Boeing subsidiary Narus reports on its Web site that it “protects and manages” a number of worldwide networks, including that of Egypt Telecom. A recent IT World article entitled “Narus Develops a Scary Sleuth for Social Media” reported on a Narus product called Hone last year:

Hone will sift through millions of profiles searching for people with similar attributes — blogger profiles that share the same e-mail address, for example. It can look for statistically likely matches, by studying things like the gender, nationality, age, location, home and work addresses of people. Another component can trace the location of someone using a mobile device such as a laptop or phone.

Media advocate Tim Karr reports that “Narus provides Egypt Telecom with Deep Packet Inspection equipment (DPI), a content-filtering technology that allows network managers to inspect, track and target content from users of the Internet and mobile phones, as it passes through routers on the information superhighway.”

It’s very hard to know how Narus’ technology was used in Egypt before the country pulled the plug on its Internet connectivity, or how it’s being used now. Narus is declining comment.

So what’s to be done?

Narus and its parent, The Boeing Company, have no right to their business with the U.S. government. On our behalf, Congress is entitled to ask about Narus’/Boeing’s assistance to the Mubarak regime in Egypt. If contractors were required to refrain from assisting authoritarian governments’ surveillance as a condition of doing business with the U.S. government, that seems like the most direct way to dissuade them from providing top-notch technology capabilities to regimes on the wrong side of history.

Of course, decades of U.S. entanglement in the Middle East have created the circumstance where an authoritarian government has been an official “friend.” Until a few weeks ago, U.S. unity with the Mubarak regime probably had our government indulging Egypt’s characterization of political opponents as “terrorists and criminals.” It shouldn’t be in retrospect that we learn how costly these entangling alliances really are.

Chris Preble made a similar point ably on the National Interest blog last week:

We should step back and consider that our close relationship with Mubarak over the years created a vicious cycle, one that inclined us to cling tighter and tighter to him as opposition to him grew. And as the relationship deepened, U.S. policy seems to have become nearly paralyzed by the fear that the building anger at Mubarak’s regime would inevitably be directed at us. We can’t undo our past policies of cozying up to foreign autocrats (the problem extends well beyond Egypt) over the years. And we won’t make things right by simply shifting — or doubling or tripling — U.S. foreign aid to a new leader. We should instead be open to the idea that an arms-length relationship might be the best one of all.

NebuAd is dead. The company‘s plan to track users through their ISPs for the purpose of targeting advertising met with public and congressional concern that ultimately led to its demise.

I believe that ISPs should stick to serving bits and not get into the business of serving or helping to serve ads, so I’m glad to see NebuAd’s model fail. I’ve been made aware by a similar company – Phorm – of the privacy sensitivity they design into their system, but the answer for me is still “No, thanks.”

In terms of policy, this story is mixed. Fans of government involvement probably believe that concerns expressed by public authorities caused NebuAd’s partners to pull out. ISPs also responded to public concerns expressed directly and in the media, of course, and I believe that consumers’ passive reliance on government authorities for protection is in error.

The Progress & Freedom Foundation has just launched the new Center for Internet Freedom.  CIF offers an alternative to the proliferation of advocacy groups calling for government intervention online by offering timely analyses and critiques of proposals that diminish the vital role of free markets, free speech and property rights.  We aim to drive the Internet policy debate in new directions by emphasizing a layered approach of technological innovation, user education, user self-help, industry self-regulation, and the enforcement of existing laws consistent with the First Amendment.  Such an approach is a less restrictive—and generally more effective—alternative to increased regulation.  

Here are some of the issues I’ll be working on as CIF’s Director in conjunction with my esteemed colleagues Adam Thierer, Adam Marcus, and adjunct fellows: 

• Defending online advertising as the lifeblood of online content & services, especially in the “Long Tail”;
• Emphasizing market solutions to problems of privacy protection, especially regarding the use of cookies and packet inspection data;
• Protecting online speech and expression both in the U.S. and abroad;
• Defending Section 230 immunity for Internet intermediaries;
• Opposing online taxation and legal barriers to e-commerce and digital payments, especially at the state and local levels; and
• Ensuring that Internet governance remains transparent and accountable without hampering the evolution of the Internet.

