Targeted Online Advertising: What’s the Harm & Where Are We Heading?

by on February 13, 2009 · 25 comments

This sculpture, one of a pair found outside of the Federal Trade Commission Building, is entitled "Man Controlling Trade" and was completed for the FTC Building in 1942 by New York sculptor Michael Lantz.

Statue at FTC Headquarters: “Man Controlling Trade” (We’re rooting for the horse!)

Adam Thierer and I have just released a new PFF paper entitled “Targeted Online Advertising: What’s the Harm & Where Are We Heading?” (PDF) about the FTC’s new “Self-Regulatory Principles for Online Behavioral Advertising.”  Adam lampooned some of the attitudes at play in this debate in a great rant yesterday.

But we give the FTC credit for resisting calls to abandon self-regulation, and for its thoughtful consideration of the danger in stifling advertising-the economic engine that has supported a flowering of creative expression and innovation online content and services.  That said, we continue to have our doubts about the FTC’s approach, however-well intentioned:

  1. Where is this approach heading?  Will a good faith effort to suggest best practices eventually morph into outright government regulation of the online advertising marketplace?
  2. What, concretely, is the harm we’re trying to address?  We have asked this question several times before and have yet to see a compelling answer.
  3. What will creeping “co-regulation” mean for the future of “free” Internet services?  Is the mother’s milk of the Internet-advertising-about to be choked off by onerous privacy mandates?

We stand at an important crossroads in the debate over the online marketplace and the future of a “free and open” Internet. Many of those who celebrate that goal focus on concepts like “net neutrality” at the distribution layer, but what really keeps the Internet so “free and open” is the economic engine of online advertising at the applications and content layers. If misguided government regulation chokes off the Internet’s growth or evolution, we would be killing the goose that laid the golden eggs.

The dangers of regulation to the health of the Internet are real, but the ease with which government could disrupt the economic motor of the Internet (advertising) is not widely understood-and therein lies the true danger in this debate.  The advocates of regulation pay lip service to the importance of advertising in funding online content and services but don’t seem to understand that this quid pro quo is a fragile one: Tipping the balance, even slightly, could have major consequences for continued online creativity and innovation.

As we conclude:  Self-regulatory efforts can be refined, especially through technological innovation to better satisfy the concerns of policymakers, privacy advocates, and average consumers.  For example, if websites and ad networks participating in a self-regulatory framework supplemented their current “natural language” privacy policies with equivalent “machine-readable” code, that data could be “read” by browser tools that would implement pre-specified user preferences by blocking the collection of information depending on whether the privacy policies of certain websites or ad networks met the user’s preferences about data-use. Such robust and granular disclosure, if implemented for behavioral advertising, would exceed the wildest dreams of those who argue that users currently do not read privacy policies-without disrupting the browsing experience or cluttering websites.  But this system would only work if users had to make real choices about paying for”‘free” content and services by disclosing their personal information.

Truly privacy sensitive users should be free to opt out of whatever tracking they find objectionable-but not without a cost:  The less data they agree to share, the less content and services they can fairly expect to receive for free.  Concretely, this means that they might not be able to access certain sites, content, or functionality without watching extra (untargeted ads), or paying for that content or service (assuming such a micropayment model can be worked out).  Of course, there will always be ways to “cheat” in such a system, but Commissioner Harbour is exactly right on one point:  Each content creator and service provider must be “free to strike whatever balance it deems appropriate.” This freedom is vital to the Internet’s future because the easier we make it for some users to get “something for nothing,” the smaller will be the economic base for the content and services everyone else takes for granted.  Again, there is no free lunch.

You can download our paper in PDF form on the PFF website or view it below in Scribd.  (Click the rectangle-in-rectangle button at the top right to maximize the iPaper viewer.)

  • http://www.openmarket.org/author/alex-harris/ AlexHarris

    At least it's the FTC, not the FCC, that has taken over the behavioral ad question. Can you imagine how much worse it would be?

  • http://www.democraticmedia.org Jeff Chester

    It's absurd to suggest that ensuring privacy online threatens the economic well-being of the Internet. The Internet should not be immune to consumer protection policies (including such critical areas as when seeking a mortgage, getting a loan or researching a medical condition or treatment). As one investigates the technologies and business models at the core of the threat to online privacy, it's clear that the ever-growing digital profiling, tracking, and targeting across sites and platforms threaten privacy and also consumer welfare. Individual liberty, in my opinion, is also at stake when someone is using the power of online marketing to influence your opinions and actions in a non-transparent way. The FTC has made advances in its capacity to research and analyze the issue, hence its new principles. I urge the authors to spend more time doing first-hand research, so they can more knowledgeably participate in the debate.

