Policymakers are engaging in an increasingly nuanced debate over the social costs and benefits associated with digital advertising. While advertisements typically generate revenue for platforms and marketers, the question remains: do they serve or undermine the interests of the consumers? A recent study delved into this issue by examining the impact of advertising on Facebook. By comparing consumer reactions to the presence or absence of ads, the researchers found no significant differences in how much users valued the platform, indicating that the adverse effects of ads might be minimal or balanced out by certain advantages.

A team from Carnegie Mellon University, Stanford University, Northwestern University, and Meta conducted this research, and the findings are detailed in a new working paper published by the National Bureau of Economic Research (NBER).

Avinash Collis, an assistant professor of management science and economics at Carnegie Mellon’s Heinz College and the study’s lead researcher, shared insights into the dual potential impacts of online ads. He noted that while ads might be a source of annoyance by bombarding users with irrelevant content, they also have the potential to direct consumers to products and services that could be of genuine interest.

The study capitalises on a unique long-term field experiment on Facebook’s advertising system that began in 2013 and is ongoing. In this experiment, a small random fraction (0.5%) of Facebook’s nearly 3 billion user base was selected to experience the platform without any ads. The remainder of the users encountered the usual advertisement frequency.

In 2022, the researchers gathered data from over 53,000 Facebook users from both the ad-viewing and non-ad-viewing groups. Participants engaged in a survey with an incentivised choice experiment to measure their Facebook valuation. The results showed no statistical difference in valuation between the two groups, suggesting that the current level of advertising on the platform does not substantially degrade user experience. This challenges the notion that a no-ads environment would significantly enhance consumer satisfaction, with any potential adverse effects of ads being less than 10% of the overall value users place on Facebook.

The researchers proposed that the lack of significant impact might be due to the compensatory nature of the benefits derived from targeted ads, which could neutralise the irritation caused by less relevant ads. Alternatively, they considered the possibility that both the beneficial and adverse effects were too minor to be statistically detectable. It was also noted that users in the ad-free group spent 9.4% less time on Facebook, which did not influence their overall platform valuation.

However, the study’s scope does have limitations; it focused solely on Facebook and did not consider other platforms. Furthermore, the ad-free group was still exposed to some residual advertising. Meta, Facebook’s parent company, employs more than half of the paper’s authors.

Erik Brynjolfsson, a professor at Stanford’s Institute for Human-centered AI and co-leader of the study, highlighted the relevance of this research to ongoing policy discussions in the United States and Europe. These discussions often revolve around the regulation of targeted advertising on online platforms. The findings from this comprehensive and prolonged experiment offer valuable insights into the balance of utility and disutility that ads provide to users on social media platforms.

More information: Erik Brynjolfsson et al, The Consumer Welfare Effects of Online Ads: Evidence from a 9-Year Experiment, NBER working paper. DOI: 10.3386/w32846

Journal information: NBER working paper Provided by Carnegie Mellon University