Social networks elevate privacy concerns
Online targeted advertising has also moved to social networking sites, perhaps raising the profile of the practice. Social networking sites have the opportunity to collect vast amounts of information about their members; some of this information is supplied by members themselves in the form of their user profile, which might list their name, age, hometown, college, marital status, job, hobbies, religious or political affiliation, and other interests, while other information can be obtained by tracking a member's social connections within the site and tracking the member's online activities anywhere on the internet.
One of the most popular social networking sites, Facebook.com, announced in November, 2007 that it was launching two new targeted advertising programs called Beacon and SocialAds. Advertisers who participated in the SocialAds program could deliver ads to Facebook members that were tailored to the information contained in their profiles, while the Beacon program collected information about Facebook members' online activity on other participating websites and sent that information to the members' "friends." For example, when the program initially launched, when a Facebook member made a purchase or rated a product on one of the participating websites, a notice appeared telling the Facebook member that this information would be transmitted to his or her friends unless the member opted-out of that particular transmission. If the member did not opt-out or took no action, the information was transmitted to the other Facebook members listed as friends.
Advertisers liked the feature because it provided many of the same benefits as viral marketing: If a user bought a product or a movie ticket, this information was transmitted to the user's friends, which could be seen as a kind of endorsement of the product. In addition, advertisers could display an ad for the product that was the subject of the purchase information when that information was transmitted to the members' friends.
Complaints about the Beacon program began almost immediately. Facebook users and privacy groups complained that Facebook users were not able to opt-out of the feature completely; that it was not clear which websites were participating in the program; that the notice telling a user that the information was about to be transmitted was not clearly visible and did not stay visible for enough time, and that Facebook did not adequately explain the Beacon program to its members. Just one month after the launch of Beacon, Facebook announced changes to the plan so that information is not sent to a member's friends unless he or she opts-in each time the notice is displayed and the notice will be displayed for a longer amount of time.
Conclusion
Targeted advertising is appealing to advertisers because it is designed to ensure that ads will be seen by those most interested in seeing them. But targeted advertising is likely to continue to come under scrutiny unless it incorporates two important elements in U.S. privacy law: notice and choice.
Moreover, although the FTC's proposed principles do not have the force of law, they are a clear signal of the FTC's interest in online targeted marketing, and marketers and advertisers would be well-advised to consider the application of the principles to their own practices moving forward. The FTC has made it clear that it will continue to monitor this issue and may bring enforcement actions against companies engaged in online targeted advertising that are violating federal privacy or consumer protection laws. In addition, if New York and Connecticut are successful in enacting their pending laws, these laws will have an enormous impact on advertisers' current practice, if they survive likely court challenges.
Terri Seligman is a partner in the Advertising and Promotions Law Group at Loeb & Loeb LLP. Jill Westmoreland contributed to this article.