3 Ways New Online Privacy Rules Could Affect Small Businesses

Most tech businesses today have access to vast troves of data on their customers. But that well of information may be running dry.

The Federal Trade Commission is weighing new online privacy rules that could restrict how businesses use consumer data for targeted advertisements–including those aimed at children–The Wall Street Journal recently reported. While any new FTC rules would require a public commenting period and are likely years from being implemented, they could radically alter how online advertising works. Some small businesses are already expected to suffer a loss in revenue due to new privacy features by Apple and Google that allow users to opt out of ad tracking. 

Here’s a breakdown of the proposed FTC privacy changes small businesses can expect. 

1. An end to “walled garden” advertising

Nearly 70 percent of online ad spending goes to Facebook, Google, and Amazon, according to eMarketer. But that could soon change. In an October 1 statement, FTC chairwoman Lina Khan outlined a vision where data privacy and competition rules would go hand in hand. 

“Concentrated control over data has enabled dominant firms to capture markets and erect entry barriers, while commercial surveillance has allowed firms to identify and thwart emerging competitive threats,” she wrote. 

This could signal the end of the “walled garden” advertising approach, where a very small number of platforms dominate the digital advertising economy. The importance of online advertising for small businesses has only grown, as consumers continue to spend more time on the internet and are less dialed-in to television and other local media. Advertisers will increase spending on digital ads by 12.6 percent in 2021, research firm Morningstar estimates. Meanwhile, tech giants are raising their prices. Facebook, for example, increased online ad prices by 30 percent this year, according to earnings statements. 

Federal regulation could open up more opportunities for independent ad tech companies and give small businesses more options. In order to compete with Big Tech, many independent ad tech companies provide customers with more measurement tools and greater transparency into where their user data comes from and how they collect it. 

2. New restrictions on tracking health data 

A huge number of new products and services are collecting health care data, from fitness apps to menstruation apps to remote health monitoring devices. But there may be new rules on what companies can collect from their users and how they can use it. In a recent FTC report on privacy to Congress, the agency signaled the need for new rules on health and location data that fall outside of HIPAA protections. 

Also under scrutiny will be how companies use algorithms and artificial intelligence in their products and to guide their decision making. Of particular concern is how the use of AI in healthcare and financial matters can cause and perpetuate racial discrimination. For example, one investigation by the Markup found that compared with their White counterparts, Black applicants nationally were anywhere from 40 to 80 percent more likely to be rejected for mortgages by lenders who used algorithms in their application reviews.  

3. A crackdown on collection of children’s data

The Children’s Online Privacy Protection Rule (COPPA) already restricts the use of data by companies on users under the age of 13. But the FTC believes that many companies, particularly social media platforms, are bending the rules.

The FTC stated in its report to Congress that it wishes to devote more staff and resources to “platforms and other online services that are potentially violating COPPA, an area of particular importance given that many children may be increasingly relying on online services for educational, entertainment, and social purposes during the pandemic.” This could encompass not only popular Gen Z social platforms like Instagram, Snapchat, and TikTok, but also mobile gaming companies and other services aimed at teens and children.

Education tech is a particular area of concern, as students’ increased use of such platforms during the pandemic opened up new opportunities for advertising surveillance. The attorney general of New Mexico last year sued Google for collecting student data through Chromebooks, a fight that last week made its way to the Court of Appeals for the Tenth Circuit.

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