  • http://techliberation.com/author/berinszoka/ Berin Szoka

    Thanks, Jeff, for your comments. I really appreciate your engaging us in a dialogue about this. My responses to your comment follow below:

    It's absurd to suggest that ensuring privacy online threatens the economic well-being of the Internet.

    So you dismiss out of hand as “absurd” the concerns of essentially everyone (besides yourself and the other self-appointed “privacy advocates”) who commented last year on the FTC's initial proposed Principles? Even the FTC recognized, in issuing the final principles, the need to “balance the potential benefits of behavioral advertising against the privacy concerns.” So if there's an “absurd” position outside the mainstream of the debate here, it's the one that denies that there's any trade-off at all between restricting targeted advertising (and the data collection that drives it) and the amount of ad revenue available to fund the Internet's future.

    What, exactly, do you mean by “ensuring privacy online,” anyway? Mandating opt-in “before any data are collected” as you suggested in your FTC comments last year?

    Tell us, what effect do you think that requirement would have on the “economic well-being of the Internet,” as you put it? More to the point, what do you think would be the effect of such a draconian requirement on consumers of advertising-supported online content and services? Do you think these offerings will just continue to fall like manna from heaven? If you do recognize that there's a trade-off here, do you see some alternative that could make up for the reduced growth (or even actual reductions) in ad revenues?

    The Internet should not be immune to consumer protection policies (including such critical areas as when seeking a mortgage, getting a loan or researching a medical condition or treatment).

    The Internet is already subject to the same basic consumer protection law that governs the rest of the economy—the one against unfair and deceptive trade practices enforced by the FTC. As Adam and I have made clear, we view FTC enforcement of corporate private policies (and other terms of use) as the ultimate layer in the layered approach we have called for. But if you want to go farther than that, the burden rests on you to explain why we need to do so. Specifically, you need to tell us what the harm is.

    As one investigates the technologies and business models at the core of the threat to online privacy, it's clear that the ever-growing digital profiling, tracking, and targeting across sites and platforms threaten privacy and also consumer welfare.

    If this is so “clear” to you, please, enlighten us. How, exactly, are consumers harmed by profiling, tracking or targeting? And what does a threat to “privacy” really mean?

    Individual liberty, in my opinion, is also at stake when someone is using the power of online marketing to influence your opinions and actions in a non-transparent way.

    Really? How so? How is my liberty comprised by being shown ads geared towards my interests? Am I unfree because someone might actually try to—horror of horrors!—change my mind about something?

    You seem to be suggesting suggesting that advertising produces “false consciousness,” such that the user's thoughts are not really their own if influenced by advertising, or if that advertising was specifically targeted to them. If that's really what you're saying, why don't you just come out and admit that you share Marx's conviction in the inherent manipulativeness of advertising? If that's not what you're saying, please enlighten us as to your theory of how targeted advertising actually threatens individual liberty.

    The FTC has made advances in its capacity to research and analyze the issue, hence its new principles. I urge the authors to spend more time doing first-hand research, so they can more knowledgeably participate in the debate.

    Are you always this condescending to those who don't share your opinions?

    Now, speaking of “first-hand research,” what have you done to show the real harm created by targeted advertising? We're actually trying to suggest real solutions that empower users, while you rant about conjectural harm.

    So, again, what's the harm, Jeff? Where's your evidence? If you're going to point to polling data to support an argument based on consumer expectations, I'd really love to hear how you overcome the objections raised by Solveig Singleton and Jim Harper in their outstanding study, “With <span class=”searchword”>A</span> <span class=”searchword”>Grain</span> <span class=”searchword”>of</span> Salt: What Consumer Privacy Surveys Don't Tell Us.” As I've noted before, “Seeing what users actually do in real life says a lot more about their preferences than merely polling them about what they think they care about in the abstract.” The reality is that most people just don't seem as bothered by targeted advertising as you think they should be. Another case of “false consciousness,” perhaps?

  • http://techliberation.com/author/berinszoka/ Berin Szoka

    Thanks, Jeff, for your comments. I really appreciate your engaging us in a dialogue about this. My responses to your comment follow below:

    It's absurd to suggest that ensuring privacy online threatens the economic well-being of the Internet.

