With just weeks to go until the California Consumer Privacy Act (CCPA) goes into effect in January 2020, Internet companies such as Google are already taking early, proactive steps to ensure that they will be in full compliance. At the end of November, Google announced that it would enable websites and apps to block personalized ads as part of its CCPA compliance efforts. This new law is similar to the European General Data Protection Regulation (GDPR) in that it requires companies give customers the right to opt-out of personal data collection. Since personalized ads require detailed information that has been collected from a user’s personal profile in order to be targeted effectively, it is easy to see why these ads would be covered under the new CCPA.
How the blocking of personalized ads will work
When customers click on a website link such as “Do not sell my information” (which many publishers may start adding to their websites in the wake of CCPA), this action will now require companies to stop showing them personalized ads from Google. In order to enable this blocking of personalized ads, Google will introduce what it is calling “restricted data processing” functionality to publishers and advertisers. Factors like buying history, browsing history or personal profile information would no longer be available to use within the Google ad manager or online ad bidding process. Moreover, by choosing to use this restricted data processing functionality, advertisers will no longer be able to add users to remarketing lists, or to create “similar audience” seed lists.
The good news for publishers and advertisers, however, is that the entire online advertising system as it currently works right now would be largely unaffected. In other words, all conversion tracking and measurement tools related to Google Ads will still work, as well as all functionality related to ad delivery, reporting, security and fraud detection, debugging, and product improvement. The only thing that will really change is the shift from personalized ads to contextual ads.
It will be up to publishers and advertisers how extensively they wish to roll out restricted data processing and the blocking of ad personalization as part of CCPA compliance. Since the CCPA is a California state law, it does not legally require a company in New York to abide by it. Thus, a major media company based in New York City might decide to continue with business as usual if they do not have any users in California as customers. That’s not a likely scenario, though, and so companies might decide to err on the side of caution. (The total population of California right now is approximately 12% of the entire U.S. population) Since the CCPA carries with it potential penalties and fines in the case of privacy violations, it might be far safer and judicious to give every website user (and not just website users based in California) the ability to block personalized ads.
Business implications of Google’s decision to allow blocking of personalized ads
Google’s decision to enable the blocking of personalized ads to Internet users comes after months of lobbying from industry trade associations, which were looking for ways to exclude personalized ads from the comprehensive sweep of the new California privacy law. From Google’s perspective, of course, personalized ads are a key source of revenue. Moreover, they are much more lucrative than contextual ads, which rely on factors such as geo-location or the type of content appearing on a particular webpage.
Advertisers spend as much as 10 times as much money on personalized ads as contextual ads, simply because they are proven to be much more effective in driving sales. With contextual ads, you might know that someone is browsing a website about, say, sports, but that does not necessarily mean that the person browsing the website is ready to make a purchase of a new fitness tracker or a pair of new running shoes.
With personalized ads, though, it is possible to bring in a person’s browsing and purchase history, and that combination of personal data can be used very effectively by advertisers to decide what type of ad to serve up. Even better, if advertisers can combine information or data that they already have about a user, they can combine this information with everything Google is sharing with them, to make a very specific and very relevant product pitch.
That leads to the inevitable question: if users begin to block personalized ads in sizable numbers by choosing to opt out of the sale of their personal information, what does that mean for Google’s underlying business model? Obviously, Google can expect to see a revenue hit from any decline in the purchase or delivery of personalized ads, and that means investors might start to take a much harder look at the company’s business model and long-term growth perspectives.
Leading up to the enactment of the CCPA, Google had already been making minor adjustments to its advertising model in order to remain complaint with current regulations. For example, starting in early 2020, Google will stop providing some of the contextual content clues that it is currently making available based on concerns that certain types of context (political, religious, sexual) might be too sensitive. Thus, the decision to enable the blocking of personalized ads under the CCPA marks further erosion of Google’s very lucrative business model.
Regulatory risk and CCPA
One interesting aspect of Google’s decision to enable the blocking of personalized ads is how it is framing its move. From now on, says Google, it will become a “data processing service provider.” All responsibility for responsible data collection and data storage passes on to advertisers, publishers and any other partners. For example, Google explicitly states, “Partners must decide for themselves when and how to enable restricted data processing.” In other words, “Don’t blame us if you get into trouble as a result of CCPA, we’re just the data processors here…”
This, of course, introduces another potential factor into any discussion of the CCPA: regulatory risk. In order to avoid penalties and fines under the new California privacy law, it looks like advertisers, publishers, large businesses involved in the world of adtech, and Internet giants like Google are going to look for ways to limit their regulatory and legal risk. At some point, the whole online advertising system might become “too hot to handle” from a risk and compliance perspective, even with new advertising tools from Google. That might finally lead to a re-thinking of how companies can use personal data in a responsible way that fully respects user privacy while still providing a consumer-friendly web experience.