DST19400 - Association with a Digital Services Activity

The second stage in the associated online advertising service provisions is to identify whether the group’s online advertising services are associated with a digital services activity.

This section explains when an online advertising service is an associated online advertising service, and consequently when its revenues should be included in the revenues of the digital services activity(ies) it is associated with.

An associated online advertising service is an online advertising service which derives a significant benefit from its association with the social media service, search engine or online marketplace.

There are consequently two elements:

  • The online service must be associated with a social media service, search engine or online marketplace
  • The online service must derive a significant benefit from that association

Association

The legislation does not define ‘associated with’ so this takes its ordinary meaning.

An online service will be associated with a digital services activity when there is a relationship or connection between them. This is intended to be a broad concept which will be met whenever there is a link between the two services. It does not matter how strong that link is or in what way the two services are connected.

Example A

ABC group operates an online marketplace. It also has an ad server which places adverts on the marketplace and on third party websites. The ad server and the online marketplace are associated.

Significant benefit

The significant benefit test is designed to filter out cases where the online advertising service does not receive a significant benefit or advantage from being associated with a digital services activity. This is because these provisions are only intended to apply when the digital services activity makes a material contribution to the wider [online advertising] revenues of the group, such that these revenues can be seen to be derived from or attributable (at least in part) to the digital services activity.

It is a qualitative test which considers whether the online advertising service receives significant benefits from its relationship with the underlying digital services activity. There is no requirement to quantitatively measure the benefits received.

Significant is not intended to be a high threshold. It is only intended to exclude cases where there is no benefit or a negligible benefit from the underlying digital service. Where there is a discernible benefit and it is probable that this enhances the online advertising service, then the test is likely to be met.

There are a number of ways in which an online advertising service can benefit from an underlying digital services activity. These include:

  • Some digital services activities have a large volume of advertising inventory and may have strong leverage in particular types of advertising inventory (e.g. in-stream video). This can help to achieve economies of scale for online advertising services. In some cases the online advertising service may have exclusive access to that digital service’s inventory.
  • Some digital services attracts large numbers of users from particularly valuable user demographics, which can enable the online advertising service to command a premium for targeting adverts at those users.
  • Advertising services which are effectively integrated with publishing platforms and other parts of the online advertising value chain are often valued highly by advertisers.
  • The digital services activity will often have developed advertising technologies (e.g. analytics capabilities) which can create important synergies with wider online advertising services
  • The provider of the digital services activity will have often developed strong and established relationships with important advertisers. These advertisers are more likely to buy online advertising from a related online advertising service provider.
  • The digital services activity will often have extensive data about the users of its services. This enables online advertising services to target advertisements effectively, thus increasing ad effectiveness.
  • This data can also enable the online advertising service to track and monitor ad performance in granular detail, which is a significant benefit for advertisers.

This list is not intended to be exhaustive.