Will Cambridge Analytica scandal hurt outlook for digital advertising industry?

Will Cambridge Analytica scandal hurt outlook for digital advertising industry?

Sharanya Pillai
07/05/18, 08:20 am

SINGAPORE (May 7): Online luxury retailer Reebonz has been actively using social media platforms Instagram and Facebook to attract customers. The company creates targeted advertisements using Custom Audiences, a tool that allows it to upload data on existing customers, such as email addresses, and get them matched with corresponding Facebook accounts. Reebonz also uses Facebook Pixel, the company’s co-founder Daniel Lim says. The tool lets companies measure the effectiveness of a Facebook advertisement by tracking actions after an ad is displayed.

This form of advertising may come under threat. Since March, it has emerged that political consultancy Cambridge Analytica had obtained the private data of 87 million Facebook users without their consent. The incident sparked outrage and invoked calls to end widespread data collection on social media platforms. Spreading propaganda and advertising a product are not quite the same thing. But, Facebook has already moved to address anticipated concerns about data privacy for the use of advertising. On May 1, for instance, Facebook announced that it will soon allow users to wipe data fed into its ad targeting system by external websites. On March 28, it said that it will be phasing out Partner Categories. The tool allows advertisers to use data from third parties such as Acxiom Corp to target Facebook users. “With Partner Categories, [advertisers] can target people based on offline behaviours people take outside of Facebook, such as owning a home, being in the market for a new truck or being a loyal purchaser of a specific brand or product,” Facebook says on its website. Facebook is also planning a new Custom Audiences permission tool, which will require advertisers to ensure that any data they use has been collected responsibly.

“It is important to note that the data leak associated with the Cambridge Analytica scandal had nothing to do with advertising or Partner Categories, so this is very much a pre-emptive step taken by Facebook,” says Sid Deshpande, a research director at Gartner.

Meanwhile, digital advertisers are set to take a hit from the European Union’s new legislation on privacy controls. From May 25, the General Data Protection Regulation (GDPR) prohibits the use of data collected from EU citizens — even if they are outside of the EU — for anything other than the initially stated purpose. Users will also need to explicitly opt in to share data with companies. Violators can be fined up to €20 million ($32 million), or 4% of their global annual revenue for the prior financial year, whichever is higher.

The GDPR was already being debated before the Cambridge Analytica scandal broke. But it is likely to be taken even more seriously now. “There is no doubt in my mind that [the GDPR] will reduce the number of people whose data Facebook will be able to use for marketing purposes, and limit the ability to do targeted advertising,” says Mikolaj Jan Piskorski, a professor of strategy and innovation at IMD Business School.

What changes are we likely to see? And how will local businesses and consumers be impacted?

Regulatory, privacy concerns

While crafted by the EU, the GDPR may apply to Singapore companies under certain conditions. Sze-Hui Goh, a partner at Eversheds Harry Elias, says: “Singapore businesses may be affected... if they provide services to EU businesses or individuals that involve using personal data, provide centralised IT systems or data storage functions that contain personal data of EU persons, or if the services involve monitoring the behaviour of individuals in the EU.”

Meanwhile, Alex Capri, a visiting senior fellow at the National University of Singapore (NUS) Business School, warns that other countries may follow in the EU’s footsteps. “You can have some jurisdictions taking this way too far [with onerous regulations],” he says.

Yet, increased regulation is only part of the threat. “My feeling is that with increasing awareness generated from the Cambridge Analytica [scandal], individuals who care about how their data is being used will take steps to ensure that they no longer just consent by clicking without knowing what they are giving consent to,” says Goh of Eversheds Harry Elias.

This means advertisers will have to make more of an effort to assuage concerns of both clients and end consumers. “With regard to advertising in Asia, and specifically in the area of ad buys, agencies will [have to] be more particular about reassessing the credentials of third-party partners to ensure that the methodologies of harvesting data and targeting audiences is within ethical boundaries,” says Nicole Seah, a senior strategist at advertising agency VML Group. “I’d imagine that agencies would be more mindful in making sure that we remain the gatekeepers in the ad solutions we recommend.”

“People will want to feel the honesty at every point in the experience. Users will be increasingly conscious of being funnelled into releasing their data when they are asked to agree to a new service through a sequence of greyed-out options and persuasive upside messaging,” adds Paddy Crawshaw, Asia-Pacific head of strategy for media agency OMD.

