Ken Dreifach addresses technology transparency and audits.
Chapell: Some business models in the online world have historically been notoriously difficult to reign in. So as I listen to what you're saying -- although I don't want to put words in your mouth -- is the implicit message here that any business model that involves a low level of transparency and control might not be able to survive what I would loosely describe as the maturation of the internet economy?
Dreifach: Not having given the question that much thought, my inclination is to say that, in most cases, it's not the case that a particular medium or technology is itself not transparent. It almost seems like a cop-out to write off a particular technology as inherently not transparent or not capable of giving the consumer proper or even robust notice.
If you look at technology itself, it's inherently neutral. Across the board we've been agnostic as to whether a particular technology is good or bad. There are a lot of people who will say that pop-up ads are just bad. Certainly trademark holders and operators of websites would tell you that the product now known as adware is simply, across the board, bad, because it interferes with what they see as their control of their websites. Folks in the "open commons community" and elsewhere would take the position that this is just not the case-- and the 2nd Circuit has held this is not the case, in the case brought against WhenU recently.
So I think the answer is, if you're talking about a technology such as adware, it can be employed in a perfectly transparent and legal way, and there are certainly companies that are making a go with that model. There are other companies -- as our cases have shown -- who do not incorporate that transparency into their model.
I would disagree with the underlying premise that there are certain technologies that give way to a lack of transparency in and of themselves.
Chapell: What I’m thinking of is-- you've seen certain businesses in the online space announce that they just don't work with certain affiliate networks or even media networks, because they feel like they are inherently problematic.
Dreifach: I think this dovetails with the bigger question… you're talking about adware, more or less…
Chapell: Not necessarily. There are even advertisers now who are reluctant to work with certain media or affiliate networks, because, for example, they don't want their ads showing up next to a blog with political content which they're uncomfortable with.
Dreifach: It's probably an instance where the ground-level technology is a couple of paces beyond what the large corporations that are making use of that technology are familiar with. As a result they have relied on ad networks who they perhaps regarded as knowing more about the technology instead of getting up to speed on it themselves.
To some extent, there's a market correcting force out there, where as the bad actors get weeded out, there's greater trust, and maybe in the future, if you're dealing with a smaller set of well known, above board, transparent and credible actors, then the affiliate networks gain some more trust. But absent that, you're going to keep seeing regulatory action, you're going to keep seeing a call for legislation and you're going to keep seeing consumer class action lawsuits-- and that's going to chip away at the credibility of the entire industry. And that's a bad thing.
I think our lawsuits are a good thing-- they serve as a warning to not only the top-tier advertisers but also the affiliate networks for what they should be on the alert for. It's still an unanswered question as to what pressures we're going to see on the industry internally to correct itself. That's what's going to determine if the affiliate networks survive and prosper -- or don't -- because there's a continued low level of trust in the industry.
Chapell: One of the overall benefits to the industry by the actions taken by your office, the FTC, or some other organizations like the Center for Democracy and Technology, is that increasingly the online media world is starting to ask questions. It's starting to say "Hey, do we really know what's going on beyond our organizational walls?" It's like the old saying, that necessity is the mother of invention. We're already seeing-- I don't think it has developed nearly where it needs to be, but it's starting to go in the right direction-- organizations out there that are able to provide a pretty thorough audit of where advertisers' ads show up. And that's kind of the first step. It's not easy to do this, but the minute you're able to provide a reliable audit trail, you're able to move down the chain, where you can start selling these affiliate networks and large media networks on the premise, and really get a sense of where your ads are likely to appear.
Dreifach: Anything that hasn't been done before is generally labeled as "too difficult." Part of our investigation has been to look at companies that are using these services. What you see is a general unfamiliarity with the advertisers and adware companies and with their practices. Even if you're talking about a large organization, you only need one skilled compliance person-- and if not in house, you can hire another firm to do it. You're not talking about the most complicated type of audit in the world. It's very doable. I think we'll start to see that.
Chapell: We're used to, in this space, low infrastructure costs. So relative to other industries, the cost of actually facilitating a transaction is pennies on the dollar. As part of the maturation process of online, you need to recognize that there are going to be additional costs and the business model will need to take this into account.
Dreifach: You look at email, or online advertising-- it's an industry that's truly in its infancy. I don't think it has gotten that far down the road as far as the potential that I think we're going to see.
You can talk about the economies of scale and the extraordinary savings and efficiency of being able to advertise digitally. Think about the differences of sending out a catalogue to someone, with the paper and postage and compare it to email-- it's off the charts. The downside of digital media is that it's incredibly easy to transfer across systems. And since it's incredibly easy to transfer it's that much harder to monitor. Overall the benefits of the industry -- the potential of the industry -- in terms of the savings of the industry, outweigh that extra level of expertise and compliance that you have to undergo to make sure that bits and bytes are being served in the right way to the right people at the right place.
Next: Ken Dreifach talks about digital rights management issues and common law.