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.)

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