The Emerging Battle over Behavioral Targeting

I'm going to defer on this issue today to Jeffrey Chester, executive director of the Center for Digital Democracy (CDD). CDD has been at the forefront of exposing all kinds of invasive online and mobile marketing practices as well as offering concrete regulatory measures that would more adequately protect consumer privacy. A few days back Chester testified before Congress urging it to pass legislation that would ensure meaningful consumer protection online, especially for privacy.

This from CDD's press release on his testimony: As more consumers increasingly rely on the Internet to obtain such sensitive services as financial products or health information...it is especially critical that the public be assured they will be treated fairly when engaged in online commerce.

Chester pointed to the failure of the regulatory system that should have protected Americans from irresponsible business practices that led to the current financial crisis. “As with our financial system, privacy and consumer protection regulators have failed to keep abreast of developments in the area they are supposed to oversee,” he explained. “In order to ensure adequate trust in online marketing—an important and growing sector of our economy—Congress must enact sensible policies to protect consumers.”

“Whether using a search engine, watching an online video, creating content on a social network, receiving an email, or playing an interactive video game, we are being digitally shadowed online,” Chester told a joint hearing by the House Subcommittee on Commerce, Trade, and Consumer Protection, and the Subcommittee on Communications, Technology, and the Internet.

“Our travels through the digital media are being monitored, and digital dossiers on us are being created—and even bought and sold.” Singling out behavioral and “predictive” targeting for their violations of user privacy, Chester noted that the “consumer profiling and targeted advertising take place largely without our knowledge or consent, and affects such sensitive areas as financial transactions and health-related inquiries. Children and youth, among the most active users of the Internet and mobile devices, are especially at risk in this new media-marketing ecosystem.”

Chester’s CDD, in collaboration with the U.S. Public Interest Research Group (USPIRG), was instrumental in bringing the online privacy issue to the forefront in a series of petitions filed with the Federal Trade Commission in 2006 and 2007. Earlier this year, the two groups called on the agency to “conduct a special investigation into mobile marketing privacy threats and inappropriate practices targeting children, adolescents, and multicultural consumers.”

...Chester called on Congress to enact meaningful regulations to protect consumer privacy in the online and mobile arenas, effectively bringing the FTC’s Fair Information Practice Principles fully into the digital age.

“Americans shouldn’t have to trade away their privacy and accept online profiling and tracking as the price they must pay in order to access the Internet and other digital media,” Chester declared, adding that far from being an impediment to continued growth in the online sector, meaningful privacy safeguards will actually stimulate the digital economy.

“The uncertainty over the loss of privacy and other consumer harms will continue to undermine confidence in the online advertising business,” he explained. “That’s why the online ad industry will actually greatly benefit from privacy regulation. Given a new regulatory regime protecting privacy, industry leaders and entrepreneurs will develop new forms of marketing services where data collection and profiling are done in an above-board, consumer-friendly fashion.”

With that, let me direct you to an article on these hearings in DMnews.com which details some of the industry's counter arguments to those by Chester, and their expected heavy lobbying of Congress against meaningful regulation (i.e. "self regulation" or "voluntary regulation"):

Yahoo argued that a consumer's privacy should be respected and that online advertisers should be transparent about practices in order to build trust. The company recently announced its new data retention policy, in which Yahoo will retain the vast majority of its Web log data in identifiable form for only 90 days.

...

The Direct Marketing Association, for its part, is working with the American Association of Advertising Agencies, the Association of National Advertisers, the Interactive Advertising Bureau and the Better Business Bureau on self-regulation guidelines.“We hope to be out with [those guidelines] soon. We're moving along, responding to the Federal Trade Commission," said Jerry Cerasale, SVP of government affairs for the DMA and a hearing attendee. "This is an area where we think self-regulation can work. With technology changing rapidly all the time, we think self-regulation gives us the ability to change fairly quickly and make adjustments.”

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Interestingly, Google is reportedly in favor of federal legislation, probably due to the challenges that legislation on a local level would create. Christine Chen, a Google spokeswoman, expects legislation later this year. “Congress is certainly interested in introducing some sort of privacy legislation later this year,” Chen said. “It is really unclear to us what kind it will be. Whether it will be a broad based effort [covering consumer privacy] or whether it will be specifically related to behavioral targeting, we honestly don't know what they are going to do.” Chen said behavioral targeting is still an area of growth and opportunity. In the absence of legislation, Google introduced its own behavioral product in beta in March. Called Ad Preferences Manager, it enables the user to pick which interest-based ads they want to receive or opt out of them altogether.

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When this issue first surfaced in November 2007, privacy groups petitioned the FTC to take action. Now, Congress is involved. Last April, House members first met to discuss the possibility of introducing federal privacy legislation. One of the ideas that has been discussed is an opt-in strategy in which consumers could elect to allow their behavior to be tracked.

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Despite the continued controversy around behavioral targeting, vendors don't appear to be shying away from it. At the recent Internet Retailer Conference and Exhibition in Boston, a couple of exhibitors were showcasing new solutions with a behavioral targeting tie-in.

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Home fitness online retailer Smooth Fitness saw a nearly 20% increase in average order value using behavioral targeting, according to Amadesa. The behavioral targeting Amadesa is engaged in is based around one specific Web site, as opposed to what happens with most advertising networks, which produce cookies that follow a user from site to site.

I'll get into this issue a lot deeper in future posts. Click here to read more.