By Berin Szoka & Adam Thierer Progress Snapshot 4.19 (PDF)

Since the fall of 2008, a debate has raged in Washington over “targeted online advertising,” an ominous-sounding shorthand for the customization of Internet ads to match the interests of users.  Not only are these ads more relevant and therefore less annoying to Internet users than untargeted ads, they are more cost-effective to advertisers and more profitable to websites that sell ad space.  While such “smarter” online advertising scares some—prompting comparisons to a corporate “Big Brother” spying on Internet users—it is also expected to fuel the rapid growth of Internet advertising revenues from $21.7 billion in 2007 to $50.3 billion in 2011-an annual growth rate of more than 24%. Since this growing revenue stream ultimately funds the free content and services that Internet users increasingly take for granted, policymakers should think very carefully about what’s really best for consumers before rushing to regulate an industry that has thrived for over a decade under a layered approach that combines technological “self-help” by privacy-wary consumers, consumer education, industry self-regulation, existing state privacy tort laws, and Federal Trade Commission (FTC) enforcement of corporate privacy policies.

In an upcoming PFF Special Report, we will address the many technical, economic, and legal aspects of this complicated policy issue-especially the possibility that regulation may unintentionally thwart market responses to the growing phenomenon of users blocking online ads.

We will also issue a three-part challenge to those who call for regulation of online advertising practices:

1. Identify the harm or market failure that requires government intervention.
2. Prove that there is no less restrictive alternative to regulation.
3. Explain how the benefits of regulation outweigh its costs.

The Online Advertising Market

While there are other forms of targeted advertising based on who you are (“demographic”) or where you are (“locational”), the most important varieties are based on what you’re searching for, seeing or doing online at any particular moment (“contextual”) and the pattern of what you’re searching for, seeing or doing over time (“behavioral”). The bulk of Internet advertising falls into one or both of these last two categories, with behavioral advertising growing rapidly.

Search engines deliver contextual ads on search results pages based on the search keywords entered by a user, while third-party advertising networks (some of which also run search engines) deliver contextual ads on behalf of website operators who sell ad space to the network, with the ads displayed on each page chosen according to keywords on that page. Contextual advertising is far “smarter” than displaying the same “dumb” untargeted banner ads to every user, because the contextual ad uses keywords to “guess” what the user is interested in based on the context of each page. But the purely contextual ad network doesn’t “remember” what the user has looked at in the past, so its insights into what the user would find relevant are very limited, especially for some websites. Online behavioral advertising (OBA) solves this problem and increases the value of advertising space on all websites by targeting ads based on a “profile” of the user created by tracking websites the user has visited—as well as limiting the number of times a user is shown a particular ad.

The Perceived Harm Driving Calls for Regulation

For a decade, the basic technology behind OBA has changed little: When a user visits the typical webpage, they download not only the webpage contents but also a small piece of code that allows the website to distinguish that user’s browser from other browsers (a “cookie”)—without personally identifying the user. Some cookies are required to make sites work properly (“site cookies”) while others (“tracking cookies”) are used by the third party ad network in which that site participates to recognize that browser across multiple sites participating in the ad network, and thus create a “profile” of what the user might be interested in. Even though such profiles themselves are anonymous, many privacy advocates have pointed to four reasons why online profiling is becoming “too invasive:” (i) It is sometimes possible to infer the actual identity of the user; (ii) though all browsers allow users to opt-out of tracking by “cleaning out” their tracking cookies, a website may be able to restore deleted tracking cookies through the use of cookie alternatives such as “Flash cookies”; (iii) certain vulnerabilities in current browser design make it theoretically possible to “sniff” a user’s browsing history, cache or bookmarks; and (iv) the use of “packet inspection” by Internet Service Providers (ISPs) (instead of the use of cookies) to track online browsing amounts to illegal wiretapping.

The other concerns expressed by the advocates of regulation vary significantly. Some fear that browsing profiles could be captured by hackers, somehow associated with personally identifying information, and used for identity theft. These advocates demand limits on data retention as well as data security mandates. Others demand that users have access to their own profiles—a goal inherently in tension with data security. Most share a vague queasiness about “being tracked” and about advertising in general, while downplaying the effectiveness of self-regulation or user self-help.

Perhaps most legitimately, others fear that the real “Big Brother”—the government—will gain access to a “honeypot” of surveillance data that might be associated with individual users. A variety of other solutions have been proposed to what is, for the most part, a poorly defined problem, including a government-run “Do Not Track” registry to make it easier for users to block tracking cookies; mandating opt-in for some or all forms of profiling; and banning completely the collection of tracking data about sensitive subjects, cross-referencing of data sets, and use of packet inspection data for OBA.

