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Privacy for America

Furthering Accountability and Responsible Data Practices.

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The Unintended Economic Consequences of Restricting Responsible Data Use

June 29, 2021

How to protect consumer privacy while preserving the value of data for businesses.

When the COVID-19 pandemic led to widespread shutdowns and stay-at-home orders in March 2020, there were many unknowns, particularly for small businesses that primarily rely on brick-and-mortar customer interactions.

Luckily, many small businesses were able to quickly pivot to using digital tools to stay afloat. A Deloitte survey showed that 77 percent of small-to-medium businesses (SMBs) started using or increased usage of digital tools to conduct business during COVID-19. The survey also showed that the internet quite literally saved many businesses: an increase in digital tool usage was associated with shorter business closure periods during the pandemic.

More specifically, SMBs relied on targeted advertising to reach their customers when they were unable to do so as much in person. According to Deloitte, two-thirds of SMBs also reported use of digital tools for marketing and 44 percent of SMBs started using or increased their use of targeted advertising on social media since the pandemic began. The SMBs that used targeted advertising were twice as likely to report higher revenues.

But even before the pandemic, large and small businesses relied on affordable digital tools to reach potential consumers with advertising based on their interests. Interest-based advertising makes it possible for small businesses and startups in particular to reach individuals that are most likely to need or want their product or service. And this type of advertising provides value to the consumer, too, by making accessible a wider range of niche products that cater to their unique and diverse interests and may not be available at big box retailers or in every state.

Interest-based advertising is so effective because it is driven by data. Advertisers utilize data about consumers’ interests and backgrounds to try to predict what ads would be most relevant to each consumer. When responsibly collected and used, this data provides enormous benefits in the form of highly relevant ads for consumers and increased revenues for businesses.

In short, data is critical to the success of both large and small American businesses – and therefore linked to the vibrancy of the U.S. economy.

Onerous restrictions on interest-based advertising and the collection of data that informs such advertising would make it harder for businesses to reach likely customers, increase wasteful advertising directed outside their intended audience, and inhibit the overall effectiveness of advertising campaigns. These consequences are already starting to affect businesses, as some technology platforms have taken it into their own hands to implement restrictions on data collection and use by other businesses. Though well-intentioned, their efforts, under the stated goal of protecting consumer privacy, stand to hurt these businesses and disproportionately affect SMBs who have come to rely on the affordable, highly effective advertising offered by social media platforms.

What is desperately needed is a federal privacy bill that would provide privacy protections to consumers while preserving the ability for all businesses to advertise to their customers and continue to thrive in the marketplace – because it is in fact possible to do both these things. But Congress needs to get it right for the benefit of everyone in the marketplace. According to an ITIF analysis, if a federal bill substantially limited organizations from collecting, using, and sharing data, it could cost $71 billion annually in lost value across the U.S. economy.

Privacy for America’s approach would strike such a balance by giving businesses rules to follow with regard to data collection, which would deliver strong protections to consumers by banning practices that put personal data at risk of breach or misuse – no matter where they live – and allow businesses to continue to advertise in the ways they’ve come to rely on for success.

The absence of federal action on privacy legislation is already having consequences for all consumers and businesses, and Congress would do well to act soon to avoid any more damage to U.S. economy as a whole.

Learn more about the P4A approach to a federal bill: https://www.privacyforamerica.com/overview/

 

 

 

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