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March 6, 2020
How Consumer Data Affects Competition Through Digital
Advertising
Control of internet users’ personal data has become a
By using targeted ads, websites and apps may have an
widespread concern. Data-protection legislation has been
advantage over other forms of media that cannot target ads
implemented by states (e.g., the California Consumer
to individuals, such as magazines, radio, and broadcast
Privacy Act) and other countries (e.g., the European
networks. According to eMarketer, in the United States
Union’s General Data Protection Legislation). Two bills
digital ad spending made up more than half of total ad
introduced in the 116th Congress (S. 2637, S. 1578) would
spending in 2019 and is expected to make up about two-
establish a national system through which individuals could
thirds of total ad spending by 2023 (Figure 1). Revenue
request that their internet activity not be tracked. In addition
from digital ads has been increasing over the last two
to privacy implications, the collection of consumer data
decades. Much of the growth in recent years has come from
may affect competition among advertisers and among
advertising on mobile devices.
websites and apps that rely on digital ads as a source of
revenue. This CRS product focuses on the competitive
Figure 1. Estimates and Forecasts of U.S. Digital Ad
implications of the collection of large amounts of consumer
Spending
data in digital advertising. As Congress considers
($ in bil ions)
legislation related to consumer data collection, there may be
potential competitive effects to consider.
Consumer Data in Digital Advertising
Digital advertising allows advertisers to send targeted ads,
so that different users viewing the same website or app at
the same moment may see different ads. To determine
which ad each user receives, advertisers and operators of
websites and apps can use software known as “ad tools.”
Advertisers use these tools to place automated bids in a
marketplace that runs an instantaneous auction. Advertisers
identify their target audience based on demographics, past
content views, and other factors. They also indicate the
level of exposure they want to achieve and the amount they
are willing to bid. Websites and apps use ad tools to offer
“ad spaces”—places where ads may be displayed—in the
Source: eMarketer, February 2019.
marketplace, with information about the user currently
viewing the page. The user sees the ad chosen by the
Note: % change reflects the year-on-year increase in digital ad
marketplace, selected based on the advertiser’s bid and the
spending. Estimates include advertising that appears on desktop and
relevance of the ad to the user. Ads receive higher
laptop computers as well as mobile phones, tablets, and other
relevance scores when they receive positive feedback, such
internet-connect devices; includes messaging-based advertising.
as users clicking on the ad, whereas ads that trigger fewer
Competition Among Websites and Apps
responses receive lower scores.
Although any website or app can have digital ad spaces,
Advertisers, as well as operators of websites and apps, have
most digital advertising revenue is collected by a small
incentives to improve the targeting of ads by collecting
number of firms. The IAB Internet Advertising Revenue
detailed information about each user. Advertisers expect
Report (October 2019) found that, in the second quarter of
more precise targeting to increase user response. Websites’
2019, 76% of internet advertising revenue was concentrated
revenue may depend on how frequently users click on the
in the top 10 leading ad-selling companies. According to
ad or how much time is spent viewing the ad. For example,
eMarketer, Google and Facebook jointly received 60% of
an advertiser of baby toys may want to present ads to users
U.S. digital ad spending in 2018 and 59% in 2019 (Figure
who have recently searched for diapers online, as they may
2).
be more likely to purchase baby toys. A website interested
in displaying the ad would want to collect information on
Websites and apps can obtain more consumer data by
its users’ search histories to identify those who have
increasing the number of users or by acquiring more
recently searched for diapers, as they may be more likely to
information about each user. Increasing the number of users
click on the ad.
potentially creates more ad spaces to sell to advertisers.
Acquiring more information on each user can improve ad
targeting, particularly if the website operator is able to
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How Consumer Data Affects Competition Through Digital Advertising
create detailed profiles of individual users. Such
collect on their own, the companies providing the ad tools
information might, for example, enable the website operator
obtain information about the websites’ users as well. As a
to better predict future product needs or set different prices
result, any consumer data obtained by a new website or app
for its products based on the day of the week. The ability to
would be acquired by its competitor as well.
correctly predict consumer behavior could be further
amplified by advancements in machine learning or other
Competition Among Advertisers
forms of artificial intelligence.