The Less Restrictive Means: A Layered Approach

But how should policymakers decide which, if any, of these interventions are really necessary–or would even be effective? Ironically, those who demand immediate OBA regulation to protect user privacy are often the first to insist on less burdensome approaches whenever a policy “problem” involves purely non-commercial speech. For example, emphasizing personal and parental responsibility is often favored as the more sensible approach to dealing with free speech and child protection concerns. But, as Chapman University Law Professor Tom Bell has asked, why not apply the same standard across the board? Why not expect those especially privacy-sensitive users who object to OBA to do something about it? To the extent effective self-help privacy tools exist, they provide a means of solving policy problems that is not only “less restrictive” than government regulation but generally more effective and customizable as well. Why settle for one-size-fits-all solutions of incomplete effectiveness when users can quite easily and effectively manage their own privacy? Indeed, those who advocate personal responsibility and industry self-regulatory approaches to free speech and child protection issues should be advancing the same position with regards to privacy.

Fortunately, a wide variety of self-help tools and “technologies of evasion” are readily available to all users and can easily thwart traditional cookie-based tracking, as well as more sophisticated tracking technologies such as packet inspection. While cookie management tools that allow users to delete their cookies have been standard in browsers for some time, the latest generation of browsers incorporates far more advanced control over what kind of cookies browsers will accept from websites in the first place. Furthermore,  the extensible nature of modern browsers allows any freelance software developer who sees a way to improve a browser to do so by writing an add-on that “plugs in” to the browser using standard programming interfaces designed by each browser developer.  Many such add-ons are wildly popular, but even those users who never install a single one benefit from the acceleration of browser evolution made possible by add-ons.  We will be documenting examples of these tools in our upcoming Special Report and in an ongoing  series of blog essays.

The Benefits of Smarter Advertising

The “free” Internet economy is based on a simple value exchange: Users get access to an ever-expanding collection of content and services at no cost from websites that are able to generate revenue from “eyeballs” on their pages by selling space on their sites to advertisers, usually through ad networks. The smarter that advertising, the more free content and services it can support. This is the same value exchange that has supported free, over-the-air television and radio content for decades. The only difference is technological: Because websites can connect directly with the user, they need not rely on crude profiling tools such as Nielsen ratings.

There are larger economic benefits of smarter online advertising. First, it makes the overall economy more open and competitive by allowing small market entrants to reach consumers with messages about their products. Second, those who attack the use of packet inspection by ISPs for OBA fail to see that it is precisely the kind of “game-changer” that could disrupt Google’s currently dominant market position. Third, the involvement of ISPs in OBA could help defer broadband costs: Even if OBA revenue does not completely subsidize monthly service costs, smarter advertising could at least keep prices in check and potentially lower them significantly going forward.

But smarter advertising isn’t just about selling products or services. It is ultimately about making all kinds of speech more cost-effective. The ability to “target” listeners more narrowly also increases the ability of political and other not-for-profit speakers to communicate their messages. In short, smarter advertising means more voices, more choices, and more speech. The line between “advertising” and “content” is already blurring rapidly, as the technologies used to customize advertising are also used to customize webpages and ad networks themselves are used to deliver content.

The Larger Implications of Potential Regulation

As if reducing the advertising revenue generated by each web ad didn’t do enough to reduce the total amount of funding for free web content and services, government regulation of targeted online advertising could reduce advertising revenues even further by aggravating the problem of adblocking in two ways. First, the less relevant ads are, the more annoying users will find them, and the more likely users are to try to block them. Increased relevance is perhaps the most important remedy for adblocking and the best way to maintain the implicit value exchange that currently supports free Internet content and services

Second, regulation could short-circuit the eternal battle of technological one-upmanship between online advertisers and those users who rely on the technologies of evasion to “opt-out” of seeing ads or being tracked. Such privacy-conscious users are “free-riding” off of those users who don’t opt-out, since (at present) they generally don’t lose access to the free content and services supported by the targeted advertisements that other users do see. The user who blocks tracking, but not ads, is still free-riding off those users who don’t opt-out of tracking. On a large enough scale, such self-help has the potential to disrupt the value exchange of the Internet, just as automatic commercial-skipping has already disrupted the value exchange of television. As with all “Spy v. Spy” battles, this long-term trend is inevitable: As more sophisticated technologies of evasion are incorporated seamlessly into browsers and can be used without significantly degrading the browsing experience, their use will become increasingly mainstream. But ultimately, just as with television commercial-skipping, market forces can and will, if permitted, respond through technological means and the development of new business models. Today’s implicit quid pro quo may become, of necessity, explicit: Websites and ad networks will have to find increasingly creative ways to grant access to certain content and services for users who do not block ads or the tracking that makes ad space more valuable. Policymakers should take care not to ban such technologies or cripple such business models (e.g., through requiring opt-in), which may rely on more sophisticated forms of targeting such as the use of packet inspection data.

As users face an increasingly clear choice between (i) getting content and services for free supported by behavioral advertising and (ii) paying to receive those same services and content without tracking or even without ads altogether, policymakers will finally see whether users are really as bothered by profiling as the advocates of OBA regulation insist. Given the ongoing and widespread replacement of fee- or subscription-supported web business models with ad-supported models, it seems likely that the vast majority of consumers will continue to choose ad-supported models, including profiling.

