EU court tightens screws on Meta for illicit profiteering

Meta, the company behind Facebook and Instagram, is facing allegations from the European Commission for violating Europe’s new digital competition regulations with its “pay or consent” advertising model.

Late last year, Meta introduced a service called “subscription for no ads”, offering European users of Facebook and Instagram an option to pay for an ad-free experience. Those who choose not to pay must accept versions of the platforms that include personalised ads.

According to the Commission, this binary choice forces users to either consent to the use of their personal data or pay for an ad-free experience.

If the Commission’s initial findings are upheld, Meta could face a fine of up to 10% of its global annual revenue under the Digital Markets Act (DMA). Based on Meta’s 2023 revenue, this could mean a fine of $13.5 billion.

The DMA, a regulation on competition and transparency in digital markets, was introduced by the European Union in 2022. It targets large online platforms, known as gatekeepers, which have significant influence over the market. The DMA sets out rules to prevent gatekeepers from abusing their dominant position.

Under the DMA, gatekeepers must seek user consent for combining personal data across services and provide an alternative service that is less personalised but equivalent if consent is not given. The Commission’s initial view is that Meta’s approach forces users to consent to extensive data use without offering a less intrusive alternative, thus violating the DMA’s requirements.

Meta’s conflict with the EU highlights a broader issue concerning the funding of the Internet and its impact on privacy. Targeted ads have been a key revenue source, driving the rapid growth of many companies, including major social media platforms, often at the expense of privacy rights.

Now, the pay or consent model introduces new problems including the commoditization of privacy. It risks creating a digital divide where privacy becomes a privilege available only to those who can afford it. This is a direction we do not want the Internet to go.

A history of personalised ads

Personalised advertising, also known as behavioural targeting, steadily developed alongside the Internet with advanced tracking and data collection methods. Initially, online ads were quite basic. The first banner ad appeared in 1994 on a magazine’s website, static and untargeted. The landscape shifted when search engines introduced pay-per-click advertising based on user search keywords, making the ads more contextually relevant.

Behavioural targeting became possible with the introduction of cookies in the mid-1990s. They were small data files stored on users’ browsers designed to retain user information on websites. Before cookies, every time someone visited a website, it was an isolated and anonymous experience. Cookies allowed websites to remember users, track sessions, and store preferences which would bring a more personalised web experience.

Advertisers soon used cookies to display ads based on users’ browsing history and product views.

Over time, the collection of personalised data led to a surge in targeted ads. As social media platforms grew, they leveraged user profile information and behaviour to deliver highly targeted ads based on interests, actions, and connections.

Eventually, with machine learning algorithms predicting user behaviour and preferences, social media platforms became personalisation engines, delivering highly customised ads by continuously learning from user interactions and adapting in real time.

The EU’s problem

The EU has several issues with personalised ads. These ads often depend on collecting and processing large amounts of personal data, which can infringe on privacy rights by tracking and profiling users without explicit consent.

The General Data Protection Regulation (GDPR) in the EU sets strict rules on data collection, storage, and usage. GDPR mandates that users must provide informed consent for their data to be used in personalised ads. However, many companies use unclear or misleading consent forms, making it hard for users to understand just what they’re agreeing to.

The dominance of a few large tech companies in the digital advertising market such as Meta, but also Google, control vast amounts of data and can leverage it to maintain and strengthen their market positions, which can stifle competition and innovation.

In response to EU’s regulatory changes, Meta created its “Subscription for No Ads” model where users of Facebook and Instagram in the EU are given a choice between two options: paying a monthly subscription fee for an ad-free experience or using the services for free with personalised ads.

Commoditization of privacy

With the pay or consent model, those who can afford to pay for an ad-free experience gain privacy, while those who cannot are subjected to data collection and targeted ads. This creates a tiered system where privacy becomes a commodity available primarily to those with higher economic means.

With this, the model could exacerbate the digital divide, where wealthier users can afford a premium experience, while economically disadvantaged users have to endure the negative aspects of ad-driven platforms such as closer monitoring of their behaviour. This could lead to unequal access to digital resources and benefits.

Targeted ads are designed to influence and manipulate user behaviour. With the pay or consent model, the level of manipulation depends on the ability of individuals to pay. This can have broader societal implications, particularly if less wealthy populations are more heavily targeted by certain types of advertising such as predatory lending or unhealthy food.

Impact on digital advertising

The EU’s decision could impact the digital advertising industry. If enforced, it would limit the ability of gatekeepers like Meta to use personal data for ad personalisation. This could lead to a shift towards less personalised, broader-targeted advertising strategies which would potentially reduce the effectiveness and profitability of digital ads. Advertisers might need to adapt by finding new ways to reach and engage audiences without relying on extensive personal data.

Nonetheless, the advertising industry has proven to be highly-adaptive. It can find new ways to optimise campaigns under new regulations. One potential avenue is to go back to user targeting based on the content being consumed rather than personal data. Furthermore, advancements in AI and machine learning can help improve the precision of less personalised ads by analysing patterns and trends without relying heavily on personal data.

In any case, it is difficult to imagine whether this could ever reach the same precision of targeted advertising based on the information we continue to share through our online profiles and our digital footprints.