The majority of all apps are financed by advertising – drawing on personal data. The threat for the privacy of consumers is significant. A new study shows, though, what a ban on targeted ads would mean for the consumption of mobile apps.

“The train has long since left the station.” Whenever we think we no longer control a trend, this metaphor comes up. The topic of advertising seems to fit in perfectly here. Whether it’s on websites, social media, or apps we use every day: everywhere, providers are fighting for our attention. And the battle is hard-fought. Because gone are the days when the same internet advertising reached nearly everyone – regardless of their preferences, life realities, and consumer behavior. Today, pretty much every bit of ad content is directly related to what we’re interested in. Behind this are not the clairvoyant abilities of cunning marketeers, but a pretty clever piece of technology – so-called trackers.

These trackers – which go unnoticed, much like bugs or tracking devices – attach themselves to the browsers and apps of our end devices and thus get to know us better every day. A person who has just read online reviews of the Red Hot Chili Peppers’ new album can be served targeted advertising by the record company Warner Brothers Records with the help of trackers. And that’s just the beginning. App developers have optimized targeting and are taking the conflict between free consumption and privacy to the extreme.

Paying with your own data

For smartphone apps that at first glance cost nothing or next to nothing, there are basically three means of earning money: number one is classic ads in the app itself. Then there are in-app purchases, which are often used in games. Users are lured by appealing branding, graphics, and gameplay concepts, but quickly discover that the game in question is fun primarily when content is purchased. By the way, slot machines work in a very similar way: the addictive potential lies largely in the belief that the more you bet, the more you win – and the more fun you have playing the game.

The third and now probably most popular monetization option is targeting. Here, too, users do not pay with money. Instead, their own personal data serves as a ticket. In step one, the app obtains consent to view and evaluate surfing behavior, location, photos, or messages. Advertisers and advertising networks then pay to be allowed to use the resulting data pools. This allows conclusions to be drawn about user interests and advertising to be played to people who are most likely to be interested. Sounds like a fair deal at first. Doesn’t it?

An advertising world without targeting

“Targeting is quite controversial,” says Prof. Jens Förderer from the Chair of Innovation and Digitalization at TUM Campus Heilbronn. “What looks like a win-win situation at first glance basically encroaches deeply on people’s privacy. That’s because the data collected is not infrequently sold to advertising networks, which use it to create personal profiles.” We are talking about virtual profiles that include age, gender, place of residence, interests, and much more. Many about whom such information is available know nothing about it – and have no control over where their data ends up.

Consumer protection initiatives and political actors are therefore increasingly pushing for a legal ban on targeting. But what would be the consequences of a ban? Together with his doctoral student Tobias Kircher, Prof. Förderer addressed this question and examined the consequences in a study: what impact would a ban have on app development?

To paint as accurate a picture as possible, the Heilbronn research team opted for a comprehensive quantitative study using data from the Android app platform. In 2019, Google had banned personalized advertising in children’s games, but not in other apps. To forecast the consequences of regulating the entire market, the duo examined data from children’s game providers and compared it with apps that were not affected. They recorded which apps were discontinued, how many updates a provider released, and whether the provider made any price changes.

Drastic drop in apps and new developments

The result: “After the targeting ban, the industry saw a massive app die-off,” says Tobias Kircher. “We estimate that more than 3,000 games were discontinued within a year.” The ban also had a substantial impact on the improvement of existing apps, with updates dropping by 17 percent. Young providers were particularly affected. But not exclusively. “We had expected a decline in app development,” Tobias Kircher points out. “But the fact that popular apps were also affected surprised us.”

The study unveils the conflict between data protection and the consumption of mobile apps. Revenue from personalized advertising is essential for the development of smartphone apps. Users must be aware that a ban on targeting massively restricts app diversity. At the same time, app developers face the challenge of making their business model less dependent on advertising revenues. If a ban does indeed will be implemented, we are likely to see a new market. The number and quality of offerings would change. And possibly also how we pay for smartphone apps. For the good of our privacy.

This article was originally published in Mindshift, fifth edition. Read more Mindshift articles.