Conclusion

The questions raised above—about the harm that supposedly requires intervention, the availability of less restrictive means, and the cost/benefit analysis of regulation—are vital considerations for the future of the Internet. Indeed, if smarter online advertising will not fund the Internet’s future, what will? As both the desire for “free” services and content and the need for bandwidth expand, OBA has the potential to offer important new revenue sources that can help support the entire ecosystem of online content creation and service innovation, while also providing a new source of funding for Internet infrastructure and making ads less annoying and more informative. That would certainly seem preferable to increased user fees or other “pay-per-view” pricing models for Internet content and services.

But looming legislative and regulatory action could stop all of that by replacing the current regime—in which the FTC merely enforces industry self-regulatory policies—with one in which the government preemptively dictates how data may be collected and used. The more enlightened approach is a “layered” approach to privacy protection that combines industry self-regulation, enforcement of industry-established privacy policies, consumer education, and user “self-help” solutions. These and other issues will be addressed in greater detail in our upcoming PFF Special Report.

Stuck with limited ISP choices, broadband users are increasingly angry with the growing number of providers that poke around in their customers’ traffic. From resetting Bittorrent sessions to sniffing packets for URLs, more and more providers are wielding their power as the “man in the middle” to monitor and manipulate traffic in unpopular and possibly illegal ways. While these practices can be beneficial, tech-savvy consumers are understandably agitated. Congress is now considering legislation that would outlaw these ISP practices.

Instead of urging lawmakers to enact sweeping new laws that would often do more harm than good, broadband users should look to the recent emergence of commercial secure tunneling services. These services remind us that the marketplace is perfectly capable of resolving skirmishes without government getting involved.

Numerous companies have begun to offer encrypted tunnels using Virtual Private Networks (VPNs). These networks have long been used for a variety of reasons, and are popular with network security experts because of how well they protect data from outside snooping. By tunneling traffic through secure links, broadband users can break free from the constraints imposed by ISPs on certain types of traffic. Routing peer to peer applications through these tunnels makes them almost entirely indistinguishable from other types of traffic—even to stateful packet inspection tools like Sandvine that are undeterred by header encryption.

Tunneling traffic via encrypted, remote servers is also one of the toughest targets for ISPs. Many corporate users and university students connect to VPNs for necessary reasons, and there’s no easy way for an ISP to distinguish “legitimate” VPN traffic from the other kind. And with new secure tunneling firms popping up all the time, simply blocking the IP-address ranges of known tunnels is no solution. Absent a VPN Whitelist—highly infeasible given the growing number of VPNs in the wild—ISPs will soon realize that, no matter how much they invest in packet inspection tools like Sandvine and Phorm, informed users will always find a way to stay a step ahead.

Despite being the freest nation on earth, the United States has a spotty track record when it comes to Internet privacy and anonymity. Fortunately, VPN services can be based anywhere on the planet. Data retention laws (like the one pending in the current Congress) have little effect on the privacy of users who tunnel their traffic through a nation that doesn’t force ISPs to retain data. Gleaning useful intelligence from a VPN connection between the user and the exit node is impossible — even if your ISP captures every last byte you transmit, as long as your VPN service doesn’t retain data, government snoops or would-be hackers will be left with nothing but indecipherable garbage.

VPN services typically charge a small monthly fee, but not all of them cost money. Some VPN services only offer PPTP encryption. That’s enough to deter casual snooping, but it can be cracked with some determination. Other services offer more sophisticated IPSec or SSL based encryption that relies on the highly secure AES cipher. All of the world’s supercomputers combined cannot crack data that has been properly encrypted via AES and a strong password. Of course, by using a VPN service, you are placing your trust in the tunneling service rather than your ISP—so verifying the service’s commitment to privacy and reliability is paramount.

Tunneling services can also circumvent region-locking techniques used by content portals like those offered by the major television networks. People living outside the United States often cannot access desired content because of exclusivity agreements with content owners. Portals typically block foreign residents by running a reverse DNS lookup on visitors’ IP addresses, which reveals the user’s country of origin. But offshore VPN services conceal their users’ true location, causing users to appear as if they are located in the country in which the VPN server is based.

Like many other goods and services, VPNs can be used for good or evil. Some of the uses discussed here may even violate laws in certain nations or run astray of terms of service agreements. Despite the potential for misuse, the secure tunnel is a promising tool that will likely grow more popular as ISPs increasingly turn to deep packet inspection for both network management and profit-seeking purposes.