Analysis | Meta Will Decide How Painful Its Irish Gut Punch Is

Comment

Meta Platforms Inc. is used to batting away the occasional fine from European regulators as a cost of doing business. But Wednesday’s 390 million-euro ($414 million) penalty from the Irish Data Protection Commission was different. It came with a ruling that forces Facebook to change the way it asks users to agree to targeted online advertising. That could have a big impact on its most important revenue driver — presenting ads to users based on their behavior across Facebook and Instagram.

Dan Ives, an analyst at Wedbush Securities, said the ruling could be a “major gut punch” that puts 7% of Meta’s total ad revenue at risk. (That was $115 billion in 2021.) But it’s impossible to determine how painful that punch will be since so much depends on how Meta responds.

The decision — which Meta is appealing — broadly comes down to the way tech firms offer a choice to users about their services. History has shown that billions of dollars in revenue can hinge on clever wordsmithing of those options.

For instance, most of us will skim an app’s terms of service and click “accept” to go ahead and use it, and that’s how Meta was able to carry out targeted advertising on its sites when Europe’s General Data Protection Regulation (GDPR) kicked in four years ago. Facebook states in the lengthy legal jargon of its terms that you can either agree to have personalized ads, or not use the site at all.

That was an unfair ultimatum, according to the Irish regulator, which has said that Meta must now somehow bring its service in line with EU law. The watchdog hasn’t told Meta specifically what it should do, but the company’s most likely remedy will be to give users a clearer choice on receiving targeted ads.

How might Meta do that? This is up to the company to decide, but its lawyers and copywriters will likely be agonizing over how to subtly convince Facebook users to agree to targeted ads through some sort of new prompt. Apple’s 2021 privacy prompt did the opposite. The little box of 18 words that popped up on people’s phones asking if they wanted Facebook “not to track” them on other apps, is expected to cost Facebook an estimated $14.5 billion in lost ad sales for 2022 (though it may have boosted Apple’s own advertising business). Most people chose to not be tracked by Facebook.

Meta could learn from Apple’s approach. The Irish ruling focuses on how Facebook tracks users on its own properties, not across other apps. It turns out Apple does plenty of this kind of first-party targeted advertising on its App Store, except it’s spun to consumers as a positive thing. Apple’s pop-up asking iPhone and iPad users about ad tracking doesn’t use the word “track” at all, but rather asks if they want to “turn on personalized ads,” an option which Apple highlights by default.

Facebook will need to concoct a similarly benign sounding choice, and it will also need to do a better job than Apple of promoting tracking. Even with Apple’s softer language, only about a quarter of its mobile users agree to have personalized ads turned on, according to the company.

Meta now has three months to come up with a strategy — probably a new consent pop-up — that isn’t as pushy as its terms of service, or find some other way to change how it uses data for ad targeting. It’s been lucky to have escaped real scrutiny from Europe over its use of data until now. Wednesday’s ruling comes more than four years after Austrian data protection activist Max Schrems lodged a landmark complaint against Facebook, on the day GDPR was rolled out in May 2018.

The region’s slow and fitful efforts to enforce GDPR since then are partly down to Ireland’s soft touch approach to regulating Big Tech, something for which it has been roundly criticized by other European privacy agencies like Norway and by this columnist. Ireland, for instance, was initially happy with Facebook’s method for getting user consent for targeted ads, and only issued its ruling now because it was forced to by the European Data Protection Board. In fact, Ireland originally priced Meta’s fine at between 28 and 36 million euros, a fraction of the current penalty. Ireland takes the lead in enforcing EU data law because Facebook and Instagram have their headquarters in Dublin, an arrangement that presents the agency with a probable conflict of interest.

Now it seems Meta can no longer coast along under the watch of a lenient regulator. And if this marks a greater effort by the EU to push Ireland to toughen up against online platforms, that could also spell trouble for other companies that make money from targeted ads.

This would fit with a broader flex by Europe, which is poised to launch the mother of all regulatory crackdowns on Big Tech over the next two years. It is rolling out two major laws that target anticompetitive practices by the largest firms and which force social media platforms like Facebook to aggressively police content on their sites.

Meta has said that Ireland’s decision does “not prevent targeted or personalized advertising on our platform.” But that may not be the case for long.