Technology enables efficient online targeting, but what about consumer and legislature concerns? (1 of 2)
Hardly a week passes without at least one news story on the effectiveness of online behavioral marketing. Companies that can display ads to consumers based on their online behavior now can routinely achieve dramatically better results for their clients than possible using traditional run-of-network or even contextually based advertising.
Yet, for all its promise, behavioral marketing has provoked privacy concerns since it was first introduced in the late 1990s. This article explores the legislative and regulatory framework that governs behavioral marketing, and offers a simple guideline -- focusing on transparency and value to consumers -- that will enable the growth of online behavioral marketing in the future.
Technology gives advertisers new opportunities to reach consumers more efficiently
Today, technology advances offer advertisers numerous new ways to increase their efficiency. The Internet offers advertisers almost infinitely more flexibility than they have ever had. Advertisers no longer are confined to targeting all consumers who access certain content, as in the case of traditional media. Instead, the Internet’s architecture allows advertisers to target different messages to individual consumers viewing the same Web page.
The possibility of targeting messages to individual users on a mass scale gives advertisers opportunity to overcome the inherent problems of demographic targeting: It is always both over inclusive and under inclusive. No matter how narrow a demographic segment, the majority of consumers who fall within it are not likely to be interested in making a purchase of an advertiser's goods or services. At the same time, the narrower the demographic, the more likely it is that advertisers will miss opportunities to deliver advertising messages to consumers who are, in fact, likely customers.
Exactly how to take advantage of the Internet’s inherent advantages over traditional media has long been the subject of much interest among advertisers. After several years of development and growth, there is now a growing consensus that behavioral marketing -- targeting messages to individual users based on their interests as expressed in their online behavior -- is the answer. Intuitively, targeting consumers based on their expressed interests should be more effective for advertisers than targeting consumers based on their age or other demographic factors. But behavioral marketing does not just benefit advertisers. Studies show that it also results in a better overall experience for consumers, who are more accepting of ads that give them information relevant to their interests.
Yet, study after study also shows that consumers have a generalized concern about their privacy while online. This anxiety is fueled by the proliferation of news accounts detailing privacy violations ranging from misuse of consumers’ personal information to outright identity theft. To continue the growth and to realize the promise of behavioral marketing, the online advertising industry needs to build trust among consumers who are increasingly sophisticated and demanding more upfront information about what is being tracked on their computer and why.
This should not be an insurmountable task: The fact is that behavioral marketing does not require, and for most companies does not involve, the use of any personally identifiable information. The risks that most concern consumers, such as the theft of their identity or the misuse of their personal information, need not be implicated by behavioral marketing. Moreover, while it is true that most consumers value their privacy online, a recent Forrester Research study revealed that consumers will give up some privacy when offered adequate value in exchange.
The existing regulatory framework
Online advertising first triggered a privacy debate in 1999, when one of the first online network advertising companies announced its intention to purchase a large database of personal information collected from consumers offline. Privacy advocates and others were concerned that the company would create a detailed "super profile" of consumers without consumers’ knowledge or consent. The controversy soon expanded to include the third-party advertising network model, which uses cookies to gather information on consumers’ online browsing activity, which the companies then used to target their advertisements. Ultimately, the network advertising industry, through its trade association, the Network Advertising Initiative, developed a set of standards ("the NAI Principles") for online behavioral marketing. The FTC endorsed these standards in a report to Congress in July 2000.
The NAI Principles address behavioral marketing using non-personal information alone and non-personal information combined with personal information. With respect to the use of non-personal information alone, the NAI Principles require that network advertisers contractually obligate publishers within their respective networks to post a privacy policy that clearly and conspicuously discloses:
- The publishers’ use of the network advertiser services for online behavioral marketing
- The type of information that may be collected by the network advertiser
- The consumer's ability to choose not to participate.
The Principles also require that publishers who present the ads provide consumers with a clear and conspicuous link to opt out of the use of their information in order to target advertising to them.
The NAI Principles are instructive to companies in other industries (that is, companies that are not, strictly speaking, network advertisers), but they by no means provide a clear standard for other online advertising paradigms such as Web sites that market to their own viewers or desktop software advertising companies. These companies’ advertising practices are regulated under the Federal Trade Commission Act.
The Federal Trade Commission has brought a number of cases alleging that misrepresentations by companies in their privacy policies violates the FTC Act’s ban on unfair and deceptive acts and practices. It is significant, though, that the FTC has not brought a privacy-related case alleging that the failure to disclose material facts, or for the failure to do so adequately, also violates Section 5 of the FTC Act. They have the authority to do so: Section 5 prohibits not just misrepresentations, but also the failure to disclose material facts, or the failure to make such disclosures clearly and conspicuously. But the lack of enforcement of these principals (that material information be disclosed clearly and conspicuously) with respect to the collection and use of consumers’ information has resulted in companies making disclosures in a variety of ways.
Tomorrow: How proposed legislative models put existing regulations at risk, and what the industry needs to do about it.
D. Reed Freeman, Jr., is Chief Privacy Officer and Vice President, Legislative and Regulatory Affairs for Claria Corporation. Claria is a leader in online behavioral marketing, serving tens of millions of consumers and more than 1,000 Advertisers to date. Claria publishes advertising messages for top-tier companies and agencies to consumers who are part of the GAIN Network, Claria's network of tens of millions of consumers who agree to receive advertising based on their actual online behavior.