Today the Mercatus Center has released a short new paper I have authored on “Unappreciated Benefits of Advertising and Commercial Speech.” I begin the piece by noting that:
Federal policy makers, state legislators, and state attorneys general have recently shown interest in regulating commercial advertising and marketing. Several new regulatory initiatives are being proposed, or are already underway, that could severely curtail or restrict advertising or marketing on a variety of platforms. The consequences of these stepped-up regulatory efforts will be profound and will hurt consumer welfare both directly and indirectly.
I go on to note that “advertising can be an easy target for politicians or regulatory activist groups who make a variety of (typically unsubstantiated) claims about its negative impact on society,” but then continue on to explain how “the role of commercial speech in a free-market economy is often misunderstood or taken for granted.” I outline how, despite regulators’ concerns, consumers actually derive three important types of benefits from advertising and marketing: (1) Informational / Educational Benefits; (2) Market Choice / Pro-Competitive Benefits; and (3) Media Promotion / Cross-Subsidization. After discussing each benefit, I conclude that:
For these reasons, a stepped-up regulatory crusade against advertising and marketing will hurt consumer welfare since it will raise prices, restrict choice, and diminish marketplace competition and innovation—both in ad-supported content and service markets, and throughout the economy at large. Simply stated, there is no free lunch.
Read the entire 1,800-word essay here. I have also embedded the document down below in a Scribd reader.
Continue reading →
[Here’s an oped of mine that recently ran on Reuters. Readers will recognize many of these themes and arguments since I have developed them here on the TLF many times before.]
by Adam Thierer, Mercatus Center at George Mason University
Would you like to pay $20 a month for Facebook, or a dime every time you did a search on Google or Bing? That’s potentially what is at stake if the Obama administration and advocates of stepped-up regulation of online advertising get their way.
The Internet feels like the ultimate free lunch. Once we pay for basic access, a cornucopia of seemingly free services and content is at our fingertips. But those services don’t just fall to Earth like manna from heaven. What powers the “free” Internet are data collection and advertising. In essence, the relationship between consumers and online content and service providers isn’t governed by any formal contract, but rather by an unwritten
quid pro quo: tolerate some ads or we’ll be forced to charge you for service. Most consumers gladly take that deal—even if many of them gripe about annoying or intrusive ads, at times. Continue reading →
This is a response to Nick Carr’s recent piece, “The Attack on Do Not Track,” in which he goes after me for some comments I made in this essay about the trade-offs at work in the privacy and online advertising debates. In his critique of my essay, he argues:
What the FTC is suggesting is that the unwritten quid pro quo be written, and that the general agreement be made specific. Does Thierer really believe that invisible tradeoffs are somehow better than visible ones? Shouldn’t people know the cost of “free” services, and then be allowed to make decisions based on their own cost-benefit analysis? Isn’t that the essence of the free market that Thierer so eloquently celebrates?
My response to Nick follows. Continue reading →
This morning, the Federal Trade Commission (FTC) released its eagerly-awaited Preliminary FTC Staff Report on Protecting Consumer Privacy in an Era of Rapid Change: A Proposed Framework for Businesses and Policymakers. As expected, the agency has generally endorsed an expanded regulatory regime to govern online data collection and advertising efforts in the name of protecting consumer privacy. More specifically, the agency endorsed a so-called “Do Not Track” mechanism that would supposedly help consumers block unwanted data collection or advertising. Here’s how the agency describes it:
Such a universal mechanism could be accomplished by legislation or potentially through robust, enforceable self-regulation. The most practical method of providing uniform choice for online behavioral advertising would likely involve placing a setting similar to a persistent cookie on a consumer’s browser and conveying that setting to sites that the browser visits, to signal whether or not the consumer wants to be tracked or receive targeted advertisements. To be effective, there must be an enforceable requirement that sites honor those choices. (p. 66)
I’m sure we’ll have plenty more to say here about the issue in coming weeks and months (comments on the FTC report are due by Jan. 31), but we’ve already commented on this proposal here before. See 1, 2, 3. To briefly summarize a few of those concerns: Continue reading →
One of the old saws we hear from those who wish to impose more stringent regulations on advertising or product placement is that “it’s for the children.” That is, critics such at the Campaign for a Commercial-Free Childhood and other organzations fear that, because children’s brains are less developed or they have not yet learned to differentiate commercial appeals from other types of information flows, kids may be more susceptible to persuasive commercial messaging. I think there’s some truth to that, but I also believe that (a) kids aren’t quite the sheep we make them out to be, (b) the potential “harm” here is not as great as the critics make it out to be and (c) parental supervision should be the primary the solution to the problem.