Improved targeting may increase competition among
advertisers. Ads from less-known advertisers may end up
Figure 2.Top Companies by U.S. Digital Ad Revenue
adjacent to ads from better-known competitors in response
(% of total U.S. digital ad spending)
to a search term or phrase. An advertiser may also ask a
website operator to serve its ads to users who have viewed a
well-known competitor’s website. Targeted ads may be
particularly beneficial for online-only retailers that may
need to rely on advertising and word-of-mouth to obtain
customers, as they lack brick-and-mortar store locations.
On the other hand, the ability to target ads precisely may
not increase competition if advertisers with large revenue
streams dominate the ads consumers receive. Advertisers
with large budgets may be able to outbid smaller advertisers
for ad spaces. For example, internet users searching for a
hotel room may be more likely to encounter ads from travel
booking agencies and large hotel chains than from an
independently owned hotel. Although relevance scores
could help mitigate this advantage, large advertisers may
still maintain an advantage by conducting extensive market
Source: eMarketer, February 2019.
research to ensure their ads are successful. New advertisers
Note: U.S. total digital ad spending in 2019=$129.34 bil ion; includes
or advertisers with small budgets may have difficulty
advertising on desktop and laptop computers as well as mobile
competing for ad spaces under such circumstances, while
phones, tablets, and other internet-connected devices; net ad
consumers searching for a particular product may
revenues after companies pay traffic acquisitions costs to partner
continuously see ads from the same advertiser.
sites; *includes YouTube; ** includes Instagram.
Federal Cases on Consumer Data
Certain types of websites or apps may be better suited to
The Department of Justice (DOJ) and Federal Trade
obtain consumer data. An online marketplace or search
Commission (FTC) enforce federal antitrust laws. They are
engine is likely to have a wide variety of interactions with
reportedly investigating four companies—Amazon, Apple,
individual users who repeatedly shop or search for
Facebook, and Google—for anticompetitive behavior,
information. In contrast, a music streaming service may
including through their use of consumer data. The DOJ and
know only about users’ musical tastes, location, and
state attorneys general are reportedly investigating Google,
spending on its website.
particularly for bundling its ad tools together and requiring
the use of its ad tools to place ads on YouTube, a video
The advantage of obtaining access to a large and
streaming service owned by Google.
continuously growing collection of information about
individual consumers may encourage mergers and
It is generally not considered anticompetitive to control a
acquisitions. For example, in 2019, Google announced an
large amount of consumer data. The fact than an advertiser
agreement to acquire Fitbit, which sells products with
or website operator has a large amount of data could
which users can track their physical activity or sleep. By
indicate that it is successful in attracting customers or users.
obtaining Fitbit users’ fitness and health information,
However, companies can also obtain large amounts of data
Google may be able to send them better-targeted ads,
through anticompetitive behavior, depending on how the
particularly ads related to their health. This, in turn, may
data is collected, analyzed, and used. Some have argued
encourage more advertisers in the health industry to work
that there is no incentive to limit or prevent others from
with Google.
obtaining consumer data because it is nonrivalrous—that is,
the value of data to one firm does not diminish because
The amount of consumer data amassed by established
more companies have access to the data. However,
website operators may give them an advantage over market
advertisers and websites and apps that already have a large
entrants. Entrants initially may have little information about
amount of consumer data may have an advantage over
consumers’ past product views, responses to ads, or
others, particularly if restrictions are placed on the future
browsing history. Thus, entrants may be less appealing to
acquisition of consumer data but not on the use of data
advertisers, resulting in fewer or lower bids.
previously obtained.
Some companies that operate websites and apps rely on ad
Clare Y. Cho, Analyst in Industrial Organization and
tools created by their competitors. While these tools may
Business
help website operators better target their ads by using more
consumer information than the website operators could
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How Consumer Data Affects Competition Through Digital Advertising
IF11448
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