Regulators squeezing Google. Privacy watchdogs eyeing Facebook. Consumers flocking to ad blockers. It all adds up to a chilling climate in Europe that could get in the way of digital ad ambitions there, according to industry experts.
This week, Google was the latest, and perhaps the hardest hit, by the scrutiny overseas, as the European Union charged it with anti-trust practices by favoring its own Web properties in search results over rivals. Often, Google serves up results for shopping items to the detriment of e-commerce competitors, and it delivers instant reviews, keeping traffic away from rivals like Yelp.
The ultimate penalty could force Google to change its search tactics, but the probe could also veer into other aspects of its business that impact advertising. Here in the U.S., regulators declined to label Google a search monopoly when they fully investigated the company in 2013, but they still closely watch how it competes with rivals and deals with consumers.
The Mountainview, Calif.-company is not alone in these tense situations with European leaders. Facebook has been hit over user privacy, especially in Germany. The continent also is going after tech companies over taxes and security issues.
The less the companies are able to operate freely, the less data they can accumulate, and the less finely tuned—and less valuable—their ads are, according to marketing experts. This week, industry research group eMarketer, which tracks global marketing spending, found social ad revenue is growing more slowly in western Europe than in North America or Asia. Meanwhile central and eastern Europe lagged further behind, and the disparity in overall digital growth was even greater.
Google could face more scrutiny
A number of factors drive digital ad dollars, but one is the ease with which tech companies can collect data on users, target ads and charge for such messages. European attitudes could hinder one of the most effective types of digital advertising, retargeting.
"One of the main attractions to social media from advertisers (particularly to Facebook and Twitter, who own 75 percent of spending in this market) is the ability to use data to target customized audiences," said Dan Marcec, public relations director at eMarketer, in an email. "So any restriction on that would have an effect."
Google wants to give brands new retargeting tools for search ads, according to reports this week. A source confirmed the company is interested in using advertisers' e-mail lists to do so. When reached for comment, Google said it always considers new products, but had nothing to share at this time.
Another digital advertising source said Google's interest in retargeting could attract more regulatory spotlights. Fair or not, while Twitter and Facebook build fully integrated data machines for targeted ads across the Web, Google sometimes gets closer review in the U.S. and Europe.
"It's clear Google is starting to think about using search to inform more advertising, and it runs a risk with regulators," the ad executive said, speaking on condition of anonymity.
Some of Google's top rivals, including Microsoft, are said to be leading the charge in tipping off regulators about practices they see as unfair—practices that touch on all corners of its business, like search, data, privacy and advertising.
Since the Federal Trade Commission accused Google of deceptive privacy practices in 2011, U.S. regulators have monitored the company's data practices and reviewed any changes to how it uses consumer information.
Consumers weigh in
Consumers themselves also affect advertising fortunes. In Europe in particular, people are far more likely to opt out of data tracking and to employ ad blockers to never see ads. These consumer tools are a shield against Facebook, Twitter or Google's retargeting plans.
About 20 percent of U.S. Web users install ad blockers; that number is about 25 percent in Europe, and as high as 50 percent among certain demographics there, according to Frederic Montagnon, CEO of Secret Media, an ad tech software firm.
Still, Europe is not a monolith when it comes to consumer behavior or policies. For instance, Germany and eastern and central Europe tend to guard privacy more closely after dealing with decades of government abuses in the 20th century. By contrast, places like Holland or Spain have fewer of these concerns, marketing experts said.
Those attitudes, along with government policies, are partly reflected in the numbers. This year, western Europe's social media ad market will amount to $4.74 billion, an increase of 29 percent since last year. Compare that to $10.10 billion in the U.S., up 31 percent, according to eMarketer.
Total digital ad spending is set to grow about 22 percent in Europe this year, compared to 40 percent in North America.
Importantly, this week analysts said that European actions would not impact Google's revenue in the immediate future.
"It just slows down growth," the digital advertising exec said, but eventually the money flows to the most effective media one way or the other.