But let’s ask a different question entirely: Are we willing to forgo additional, and potentially more diverse, forms of children’s programming simply because we want to keep commercial messaging or product placement away from kids? Consider the case study of The Hub, recently featured in
The New York Times:
With imports of European cartoons, a smattering of Hasbro ads and a rerun of the movie “Garfield,” Hasbro and Discovery Communications unveiled a new television brand for children on Sunday, called The Hub. Over time, the two companies hope to prove that there is room for a fourth player alongside Nickelodeon, the Disney Channel and the Cartoon Network, the three heavyweights of children’s TV, said David M. Zaslav, the chief executive of Discovery Communications. […]
Continue reading →
(Second in a series.)
The Register quotes security guru Bruce Schneier saying: “Facebook is the worst [privacy] offender – not because it’s evil but because its market is selling user data to its commercial partners.”
Facebook’s business model is to guide advertisements on its site toward users based on their interests as revealed by data about them. It is not to sell data about users. Selling data about users would undercut its advertising business.
It’s easy to misspeak in extemporaneous comments, and
The Register is not your most careful media outlet. But we’ve almost got enough data points to show a consistent practice of misrepresentation on Bruce Schneier’s part. Perhaps that should be actionable as an unfair or deceptive practice under section five of the FTC Act.
I’m in front of a non-TiVo-enabled television this evening, which has permitted me to see ads for a search site called YP.com. It’s a rebranded YellowPages.com, affiliated with AT&T, and it’s organized to be a search engine for the things in your life—dining, travel nightlife—distinguished from Google’s utilitarian-tech web search. Meanwhile Microsoft’s Bing has overtaken Yahoo! as the number two search engine. I was surprised to learn that “undisputed search king” Google has only 65 percent of the search market. Google is doing well, of course, but it can’t be comfortable with all these well-funded rivals circling it.
This is good news for consumers. These competitors are driving Google to improve, and they can pull consumers away from Google by serving search niches such as lifestyle search (as YP does), more privacy protective search, and so on. Competitors will threaten and cut into Google’s advertising profits, too.
Television ads also remind us that HughesNet is offering broadband Internet via satellite. It’s mostly aimed at moving rural Internet users off of dial-up, but it’s an outlet for consumers anywhere who are unsatisfied with cable or DSL service. Critics will point out that it’s not very fast, kind of expensive, and includes daily usage caps. But this doesn’t deny HughesNet’s role as competition for cable and DSL.
Internet service provided badly enough by the major ISPs would make satellite broadband a viable competitor. If HughesNet’s investors were confident that they could sign up enough customers, they would make the investments that bring satellite broadband to the economy of scale it needs to be price-, speed-, and usage-competitive.
The spur of competition does not have to pierce the horse’s belly to have its effect.
Emotions ran high at this week’s Privacy Identity and Innovation conference in Seattle. They usually do when the topic of privacy and technology is raised, and to me that was the real take-away from the event.
As expected, the organizers did an excellent job providing attendees with provocative panels, presentations and keynotes talks—in particular an excellent presentation from my former UC Berkeley colleague Marc Davis, who has just joined Microsoft.
