“Ban Targeted Advertising? An Empirical Investigation of the Consequences for App Development”, 2023-05-19 ():
On many multi-sided app platforms, the supply-side monetizes their work with targeted advertising. The targeting of ads has raised concerns over user privacy and has led to calls for platform firms and regulators to bar this practice. Important for this debate is to understand the consequences that a ban on targeted advertising would have for app development.
To inform, we exploit that Google, in 2019, banned targeted advertising in Android children’s games [on Google Play]. This setting represents an ideal real-world laboratory and permits a quasi-experimental research design [difference-in-differences]. Our overall finding is that the ban on targeted advertising caused substantial app abandonment.
The ban reduced the release of feature updates, particularly for games of young, undiversified, and advertisement-dependent firms. Only games of exceptionally high quality and demand showed an increase in development. Corroborating this picture, affected games were more likely to be delisted. Developers shifted their efforts toward their unaffected games and released fewer new games on average.
Further tests substantiate that targeted advertising represented a crucial form of monetization for affected games and that the ban obliterated ad revenues used for app development. Our findings have several implications. To avoid a loss in app innovation, platform firms should consider implementing measures to reduce the burden on developers, especially by creating alternative monetization opportunities.
Consumers and policymakers should be aware that targeted advertising plays a crucial role for app development and can use our estimates for designing policies. Thus, consumers’ demand for privacy can conflict with platform firms’ goal to foster app innovation.
[Keywords: multi-sided platforms, targeted advertising, behavioral advertising, economics of privacy, mobile apps]
…Finally, we leverage our data to investigate further app development decisions of developers. In terms of portfolio effects, affected developers relocated their development efforts. Although developers are releasing fewer feature updates for their affected games, they are releasing more feature updates for their unaffected games. This suggests that developers are shifting their efforts from the markets deprived of ad targeting to those where targeting remained permitted. Moreover, we observe that the ban increased the likelihood of a game being delisted from the Google Play Store by 10.9%. We estimate that 3,270 children’s games were delisted following the ban until the end of the observation period. In addition, we observe that the ban curbed developers’ release of new games (−36.3%). We estimate an annual loss of 65,712 games that would have been contributed to the Google Play Store if the ban would not have been implemented.
…5.2. Data Collection and Sample: We obtained a proprietary data set from the app analytics provider AppMonsta that contains weekly snapshots (“index”) of all apps in the Google Play Store along with their characteristics (eg. prices, ratings). The starting point for the construction of the sample is the index from May 27, 2019 (ie. two days before the announcement). Of the total 2,981,709 apps, 413,899 are games. Following our identification strategy, we exclude all games with content ratings other than “Everyone 10+” and “Teen 13+”, dropping 353,897 games. The Google Play Store has been criticized for containing games that are not downloaded at all, have been abandoned, are maintained by nonprofessionals (eg. hobbyists or amateurs), or are copycats. These games can create noise for estimation. To overcome, we drop games that fulfill at least one of the following criteria: no update in the 1.5 years preceding the observation period; fewer than 25 (50) ratings for games older than 6 (12) months. The remaining games total 27,929.
Data on the use of advertisement in games comes from APKMonk. From there, we obtain each game’s so-called “manifest”—metadata about the advertising networks and data permissions used by a game. This restricts the sample to 25,130 games that use advertisements or collect personal data. To ensure that these games are not already compliant, we drop 85 games that were advertised in the Google Play Store as being compliant with the Family Policy Requirements before the announcement. Importantly, to avoid capturing anticipation and selection effects, we drop games whose content rating was switched during the 6 months before the announcement. In a final step, we dismiss 5,509 non-English games and remove 64 with missing values. Online Appendix A3 provides details on the data sources and data set construction.
…In addition, to triangulate our findings, we conducted semi-structured interviews with individuals involved on the developer side (two CEOs of game developers firms, one monetization manager), the platform side (one regional business development manager), and the advertisement network side (one mobile advertising specialist). The interviews further corroborated the mechanism. Online Appendix A5 describes the interviewees and provides the insights of the interviewees.