Although pending regulations threaten behavioral targeting, the industry can take control (2 of 2).
Yesterday's article pointed out the opportunities technological advances such as behavioral targeting provide marketers, and highlighted the existing regulations controlling such practices. Today: A look at proposed legislation and what marketers need to do about it.
In response to rising consumer complaints regarding the disclosure practices used by some software companies regarding their data collection, use and dissemination practices, Congress and several state legislatures have considered a host of bills that would regulate behavioral marketing in general. Most of these bills would require behavioral marketing companies to disclose their collection, use and disclosure of consumers’ information -- even if it is not personally identifiable -- to consumers in a way that consumers are likely to see and understand prior to being subject to those practices.
These bills also generally require that advertisements served by behavioral marketers be labeled so consumers can identify their origin, and that the behavioral marketing practices used to track consumers be easily uninstallable. The leading federal bill, H.R. 2929 (The “SPY ACT”) passed the House of Representatives overwhelmingly in October, but stalled in the Senate. Members of Congress have pledged to bring it up again in the 109th Congress, which convenes in January.
Legislative approaches to behavioral marketing threaten to change some online marketing practices that have developed since the release of the NAI Principles. Most significantly, H.R. 2929 would not exempt third-party cookies used by advertising networks to build profiles of consumers based on their online behavior. Under the NAI Principles, Web site publishers who use third-party advertising networks typically disclose the network advertisers’ use of cookies (called third-party cookies) for profiling-based advertising only in the publishers’ privacy policy (consistent with the FTC-network advertising industry agreement). Publishers who use third-party advertising networks in this way also give consumers an opportunity to opt out of the cookie-based profiling, but this disclosure is typically found only in the privacy policy. In some cases, these third-party ad networks share information gathered at one Web site with other publishers in the network.
If H.R. 2929 or similar legislation becomes law, this disclosure paradigm would have to change. Web site publishers would have to give consumers actual notice, prior to gathering information in a cookie, of the information collected, who will collect it and how it will be used. Consumers would have to be given an opportunity to opt out of these practices not in a privacy policy, but clearly and conspicuously, before populating the cookie with any information about the consumer’s activities. And all advertisements would have to be labeled.
Ad networks oppose regulation of their industry in this way, arguing that consumers would be inundated with notices and that ad revenues would shrink, affecting many Web publishers whose models are supported in whole or in part by advertising. Those in favor of regulating traditional ad networks in this way argue that consumers have a right to know about, and to consent to, the commercial use of their information, even if the information is not personally identifiable. Tracking consumers online, they assert, should require notice and consent without regard to the technical methodology used to do the tracking.
It is not yet clear whether federal or state legislation such as HR 2929 will ultimately pass. But given the recent, heightened sensitivity around tracking consumers’ online activity, it is at least possible, if not likely, in the 2005 legislative session.
Pending legislative models would have disparate effects on other forms of behavioral targeting online. Many Web sites collect information from consumers who view their sites and use that information themselves to serve behaviorally targeted ads to those consumers while viewing that site. HR 2929 would not regulate this activity at all because the technology generally used -- cookies dropped by the Web sites themselves (first-party cookies) -- would be exempt from HR 2929’s regulatory framework. Adware companies that use software on consumers’ desktops to gather information about consumers’ online behavior would, however, fall under the notice, consent and labeling regime.
The behavioral marketing industry should champion transparency now
As behavioral marketers look forward to 2005 and beyond, it is useful to reflect on the themes of legislation that have been introduced around the country: transparency and control. Legislators are sending the industry a signal that their data practices should be transparent to consumers, and that consumers should have the means to control the collection, use and disclosure of their information, even if that information is not personally identifiable.
Transparency inevitably leads to greater value for consumers. With increased transparency, consumers would be more aware of what they are being asked to agree to (behaviorally relevant advertising), which will allow them to make informed decisions on the amount of value they will demand in exchange. As the entire behavioral marketing industry moves toward greater transparency, individual companies will be forced to compete for audience acquisition based on the value they offer consumers. Together, transparency and value enable consumer trust, and consumer trust opens the door for the long-term growth of the behavioral marketing industry.
Conclusion
Behavioral marketing is only beginning to realize its potential for advertisers and Web properties. It’s also clear, though, that consumers (directly and through their elected officials) are demanding more transparency and value in exchange for their agreement to receive ads based on their online behavior. The regulatory call for transparency and consumers’ demand for more control will only increase. Therefore, those behavioral marketers that become early adopters of more transparency and increased value will have an advantage in the behavioral marketing industry.
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.