Continue reading →
Recent revelations about Microsoft’s internal debate over Internet Explorer’s handling of tracking cookies, as chronicled by The Wall Street Journal earlier this month, have prompted harsh criticism from self-described privacy groups, who’ve called on Congress to investigate Microsoft’s actions. But as Jim Harper pointed out in an excellent WSJ essay, Web users stand to lose a great deal if online tracking is squelched by the hand of government. Data gathering on the Internet is largely harmless, and individually targeted advertising coexists with robust privacy safeguards.
Over on AOLNews.com, my colleague Carolyn Homer discusses these privacy tradeoffs, arguing that Microsoft and other Internet firms have a strong incentive to set privacy defaults that align with their users’ preferences. She points out that most consumers are, in practice, quite willing to live with allegedly “pervasive” tracking in exchange for the enormous benefits that targeted advertising makes possible. While many surveys and polls indicate consumers are very worried about their privacy, the actual decisions that consumers make every day tell a very different story (as documented extensively by Berin Szoka). From Carolyn’s piece:
A body of research reveals a sizable disparity between how much people say they value privacy and how willing they are to actually protect it. In a 2003 Duke Law Journal article, Michael Staten and Fred Cate found that fewer than 10 percent of users exercise their right to opt out and share less. Conversely, if given the opposite choice, fewer than 10 percent of users elect to opt in and share more. The vast middle is apparently indifferent.
If consumers were required to affirmatively opt in before sharing data, the Internet’s prevailing advertising-based business model would be decimated. The effectiveness of online advertising in Europe, for example, fell 65 percent after the European Union in 2002 required a blanket opt-in system. For more than a decade, the Internet has thrived on the assumption that most people believe it is a fair trade to receive free content in exchange for viewing ads. Mere advertisements shouldn’t be equated with gross privacy violations.
She goes on to discuss how privacy settings are evolving as consumer preferences adapt to new technologies and firms experiment with new ways to use and collect data. You can read the rest over at the AOL News website.
Wall Street Journal columnist Holman Jenkins has a terrific, wide-ranging interview with Google CEO Eric Schmidt in today’s paper that is well worth reading. One thing worth highlighting is Schmidt’s comments on the “economic disaster that is the American newspaper.” He argues that, “The only way the problem [of insufficient revenue for news gathering] is going to be solved is by increasing monetization, and the only way I know of to increase monetization is through targeted ads.”
Absolutely correct. It’s a point that Berin Szoka, Ken Ferree and I tried to make in PFF’s mega-filing in the FCC’s “Future of Media” proceeding in early May, and Berin and I stressed it in even more detail in our piece on”Chairman Leibowitz’s Disconnect on Privacy Regulation & the Future of News.” The key takeaway: If Washington goes to war against advertising — and targeted advertising in particular — then there will be no future for private news. As we stated there:
The reason for the indispensability of advertising is simple: Information (including news and other forms of “content”) has “public good” characteristics that make it is very difficult (and occasionally impossible) for information-publishers to recoup their investments. Simply put, they quite literally lack pricing power: Whatever they charge, someone else will charge less for a close substitute, inevitably leading to “free” distribution of the content, even though the content is anything but free to produce. Advertising is the one business model that has traditionally saved the day by rewarding publishers for attracting the attention of an audience.
Thus an attack on advertising is an attack on media / news itself. And yet Washington is currently engaged in an all-out assault on advertising, marketing, and data collection efforts / business models.
Incidentally, Google recently submitted comments with the Federal Trade Commission in reaction to its Staff Discussion Draft about the future of journalism and laid out their views on many of these issues. More importantly, as summarized on pg. 30 (of the pdf) of this Newspaper Association of America filing to the FTC, Google has proposed an interesting monetization model that utilizes Google Search, Google Checkout and DoubleClick ad server, “to build a premium content system for newspapers.” Worth checking out. Kudos to Google for taking these steps and to Schmidt for again stressing the importance of targeted advertising for the future of media.
The Technology Liberation Front is the tech policy blog dedicated to keeping politicians' hands off the 'net and everything else related to technology.