Policymakers are delving deeper into discussions about the relative social costs and benefits associated with digital advertising. The consensus is that advertising usually benefits platforms and advertisers, but how consumers are impacted is unclear. In pursuit of clarity, a comprehensive new study has focused on advertising’s effects on Facebook users, particularly comparing the experiences of users who view ads against those who do not. The findings reveal no significant differences in how the two groups value Facebook, which suggests that ads’ negative impacts are minor or that certain benefits counterbalance their detrimental effects.

This significant research, a collaborative effort among academics from Carnegie Mellon University, Stanford University, Northwestern University, and Meta, is detailed in a recent working paper published by the National Bureau of Economic Research (NBER).

Avinash Collis, an assistant professor at Carnegie Mellon’s Heinz College specialising in management science and economics, spearheaded the research. He notes that the impact of online ads on consumer welfare is ambiguous; ads might either irritate users with irrelevant information or assist them in discovering beneficial products and services.

The nature of online advertising, coupled with the logistical challenges of conducting extensive experiments and monitoring long-term effects, has meant that research in this area is limited. The study in question leverages data from a long-term field experiment on Facebook’s advertising, initiated in 2013 and still ongoing, highlighting its ongoing relevance and potential for further insights.

In 2022, over 53,000 Facebook users from both the ad-viewing and no-ad groups participated in a survey, which included an incentivised online choice experiment to gauge how much users value Facebook. The results indicated no significant statistical difference in valuation between the two groups, suggesting that the current level of advertising on Facebook does not substantially impair user experience to a degree that would make a no-ads environment significantly more appealing. The study suggests that any negative impact of ads on user satisfaction could be less than 10% of the value users place on Facebook.

The researchers proposed that the reason for this could be the neutralising effect of well-targeted ads, which might offset the annoyance caused by irrelevant ones. Alternatively, they considered that ads’ positive and negative impacts could be too minor to be statistically significant. Notably, users in the ad group spent 9.4% less time on Facebook than those in the no-ad group, although this did not influence their overall platform valuation.

The study acknowledges certain limitations, including focusing solely on Facebook and not considering other platforms. Additionally, the no-ads group was still exposed to some advertising. It’s also worth noting that more than half of the researchers involved in the study are affiliated with Meta, Facebook’s parent company.

Erik Brynjolfsson, a professor at Stanford’s Institute for Human-centered AI and co-leader of the study, pointed out that both in the United States and Europe, policymakers are considering regulations that would limit online platforms’ ability to display targeted ads. This study, with its valuable insights from the largest and longest-running experiment designed to assess the utility and disutility of ads, could have significant implications for these policy discussions.

More information: Erik Brynjolfsson et al, The Consumer Welfare Effects of Online Ads: Evidence from a 9-Year Experiment, NBER working paper. DOI: 10.1007/s00394-023-03123-x

Journal information: NBER working paper Provided by Carnegie Mellon University