    So you dismiss out of hand as “absurd” the concerns of essentially everyone (besides yourself and the other self-appointed “privacy advocates”) who commented last year on the FTC's initial proposed Principles? Even the FTC recognized, in issuing the final principles, the need to “balance the potential benefits of behavioral advertising against the privacy concerns.” So if there's an “absurd” position outside the mainstream of the debate here, it's the one that denies that there's any trade-off at all between restricting targeted advertising (and the data collection that drives it) and the amount of ad revenue available to fund the Internet's future.

    What, exactly, do you mean by “ensuring privacy online,” anyway? Mandating opt-in “before any data are collected” as you suggested in your FTC comments last year?

    Tell us, what effect do you think that requirement would have on the “economic well-being of the Internet,” as you put it? More to the point, what do you think would be the effect of such a draconian requirement on consumers of advertising-supported online content and services? Do you think these offerings will just continue to fall like manna from heaven? If you do recognize that there's a trade-off here, do you see some alternative that could make up for the reduced growth (or even actual reductions) in ad revenues?

    The Internet should not be immune to consumer protection policies (including such critical areas as when seeking a mortgage, getting a loan or researching a medical condition or treatment).

    The Internet is already subject to the same basic consumer protection law that governs the rest of the economy—the one against unfair and deceptive trade practices enforced by the FTC. As Adam and I have made clear, we view FTC enforcement of corporate private policies (and other terms of use) as the ultimate layer in the layered approach we have called for. But if you want to go farther than that, the burden rests on you to explain why we need to do so. Specifically, you need to tell us what the harm is.

    As one investigates the technologies and business models at the core of the threat to online privacy, it's clear that the ever-growing digital profiling, tracking, and targeting across sites and platforms threaten privacy and also consumer welfare.

    If this is so “clear” to you, please, enlighten us. How, exactly, are consumers harmed by profiling, tracking or targeting? And what does a threat to “privacy” really mean?

    Individual liberty, in my opinion, is also at stake when someone is using the power of online marketing to influence your opinions and actions in a non-transparent way.

    Really? How so? How is my liberty comprised by being shown ads geared towards my interests? Am I unfree because someone might actually try to—horror of horrors!—change my mind about something?

    You seem to be suggesting suggesting that advertising produces “false consciousness,” such that the user's thoughts are not really their own if influenced by advertising, or if that advertising was specifically targeted to them. If that's really what you're saying, why don't you just come out and admit that you share Marx's conviction in the inherent manipulativeness of advertising? If that's not what you're saying, please enlighten us as to your theory of how targeted advertising actually threatens individual liberty.

    The FTC has made advances in its capacity to research and analyze the issue, hence its new principles. I urge the authors to spend more time doing first-hand research, so they can more knowledgeably participate in the debate.

    Are you always this condescending to those who don't share your opinions?

    Now, speaking of “first-hand research,” what have you done to show the real harm created by targeted advertising? We're actually trying to suggest real solutions that empower users, while you rant about conjectural harm.

    So, again: What's the harm, Jeff? Where's your evidence? If you're going to point to polling data to support an argument based on consumer expectations, I'd really love to hear how you overcome the objections raised by Solveig Singleton and Jim Harper in their outstanding study, “With A Grain of Salt: What Consumer Privacy Surveys Don't Tell Us.” As I've noted before, “Seeing what users actually do in real life says a lot more about their preferences than merely polling them about what they think they care about in the abstract.” The reality is that most people just don't seem as bothered by targeted advertising as you think they should be. Another case of “false consciousness,” perhaps?

  • Anonymous
  • http://www.democraticmedia.org Jeff Chester

    Our views have been formed by a analysis of the data collection and targeting strategies deployed online (and its relationship to content construction and user behavior). This includes a review of the online ad research apparatus, including its goals.

    You should examine more closely the CDD/USPIRG complaints to the FTC [starting with the initial 2006 filing]. You should also read the chapter from my 2007 book which examines online advertising. And our reports available at digitalads.org (which provide both an overview and an update on techniques and trends for one specific targeting category). I also respectfully urge you to review–if you haven't recently– the professional, scholarly and trade literature on online marketing, including data collection. There's a huge literature here, which should be followed closely if we are to have a serious debate.

    I also urge you to examine first the entire range of data collection/profiling and targeting cross-platform strategies of your funders, and then report back via this blog the results. Progress and Freedom Foundation is funded by many of the leading online marketers who are affected by this policy debate. Such potential conflicts of interest should be acknowledged.

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