Kristian Olsen, managing director of content agency Type A, says advertisers will need to educate consumers on the benefits of targeted messages. “It goes back to educating the consumer, so that they know how much data they want to give and whether they want to opt in to a brand’s messaging. [With regulations], we may reach out to a group that’s smaller, but we may get a more high-quality audience, since they opted in to look at these messages. There’s really two ways to look at this,” he says.

“As a social media agency, a lot of what we do involves driving people to websites and forms we create to collect data. What we need to do is to work with brands to be a lot more transparent about letting consumers know what their data is being used for. Organisations like schools tell you what your data will be used for. They are making the right move, and brands and advertisers need to step that up, to make sure that information is more inyour-face,” Olsen adds.

Media companies, brands and developers should have a Hippocratic Oath of sorts with consumers on what is permissible, suggests Wong Pei Wen, a digital and social media marketing lecturer at Nanyang Technological University’s Wee Kim Wee School of Communication and Information. “There is a social contract between advertisers and consumers, a form of value exchange. Advertisers are investing more into content marketing now... and in exchange we agree for the brands to access our files and data, install cookies or give up our social identity, time and sometimes money. The key here is transparency and accountability.”

Changing assumptions

Kieley Taylor, global head of social at GroupM, a media investment company owned by advertising giant WPP, is not fazed by the new challenges. “I do think the regulation, coupled with the growth of ad blocking, is forcing advertising to be less interruptive and more useful, entertaining and educational. My hope is a new age of advertising is heralded in rewarding those who provide access to data with relevant experiences,” she says.

And while consumers may dislike the idea of sharing their data, experts believe the field of targeted advertising will continue to grow. “We all tend to skip over ads, but if it’s something that is genuinely of interest, it may be slightly less annoying,” says Jennifer Van Dale, a partner at law firm Eversheds Sutherland. “The next hurdle will be for advertisers to address the creepy feeling many [internet users] report when they start seeing ads for holidays in Bali [just] 10 minutes after searching for hotels [in that location].”

Van Dale reckons legal restrictions might be a boon to online advertisers that are able to adjust. “It is anticipated that many users will continue to opt in [for ads] on some level, particularly if they know they can withdraw their consent later… The data collected from consumers who opt in [could] be more reliable and consistent, and therefore more valuable,” she says.

Capri also sees a silver lining in the Cambridge Analytica fallout. “Some believe that it’s like Pandora’s Box has been opened and everything is lost… But advertising agencies tend to be resilient and there are always new ways to advertise,” he says. For instance, the revenue model of social media platforms may evolve from advertising to paid subscription — prompting advertisers to explore other communication channels.

Alternatively, advertisers may evolve to offer compensation in exchange for personal data. “If you tell me that by sharing my data, I will be able to get better deals, or you will make my life somehow better, I might be willing to do this,” says IMD’s Piskorski. “To my mind, this is only fair. Advertisers have become much better off by being able to target their advertisements to me.”

Fiona Bartholomeusz, managing director of advertising agency formul8, is already eyeing the next frontier of advertising. “The real challenge in digital advertising is that it’s reached a stage where it’s not exciting anymore. There are restrictions on what kinds of banner ads you see online. For me, the real frontier is when someone cracks the code to take digital advertising into virtual and augmented reality, where ads are not embedded in a screen.”

Seah of VML adds: “We foresee that there will be more sophisticated tools in the future, which would enable us to go beyond tracking historical patterns of actual user activity. Leveraging features such as artificial intelligence and machine learning, we would also be able to anticipate and predict how certain audience segments may respond to ads.”

Traditional media is likely to remain relevant, though. Sunil Yadav, president of Amplifi Asia Pacific, the media investment arm of Dentsu Aegis Network, says: “We as an agency invest in conducting our own research about consumer behaviour and their preferences, which covers all media channels and platforms. While Facebook is a well-established digital platform, our clients [also] advertise across many other digital platforms, as well as other traditional channels.”

Lim of Reebonz is already rethinking his strategy. “Businesses will have to start thinking on how to convince the audience to click their ads, [if] the ads are now going to be generic and not customised. In a nutshell, it’s all about staying ahead of the curve, which will not hamper your campaigns and strategies. The impact will be on how a company collects and uses the data, and if the tools that the company uses will change their targeting options,” he says. “Only time will tell.”

This article appears in the state of the city column of Issue 829 (May 7) The Edge Singapore which is on sale this week

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