National Rules for a Global Ad Market

by on July 10, 2008 · 6 comments

The Wall Street Journal today reported that U.S. online publishers are seeing increased traffic from overseas while seeing little revenue from these foreign visitors. This represents both an uncompensated cost—in the form of server space and bandwidth—and an untapped source of revenue. So untapped, in fact, that foreign visitors account for only 5% of revenues for most major sites while constituting as much as half of their traffic.

Many publishers are attempting to tackle the problem by using geographic information related to visitors’ IP addresses—the basic identifiers that allow computers to communicate over the Internet. (You can see what information can be gleened from your IP by visiting sites like Proxify, that display the information that is publicly available regarding your IP address.)

While this seems like a convenient way for advertisers to turn foreign traffic into a new source of income, lawmakers may interfere with this process, denying web publishers the revenues needed to continue the growth of their businesses. Efforts to limit what information web publishers and advertisers can use in order to serve up content and ads to readers are underway both in the U.S. and in the E.U. In fact, Europe is split over whether to consider IP addresses “personally identifiably information” and grant them legal protections as a result.

My colleague Wayne Crews recently testified before the Senate Committee on Commerce regarding this side of the pond’s approach to privacy regulation. In his testimony, Crews was quick to point out that regulation would not only cut off revenue streams, but also stem the development of future technologies which may use information in ways we’ve never considered. Those developments are surely to be in advertising, but will also undoubtedly be in other areas of communication—perhaps some will be as revolutionary as the web itself.

We also have to consider the “little guys” of the web. According to Google’s Q1 2008 conference call (transcript can be seen here) the search company passed along over $4 billion to its AdSense publishers network in 2007. So, restrictive privacy regulations won’t just harm big companies like Google, Microsoft, CBS, or NewsCorp; the small websites and blogs supported by larger ad networks will also be affected by laws or regulations that would prevent advertisers from getting the right ads to the right people.

The biggest issue at hand, however, is the notion of consumer choice.  Currently, search site users can choose from a huge variety of search engines and other services, each offering different privacy guarantees to visitors. Increasingly engines other than Google—like those run by Microsoft and Yahoo!—are differentiating themselves from the Mountain-View-based giant through their privacy policies, providing consumers with additional choices. And people ought to be able to choose if they want to offer up some of their personal data in return for more customized services, or tolerate a less accurate search in order to preserve their privacy.

Certainly this choice is better than the solution Congress is offering: no choice at all.

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