Technische Universität München
Spectrum of apps shrinks after ban on personalized ads
TECHNICAL UNIVERSITY OF MUNICH
NEWS RELEASE
First empirical study on impact of targeted advertising ban
Spectrum of apps shrinks after ban on personalized ads
• Data collection in free apps to be regulated• Ban at Google Play Store led to significantly fewer apps for children
• Researchers recommend increasing users' willingness to pay for apps
A ban on using apps to collect data in order to personalize advertising would significantly reduce the spectrum of available apps and the number of updates, according to a study by the Technical University of Munich (TUM) based on the ban concerning Android apps for children. The findings can assist companies in defining their business models and policymakers when regulating targeted advertising.
Most smartphone apps are free. The providers finance them with advertising, often with what is referred to as targeted advertising: The apps evaluate data such as usage behavior and the user's location and even photos and messages in order to display advertisements custom-tailored to the individual user. This practice draws criticism as a violation of privacy, and there have been many calls to ban it. The EU Digital Services Act will tighten regulations on targeted advertising starting in 2024, and there are similar plans in the USA. Companies are objecting to restrictions and argue that without the income generated by personalized advertising, it would be impossible to continue offering many apps and there would be no incentive to develop new products.
Prof. Jens Foerderer and Tobias Kircher of the Professorship for Innovation and Digitalization at the TUM Campus Heilbronn have for the first time conducted an empirical investigation of how the disappearance of by personalized advertising would impact the spectrum of available apps. In their study they analyzed the effects of a 2019 ban of targeted advertising which Google instituted in its Play Store affecting Android apps intended for children. The researchers compared the situation one year before and ten months after the ban.
Number of new apps reduced by one third
The study shows that after the ban on personalized advertising, fewer new apps came on the market, more apps than before were abandoned and fewer updates for existing apps were offered than before:
• The number of new apps published per provider fell by more than one third.
• The probability that an app would be taken off the market rose by more than 10 percent.
• The providers deployed 17 percent fewer updates. This figure includes not only further developments of the apps, but also maintenance and security updates.
The researchers found this development with almost all providers. The trend was especially pronounced with small and young companies, i.e. primarily with start-ups. The only exception was extraordinarily popular apps on which the companies apparently focused their continuing development efforts. The researchers assume that a similar drop in the number of available apps would follow a ban on targeted advertising for apps intended for adults.
"Find out what users would be willing to pay for"
"Better data protection for smartphone apps is an important step, especially for children," says Jens Foerderer. "The question is: How do we find a way out of the trap that consumers are used to using apps for free, and the companies base their business models on personalized advertising? And how can we do that without reducing the number of available innovative apps which can be very useful to the consumer? Our findings can serve both policymakers and business as a basis for decision making."
Companies should make proper advance preparations for possible legal regulation. "Companies will have to expect serious impacts on their revenues in case of a ban on targeted advertising," says Tobias Kircher. "They should therefore find out as soon as possible which of their app functions users would be willing to pay for. And more: They should develop strategies to increase consumer willingness to pay."
Publication:
Tobias Kircher, Jens Foerderer (2023) Ban Targeted Advertising? An Empirical Investigation of the Consequences for App Development. Management Science 0(0)
https://doi.org/10.1287/mnsc.2023.4726
Subject matter expert:
Prof. Dr. Jens Foerderer
Technical University of Munich (TUM)
Professorship of Innovation and Digitalization
Tel.: +49 7131 264 18 808
jens.foerderer@tum.de
https://www.mgt.tum.de/center-for-digital-transformation/prof-dr-jens-foerderer
TUM Corporate Communications Center contact:
+49 89 289 22778
presse@tum.de
The Technical University of Munich (TUM) is one of Europe’s leading research universities, with more than 600 professors, 50,000 students, and 11,000 academic and non-academic staff. Its focus areas are the engineering sciences, natural sciences, life sciences and medicine, combined with economic and social sciences. TUM acts as an entrepreneurial university that promotes talents and creates value for society. In that it profits from having strong partners in science and industry. It is represented worldwide with the TUM Asia campus in Singapore as well as offices in Beijing, Brussels, Mumbai, San Francisco, and São Paulo. Nobel Prize winners and inventors such as Rudolf Diesel, Carl von Linde, and Rudolf Mößbauer have done research at TUM. In 2006, 2012, and 2019 it won recognition as a German "Excellence University". In international rankings, TUM regularly places among the best universities in Germany.