Thursday, February 19, 2009

The Online Ad Industry Needs to Get Serious About Privacy

In a previous post I discussed dynamically generated display ads and how they represent the next wave of innovation in online advertising.

Unfortunately, this next round of innovation is potentially in jeopardy. A critical component of this evolving online ad model is a technique known as behavioral targeting (BT). BT involves making assumptions about a person’s interests based on things like the Web sites they visit, their profiles on social networking sites and the types of things they search and then serving them customized ads based on those assumptions.

FTC's 2007 Guidelines
While the data used by BT methods is anonymous, there is still quite a bit of controversy around the technique. Privacy groups criticize it as intrusive (if not creepy). And the Federal Trade Commission has been keeping an eye on BT since December 2007 when they issued voluntary guidelines to Web sites delivering targeted ads in an effort to protect consumer privacy.

Apparently, no one was listening. Last week the FTC issued a follow up report on the issue. The report reinforced the FTC’s commitment to industry self-regulation (i.e., voluntary compliance) but this time added tough words for the online ad industry which it claimed is not moving fast enough to address the privacy issues. They also commented that if the industry does not make substantive efforts to address these concerns regulations or even legislation might be required.

Concerns with Current Privacy Practices
Privacy groups and the FTC have a host of grievances with current targeted-ad practices:

  • They don’t clearly explain what information is being collected and how it is being used
  • The explanations are not easily accessible and are normally buried deep in lengthy privacy policies
  • They are not convinced that the data collected is completely anonymous
  • They are concerned that Web sites are combining personally identifiable data (addresses, birth dates, etc) with anonymous data captured through BT methods

What the FTC is Requesting
The FTC report laid out guiding principles for Web site privacy practices including provisions for:

  • Clear, accessible and plain language statements about the behavioral data they’re collecting and how it will be used
  • An easy way for consumers to opt-in or out
  • Security policies for collected data
  • The length of time data will be retained considering legitimate business needs

The report was not specific regarding the types of notice Web sites should provide to consumers. Some have proposed links on banners that lead to an explanation of the data collected, how it will be used and opt-in and opt-out features.

Regulation and Innovation – Rarely a Good Combination
eMarketer is projecting a 300% spending increase in targeted online advertising in the next three years – strong growth in a down economy. A lot of this growth will depend on investments Web sites make in new technologies to enable more sophisticated ad-targeting.

The last thing we need is for the government to dampen that growth by imposing a set of onerous regulations. The online ad industry has a clear choice: figure out a way to improve online consumer privacy notifications or the Federal government will figure it out for us.

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