Towards Developing an Understanding of Consumers' Perceived Privacy Violations in Online Advertising

Abstract

Privacy-enhancing technologies (PETs) represent a critical operational challenge for the online advertising industry, requiring substantial infrastructure investment while promising improved consumer privacy protection. Even when PETs may improve privacy protection from an operational or technical viewpoint, understanding whether PETs actually reduce consumers' perceived privacy violations (PPV) is essential for evaluating their viability. In this research, we characterize advertising practices along the dimensions of tracking and targeting, and understand consumers' PPVs for current practices and proposed PETs through online experiments with U.S. and European consumers. As expected, the industry status quo of behavioral targeting, with high degrees of tracking and targeting, results in high PPV. While new technologies that keep data on users' devices reduce PPV compared to behavioral targeting, the reduction is minimal, including for group-level targeting. Contextual targeting, which involves no tracking, significantly lowers PPV. Not surprisingly, PPV is lowest when tracking is absent, but notably, consumers show similar preferences for untargeted ads and no ads. Importantly, consumer perceptions of privacy violations may not align with technical definitions, suggesting that operational investments in privacy technologies may fail without consumer validation. Therefore, it is essential for managers, industry practitioners, and policymakers to follow a consumer-centric approach to understanding privacy concerns and evaluating the operational viability of privacy-enhancing solutions.