Online advertising. Privacy and the trust factor

01 December 2010 Author: EIFonline

In an EIF event devoted to these topics, Jacques Bughin, from McKinsey & Company outlined the main findings of their study on online advertising. Internet users nowadays benefit from an ever-increasing range of free applications and services that are mainly funded by online advertising.

They represent an alternative business model that brings revenues to advertising companies and content owners and at the same time offers free services to internet users. This model also presents challenges, in particular in terms of the privacy and anonymity of the users and the independence of the platforms sponsored by commercial ads.

McKinsey looked at how consumers value the free applications they receive via the Internet in exchange for advertising being displayed in one form or another on their monitors. The study found that while this is a concern of consumers, the perception of advertising disturbance with regard to online services is in line with other media, such as television.

On average, the price an Internet consumer is willing to pay to avoid those issues is worth only one-sixth of the total value derived from ad-funded Web services; Among the forms of disturbance analyzed (advertising interruption and use of personal information) users are most ready to pay for preventing advertising interruption, particularly ad banners.

There are two segments of users who value their privacy relatively highly. A narrow niche segment, one percent of users is privacy concerned, that is, they put a high value on a strict adherence to privacy. Another, more material group of users (20 percent), values privacy as much as it values Internet use itself. This segment features users who place an average value on privacy but a particularly low value on Internet use. It follows that stimulating more rewarding usage is at least as likely to generate higher user surplus as applying a higher degree of privacy controls.

According to the study, while disturbance from advertising interruption and fear of privacy misuse exists and must be acknowledged, more than 80 percent of current Internet users generate significantly more value from using the Web than what they would be willing to pay to eliminate those disturbances. Further, what they would be willing to pay in total is less than current online advertising revenue, making the economic equation of Internet innovation unsustainable. As a result, any potential focus on reducing disturbance should be weighed against the risk of reducing ad-funded user innovations online.

In the end, the crux of this entire new online advertising fuelled business model is based on trust. Or, in the words of Nick Wiggin from Ericsson,'it's about 'trust, trust, and trust'.' Brands should leverage the trust that they have with their clients but stay clear of what is called 'the creepy line'. many companies and social networks are moving towards this line. What is needed is and opt-out opportunity for consumers whilst at the same time managing their expectations and educating them about online advertising and privacy.


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