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Of the world’s 100 most popular websites, 56 rely on advertising to support free content and services. Such offerings – from search engines to webmail to newspapers – are funded by selling advertising space for ads tailored to reflect what a site’s visitors are likely to be interested in. The Economic Note entitled Protecting Personal Data: The Economic Impact of Regulating the Internet, was prepared by David Descôteaux, Senior Fellow at the MEI, and by Berin Szoka, President of TechFreedom, a technology policy think tank. 

“If more stringent regulations are applied on the protection of Internet users’ personal information without regard for the impact on the industry, this could jeopardize a very efficient business model,” say David Descôteaux and Berin Szoka, the authors of a publication from the Montreal Economic Institute (MEI).

“We must make sure to maintain a balance between the legitimate need to protect consumers’ privacy on the Internet and upholding a climate conducive to innovation and investment in this sector of the economy. Unfortunately, the public debate about privacy usually gets put in black and white terms to justify a rush to regulation,” explains Mr. Descôteaux, who notes that a House of Commons committee pointed out these risks and urged the Privacy Commissioner of Canada to establish guidelines for business rather than adding to regulations.

Europe’s more stringent regulations have restricted advertisers’ ability to gather data and tailor advertising to consumers’ likely interests. This has made ads less useful and more invasive, reduced the effectiveness of online advertising by 65%, and caused venture capital investment in online advertising firms to decline.

“The greatest concerns over privacy aren’t really about online advertising,” argues Mr. Szoka, “but about two completely different threats: unrestrained government access and the theft of personal information. Identity theft costs at least $500 million a year in Canada and undermines confidence between businesses and their customers. That requires better data security.” He adds that business people have not waited for a law to react to customers’ concerns. “For those concerned about online advertising, there are a wide variety of tools for protecting personal data and software to block cookies and to ensure private browsing. A growing number of companies have made it easy for Internet users to see how their personal data is used for advertising and to opt out if they wish so.”

The Montreal Economic Institute is an independent, non-partisan, not-for-profit research and educational organization. Through its publications and conferences, the MEI stimulates debate on public policies in Quebec and across Canada by proposing wealth-creating reforms based on market mechanisms.