Will digital identification give telcos a new opportunity to compete in the digital advertising market?
Major operators identify opportunity for ad revenue growth
The European Commission broke the news this week that four of Europe’s biggest communications service providers (CSP) are planning to create a joint venture (JV) that aims to build a technology platform for digital advertising.
According to an official filing by the executive body of the European Union, Deutsche Telekom, Orange, Telefónica and Vodafone, intend to “offer a privacy-led, digital identification solution to support the digital marketing and advertising activities of brands and publishers.”
Such a venture, which has yet to be approved, would enable the CSPs to enter the lucrative online advertising market that is currently dominated by the likes of Google and Apple. A number of reports quickly latched onto the fact that the required technology has been under development for some time under the name of TrustPid, a cross-operator infrastructure for digital advertising and digital marketing.
Vodafone has been trialling TrustPid in Germany together with Deutsche Telekom and others. The platform manages pseudo-anonymous tokens that are designed to allows advertisers and publishers to provide a person with a personalised experience on their websites, apps and services, if they have given explicit consent. The idea is to maintain full data privacy and put control in the hands of users.
New opportunity for CSPs
If the planned JV is approved, it raises a number of questions about how CSPs would be able to make use of a digital identification solution to secure advertising revenue and differentiate themselves from the hyperscalers when partnering with brands, particularly if and when the much-discussed metaverse takes shape.
Martin Scott, principal analyst at Analysys Mason, said CSPs “see a new opportunity here, at the intersection of digital identity management and advertising.”
“They have easy access to large pools of first-party data and are therefore in a strong position. This ties well into many operators’ aspirations to become the curators of wider digital, and even real world, subscription experiences. They also have relevant experience and established consumer relationships to extend this approach to metaverse contexts, positioning themselves as curators of experiences in the metaverse,” Scott said.
He also observed that the value of first-party data such as user data is increasing, mainly due to pro-privacy changes by Apple and Google.
“Operators will benefit but investment costs will rise due to the need for new privacy-centric adtech tools. To overcome that you need scale and you need experience in identity management,” he said. The proposed JV would enable the partners to pool investments, user data and technical capabilities and gain exposure to digital advertising while also sharing the risk and capex.
Kester Mann, principal analyst at CCS Insight, also points to the fact that the four CSPs are looking to create a “secure, trusted and transparent solution” at a time when major platforms such as Google and Meta are coming under increasing scrutiny.
“A fresh and open approach could resonate with the growing number of customers who are becoming increasingly wary about what happens to their personal data and how it is extracted. Taking a user-friendly approach – for example by enabling control through an online portal to manage consent – could allay some of these concerns. This could help overcome one of the biggest potential hurdles – getting customers to opt-in to personalised ad targeting in the first place,” Mann said.
Scott noted that Google and others “are really quite worried about the changes that are afoot with ad revenue models – about the potential change in the way people choose to search as demonstrated by the potential of LLMs such as ChatGPT and what that means for advertising – chat doesn’t lend itself well to in-line ads in the way that ranked page results do. Meta’s recent fine and tighter regulatory regimes around privacy are really opening up opportunities for operators as the keeper of so much relevant data.”
Mann nevertheless warned that operator alliances “have a chequered past” and the JV still needs regulatory sign-off before it can get off the ground. “Digital advertising is going through a turbulent period and operators will hope to seize a fresh opportunity amid growing economic headwinds,” he added.
The European Commission has set a provisional deadline of 10 February 2023, although a quick decision on such a weighty matter seems unlikely.
It’s not entirely clear what position the Commission might take, but it is possible that regulators could side with CSPs given concerns about the market dominance of companies such as Alphabet and Meta. Indeed, EU officials are already cracking down on US tech giants with legislation such as the Digital Markets Act, which seeks to prevent them from dominating digital markets, and the Digital Services Act, which has created new obligations for online platforms to reduce harms and counter risks online.