How Facebook’s New Privacy Tool Will—or Won’t—Affect Its Ad Business

August 26, 2019, 9:55 PM UTC

Facebook said it expects its advertising revenue to be hurt by the rollout of a new tool that allows users to disconnect their profiles from collected third party data. But according to experts, it’s more likely that the impact will be financially insignificant.

The social media giant recently announced the new tool, called Off-Facebook Activity, which gives users more control over the data Facebook collects on them. The tool allows users to decouple the third-party data, like search history and store purchases, from their Facebook profile. But does not delete the data from Facebook entirely, rather it just anonymizes the information.

The new tool, which has begun rolling out in Ireland, South Korea, and Spain, is expected to weaken Facebook’s accuracy in targeting users for relevant ads when it ultimately rolls out to the rest of its users. Advertising is Facebook’s core source of revenue. Last year, it generated $55.8 billion in revenue, overall.

“If a person uses the control, we will disconnect the data from their account, and it cannot be used to target ads,” said Nissa Anklesaria, a spokeswoman for Facebook. “So people will see less relevant ads, and the businesses will likely see less ROI from their ads.”

Facebook CEO Mark Zuckerberg first announced the “clear-history” tool, which is what Facebook first called it, at last year’s F8, Facebook’s annual developer conference. During that presentation, Zuckerberg said while users would be able to clear information about some of their activities, the action would create a “worse experience” for users, as they would get less relevant ads.

During its first quarter earnings this year, Facebook warned analysts and investors to be prepared for a slowdown in ads revenue. Part of that was in anticipation of the new tool, coupled with regulations like GDPR in Europe, and changes in the mobile platforms that will make targeting more difficult. Facebook declined to give specifics on how much it expects the new tool to hurt revenue.

“We’re seeing a cumulative impact from all of these factors leading to what we expect to be targeting headwinds for the back half of the year,” said David Wehner, Facebook’s CFO on the earnings call.

But experts think that the new tool won’t have a major impact on Facebook’s advertising business, if much at all.

First, the likelihood that large droves of people will take proactive steps to change their preferences is low, given historical precedence. Second, Facebook’s ad business is so large that a small hit will be relatively inconsequential. And third, Facebook still collects information from users based on their preferences and actions on the service, just anonymously. So even if a user does choose to disconnect their third-party data, Facebook still can use that information for ad targeting.

Jason Helfstein, analyst at Oppenheimer, said he’s not concerned about the new tool having a big effect on Facebook’s advertising model, given that most people want a customized experience. On top of that, Facebook’s engagement has been relatively unaffected by the larger privacy concerns in recent history.

“There will be some impact; there will be some noise around it,” Helfstein said. But “no one really cares.”

Garret Johnson, marketing professor at Boston University’s Questrom School of Business, similarly believes that most users won’t make the change, giving Facebook nothing to worry about.

Johnson has previously studied whether consumers would opt out of online behavioral advertising via AdChoices, a program the Digital Advertising Alliance introduced in 2010. In June, he co-authored a paper that shows that only .23% of Americans opt out of online behavioral ads.

Is Facebook taking a big risk by giving people the chance to opt-out? Not really, Johnson said.

“By opening the door to let people opt out, you do open the door for a lot of people to change things,” he said. “But the chances of that happening are low.”

Facebook said the new tool will “slowly” roll out across countries, and the social network will be closely watching how people adopt it.

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