MSMEs warn of ad targeting risks amid evolving data regulations: Study

New Delhi: India SME Forum (ISF) recently surveyed to assess the role of digital tools in the operations of MSMEs.

Commissioned by ISF and conducted by IPSOS, the study examined the challenges faced by digitally aware MSMEs and assessed how the regulations could create constraints for MSMEs, depriving them of digital tools necessary for scaling their businesses, reaching new markets, and sustaining competitiveness.

Recent legislative and regulatory developments impacting data collection and processing in India include the release of:

(i) The draft Digital Personal Data Protection Rules, 2024 (DPDP Rules), which is the overarching framework for regulating data collection and processing in India

(ii) The Draft Digital Competition Bill, 2024 (DCB), which restricts the intermixing of data across different core digital services of systemically significant digital intermediaries without user consent

(iii) And the recent order of the Competition Commission of India (CCI) in the space of data protection

MSMEs fear that overly restrictive policies may limit their ability to leverage digital tools for marketing, customer engagement, and business growth. 

The survey, conducted among around 1,010 MSMEs, provides insights into the deep integration of digital tools within MSME operations.

MSMEs rely on digital technologies to overcome challenges in customer acquisition, brand building, and operational efficiency, particularly as they lack the resources for large-scale marketing strategies.

Many MSME members have expressed to ISF that the current overall regulatory framework for personal data and non-personal data is overly restrictive, creating compliance burdens that hinder their ability to market effectively, engage with customers, and grow their businesses.

Digital tools serve as a cost-effective and scalable means to compete with larger enterprises and establish their brands. 

Key findings include:

• 71% of MSMEs advertising on Google Search, 70% on YouTube, and 69% on Amazon say losing ad targeting would be a major problem.

• 73% of Facebook advertisers and 70% of Instagram advertisers say losing WhatsApp data for ad targeting would negatively impact their business.

• 72% of Meta Verified for Business users say restrictions on data-sharing that weaken security and anti-spam protections would make business messaging less effective.

• 60% of MSMEs rely on WhatsApp for Business for direct sales, marketing, and customer interaction, and 76% say losing these features would be a serious operational setback.

• MSMEs use an average of seven different categories of digital tools and over five communication channels to engage with customers, suppliers, and partners.

• 67% of MSMEs struggle to retain customers, while 65% face difficulties in attracting new ones. Digital platforms have become a critical solution for addressing these challenges.

• 94% of MSMEs that invest in digital advertising consider it essential for acquiring and retaining customers. Facebook (49%), YouTube (47%), and Google Search (43%) are among the most widely used platforms.

• 60% of MSMEs use WhatsApp for Business for customer engagement, product promotions, and direct sales. The platform enables real-time interaction, product catalog sharing, and order management. 76% of users stated that losing access to key features would significantly affect their operations.

MSMEs have leveraged digital tools to transition from small producers to emerging brands, but restrictions under DPDPA, DCB and the new CCI order could create barriers to further expansion.

MSMEs that rely on targeted advertising and customer insights risk losing their competitive edge, as limitations on data-sharing may disrupt digital marketing strategies.

• 78% of high-adoption MSMEs expect revenue growth in 2025, compared to 70% of lower adopters.

• 81% of MSMEs using an above-average number of digital tools rate the economy as good or excellent, compared to 70% of those using fewer tools.

• 95% of high-adoption MSMEs expect business growth in the next two years compared to 86% of those with below-average adoption.

• 75% of advertising on Facebook and 72% of advertising on Instagram said that restrictions on cross-platform data for advertising purposes would be a problem for their business.

• 77% of MSMEs say receiving less data and fewer insights would hurt their ability to market effectively. 

Key recommendations in the report:

• Reduce compliance burdens on small businesses that rely on third-party advertising and data analytics 

• Ensure the protection and availability of targeted marketing solutions available for MSMEs in India. 

• Adopt a flexible approach for MSMEs to facilitate responsible data use without excessive regulatory overhead.

• The India SME Forum urges policymakers to take a balanced approach to regulation—one that safeguards consumer data privacy while ensuring that MSMEs continue to benefit from digital innovations essential for business growth and economic expansion.

Read the full report:

 https://1stindia.org/report-digitally-empowered-msmes-drive-indias-economic-growth.php