EU could hit Alphabet where it hurts
Alphabet (GOOGL) and Facebook (FB) could be faced with a complicated business landscape in the EU (European Union) at a time when the bloc’s digital advertising industry is set to expand to $45 billion in 2020 from $35 billion in 2016, according to eMarketer estimates.
The European Commission, the EU’s executive arm, has proposed a set of new regulations aimed at curbing online tracking of Internet users in the Eurozone. The proposed rules seek to empower European citizens to play a more active role in deciding whether or not they want their online activities tracked for what could lead to targeted adverts.
But the Commission’s proposals could squeeze the European revenues and profits of online advertising companies like Google, Facebook, Twitter (TWTR), Yelp (YELP), and others if the majority of their users in Europe opt out of having their data tracked for personalized ads.
The Commission’s proposed rules further seek to guarantee users privacy on services such as WhatsApp and Microsoft’s (MSFT) Skype. Google, Facebook, and other online publishers collect data on their users to enable them to deliver more relevant ads. They charge premium prices for such targeted ad campaigns.
Potentially devastating impact
If the EU parliament and member states back the proposed rules to limit online tracking, Google and Facebook could be hurt the most. The companies rely on the vast user data at their disposal to help marketers pitch more relevant ads, and the practice not only generates more revenue for them but also gives them an edge in the competition for advertisers’ budgets.