know it.
Which companies have been affected?
While Meta seems to be seeing fines on all fronts – WhatsApp and Instagram have also been targeted – it’s not the only tech giant that has recently faced legal challenges.
Earlier this month, France’s National Commission on Informatics and Liberty (CNIL) levied an €8 million fine (just under $8.5 million) against Apple for tracking iOS 14.6 users within its own apps without explicit consent.
Read more: The 5 biggest GDPR fines – and why they were issued
Elsewhere in Europe, Apple was fined nine times by a Dutch antitrust regulator – and it looks like the Department of Justice may follow suit.
Google and Amazon are not immune either. In November 2022, Google agreed to a $391.5 million settlement after 40 US states alleged the illegal tracking of user locations, in addition to an $85 million settlement in Arizona for a similar case. Amazon Europe, meanwhile, was fined $877m in July 2021, a decision it is currently trying to appeal.
Google also currently faces an antitrust lawsuit, which was levied at the company due to its monopoly, and Amazon has only recently settled an antitrust investigation by promising to address concerns around data use, its ‘Buy Box’ ad inventory – that is, ads placed right at the fold of the page and exclusively reserved for Amazon products – and Prime.
Is Big Tech falling out of favor?
Tech giants had a lot to contend with in 2022. Legal challenges aside, economic uncertainty has also shaken the stability of hitherto seemingly impervious corporations.
Layoffs are sweeping the industry. Meta reportedly let go of roughly 11,000 employees while Twitter cut 3,700 – half its staff. Snap, meanwhile, laid off over 1,000 employees (20% of staff) and Alphabet has announced its largest round of dismissals of 12,000 (6% of staff), while Amazon disclosed it would be cutting 18,000 jobs.
Apple stands out as one of the few that has not had to enact such strident measures, although CEO Tim Cook has confirmed the business will significantly slow hiring in 2023.
Read more: Smart glasses: Everything you need to know
The general atmosphere implies that change is inevitable, with signs that faith in previously popular tech behemoths is waning.
Google, and its parent company Alphabet, can no longer deny the influence advertising has on its globally dominant search engine. While 84% of the world still relies on Google to browse the web, detractors of Google’s advertising model – and the way in which it undermines the quality of search results – are increasing.
Amazon also reported a loss last quarter, blamed in part on its reportedly failing virtual assistant Alexa, while Twitter has been consistently making headlines since Elon Musk took it over, caught in a continuous storm of security, privacy, and mismanagement issues, with fresh lawsuits on the horizon.
When it comes to Apple, the demand for the latest iPhone range has been described as lukewarm, with criticisms highlighting a lack of innovation behind each new generation getting louder. As a result – and potentially off the back of iPhone revenues falling short of estimates – the company seems to be pivoting towards expanding its subscription and advertising services.
Apple Services, which includes music and video streaming, video games, and cloud storage, has been its second-largest segment for some time now, and the company has started opening up the App Store front page and potentially also Apple TV+ to ad buyers.
Read more: We stream music and movies. So why not images?
It’s worth noting that this move, when considered alongside how the iOS privacy features have cost its rivals, has alarmed German regulators, who are now investigating the action from an anti-competition perspective.
Future-proofing solutions and strategies
The recent ruling against Meta is only one in a long line of legal and regulatory difficulties all big tech companies faced across 2022. And there is no sign of them stopping in 2023.
Rapid growth and global deregulation have contributed to a media sphere where data missteps, misinformation, and fraud are widespread. The privacy reckoning that was set in motion with the implementation of GDPR in 2018 and the consequent fines runs in tandem with repeated antitrust allegations; big corporations are now having to transform their expansive operations to meet tighter restrictions on their activities.
What does this mean for advertisers? First and foremost, in the face of increased scrutiny, brands, publishers, and advertisers alike need to be careful with how they collect and process individual user data.
For those who have begun to search for and build their own privacy-compliant models, it’s important to continue refining these. Solutions such as contextual targeting, that do not rely on individual user data, are becoming ever-more popular in response to a rapidly changing media and ad tech landscape.
For those working with walled gardens, it’s unlikely there will be an immediate shift in how advertising is done – but it’s definitely on the horizon.
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