Facebook, Gmail Ad Revenue Could be Dented by EU Privacy Proposal

Under a proposal presented by the European Union executive, online messaging services that are reliant on advertising such as WhatsApp, iMessage and Gmail will face tougher rules on how they can track users.

The web companies would have to get the consent of their customers before tracking them online to target them with personalized advertisements and guarantee the confidentiality of their customers’ conversations.

Without getting the explicit agreement of their customers, email services such as Gmail and Hotmail will not be able to scan customers’ emails to serve them with targeted advertisements for example.

To fund themselves, most free online services rely on advertising.

According to the Internet Advertising Bureau (IAB), spending on online advertising in 2015 was 36.4 billion euros.

The proposal by the European Commission seeks to close a perceived regulatory gap between the telecoms industry and mainly U.S. Internet giants such as Facebook, Google and Microsoft and extends some rules that now apply to telecom operators to web companies offering calls and messages using the internet, known as “Over-The-Top” (OTT) services.

Although the telecoms lobby group ETNO said they remain more constrained than their tech competitors, it would allow telecoms companies to use customer metadata, such as the duration and location of calls, as well as content to provide additional services and so make more money.

Whether they want to allow websites to place cookies on their browsers to deliver personalized advertisements would have to be asked by web browsers from the users upon installation according to the proposal.

When they visit a website containing information about their browsing activity, users would have forced browsers to set the default settings as not allowing cookies which are the small files placed on people’s computers under a previous version of the proposal.

“It’s up to our people to say yes or no,” said Andrus Ansip, Commission vice-president for the digital single market.

Many websites’ ability to fund themselves and keep offering free services would be undermined by such rules, online advertisers say.

“It will particularly hit those companies that … find it most difficult to talk directly to end users and what I mean by that is tech companies that operate in the background and sort of facilitate the buying and selling of advertising rather than the ones that the user directly engages with,” said Yves Schwarzbart, head of policy and regulatory affairs at the IAB.

But the new rules would bring clarity and would not have a significant impact on business models or revenue, said the CEO of advertising tech company Appnext, whose revenues come entirely from advertising spending.

“There is no doubt that it is time for the entire ecosystem to become more transparent and fair to all of the stakeholders. Users want easy access to trustworthy sources of information while feeling safe with the data they share,” Elad Natanson said.

In line with a separate data protection law set to enter into force in 2018, companies falling foul of the new law will face fines of up to 4.0 percent of their global turnover.

Before becoming a law, the proposal will need to be approved by the European Parliament and member states.

(Adapted from Reuters)



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