Ban Targeted Advertising? An Empirical Investigation of the Consequences for App Development

Abstract

On many multisided 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. This setting represents an ideal real-world laboratory and permits a quasi-experimental research design. 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. This paper was accepted by Hemant Bhargava, information systems. Supplemental Material: The data files and online appendices are available at https://doi.org/10.1287/mnsc.2023.4726 .