American websites would lose $33 Billion over 5 years if Congress mandated EU-style Opt-In consent for interest-based advertising.

An MIT/Univ. of Toronto Study looked at what happened when European countries required opt-in to restrict interest tracking for online advertising. Catherine Tucker and Avi Goldfarb reached this conclusion:

“Our analysis suggests that after the Privacy Directive was passed, advertising effectiveness decreased on average by around 65 percent in Europe relative to the rest of the world”

The MIT-Toronto Study compared the purchase intentions of 3.3 million individuals across 5 EU and 5 non-EU countries over the 8 years after European nations began implementing opt-in requirements to follow the EU Privacy Directive.  The comprehensive study reduced extraneous factors revealing the advertising effects of the EU opt-in Privacy Directive.

Building off the work in the MIT-Toronto study, we forecast the effect such an EU-style opt-in legislation on American websites.  Our forecast identified an $33 billion loss to American websites over five years.

This Graph shows the revenue losses would have serious consequences for websites and consumers, too:

  •  Websites will show more ads to make up some of the revenue loss.
  • Websites will have less to spend on content, services, and innovation.
  • Some websites will erect pay walls for content that users get for free today.

Graph of Opt-In mandate for interest-based advertising

Our numbers are based upon taking a forecast of US online interest-based ad revenue, then reducing that by the decline in advertising effectiveness experienced in the EU.

Sources:

1.  The loss of advertising revenue found in the EU after Opt-In was mandated there, by Goldfarb & Tucker, Privacy Regulation and Online Advertising, Univ. Toronto & MIT (Aug. 5, 2010)

2.  Interest-based ad revenue starts at 80% of 2010 total online ad revenue,  IAB, $6.4 Billion in Q3 2010 Sets New Record for Internet Advertising Revenues (Dec. 2010)

3.  Growth rates were based on research by d Nicole Perrin, 11 Trends for 2011, eMarketer (Dec. 2010)