Behavioral Targeting: Arguing for Self-Regulation

Online advertisers and content publishers push for self-regulation as the FTC gears up for another round of Internet privacy scrutiny.

By Bill Mickey
Wednesday, December 3, 2008

Online privacy has been a top concern of the FTC and over the past couple years it has been reaching out to the industry in an effort to more closely examine the state of the online community’s current self-regulated status. With two wars, a global economic crisis and an administration in transition, the issue has been put on the back-burner for now. However, the FTC is set to release a final update to its online advertising privacy principles this winter and will likely follow that up with closer scrutiny next year.

The FTC is particularly interested in behavioral tracking, which has obvious applications in advertising, but the concept actually impacts just about every business model on the Web, including, and especially, publishing. Ruth Day, chief privacy officer for UBM, describes how more regulation of behavioral advertising could boomerang to the content side of the equation. “We now have four different divisions at UBM. Each division has a number of related Web sites. Let’s say that UBM tracks you across all of our sites, either in one of our divisions or across two or three of our divisions that have related subjects, and then we serve you content based on that behavior. It might be a newsletter or a Webinar. The difficulty in our world right now is to make sure that to the extent Congress wants to regulate behavioral advertising, they do it in a way that does not impinge on our ability as publishers to do something parallel, because we’re using the same kind of technologies.”

There’s no current threat that the FTC or Congress support stricter regulation. Indeed, according to Mike Zaneis, vice president of public policy for the Interactive Advertising Bureau, the FTC supports self regulation, but that doesn’t get industry off the hook. “Their [guidelines] are called ‘Privacy Principles for Industry Self Regulation,’ so there is no ambiguity to their intention to have industry regulate itself. That being said, industry needs to step up to the plate and update the existing self-regulatory mechanisms that are out there. That’s a key point of where IAB and the industry are moving.”

But Day’s comment does reveal the potential domino effect regulatory legislation could have across other business models. Zaneis agrees: “It’s going to be a broad debate. The debate up to this point over the last year or two has been a narrow debate around issues such as industry competition and consolidation and around the ISP behavioral targeting or business model. And I think that there will be a broader debate as Congress begins to look into this industry and understand it. There are many different business models, there are many different technologies and many different data collection usage practices. It’s not an easy environment to understand and it sure isn’t easy to regulate from a congressional standpoint.”

Right now, online publishers and advertisers are largely policing themselves under the ever-watchful eye of their consumer base, which itself does a notable job of making sure their personal information is not being abused. One only has to remember Facebook’s Beacon fiasco late last year when users and the privacy community sounded alarms over the social network’s ad-serving platform’s ability to track user activity and purchase behavior outside of the network. Day suggests this same vigilance is undertaken by media customers as well. “It will be interesting to see because all of us in the publishing world are upping the degree to which we target on an individual basis. Our sense is that as long as we give people the information they really need so they’re glad to receive it and we don’t hit them over the head every day and we are clear in our policy that we are doing it, then we should be okay. And believe me, we will hear it if we miss our guess on that.”

What the FTC Thinks

The FTC has been studying, legislating and investigating online privacy issues for more than a decade. And the last two years have seen two conferences hosted by the Commission—one in 2006 with the cringe-inducing title “Protecting Consumers in the Next Tech-ade” and another in late 2007 that specifically looked at behavioral targeting, the slightly more palatable “Ehavioral Advertising: Tracking, Targeting and Technology.”

The Behavioral Advertising conference was essentially a town hall meeting designed to invite every possible stakeholder in the behavioral targeting world to voice their thoughts and concerns.

Out of that, the FTC released a set of proposed online behavioral advertising privacy principles (see sidebar), which clearly indicated some suspicion of the effectiveness of the current marketplace’s self-regulatory status. While accepting of self-regulation, the FTC remains thoughtful about whether more enforcement is required. “The purpose of this proposal is to encourage more meaningful and enforceable self-regulation to address the privacy concerns raised with respect to behavioral advertising,” said the Commission in a statement on the release of the proposed principles.

The FTC said it is “mindful” of the dynamics of the marketplace—something both content and advertising stakeholders are fairly desperate to make sure of—and noted that there’s a need to maintain “vigorous” competition in online advertising and make sure the variety of Internet business models are accommodated.
The Commission’s proposed principles are simply that, proposed. There’s no legislation in place yet or specific new regulation for online behavioral advertising. The Commission is still seeking comment on the issues, and while the country transitions into a new presidency and battles insurgents both human and economic, behavioral targeting and advertising regulation may not be front-of-mind, yet. This has not put the industry in stand-by mode, however. All the major associations continue to keep the dialogue open with the FTC in an attempt to make sure they’re properly “educated” on the implications of a more regulated industry.

Targeting Is Not Just Advertising, But User Experience Tool

Echoing what UBM’s Day said about legislation impacting the publishing community, Pam Horan, president of the Online Publishers Association, notes tracking technology is part of the bedrock of user experience. “What’s important to understand is the behavioral advertising component is only one piece of it because we are also using the technology to enhance the consumer experience.”

It’s as basic, says Horan, as the use of first-party cookies to collect information about a visitor who has willingly given up certain information in order to have a more efficient online experience. “So the important thing at this point is this technology is not only being used for advertising but it’s also being leveraged to provide a superior user experience,” she says.

Horan and IAB’s Zaneis address the importance of both the industry and its association representatives continuing to educate the Hill on this subject. Horan points to the heavy-hitters of the multi-platform publishing community that make up OPA’s constituency—including The New York Times, The Wall Street Journal, Time Inc., and ESPN—and notes the volume of business and information commerce they’re responsible for. “If we total up what the OPA member sites invested in the creation of content last year, it was over $500,000 million. And part of what we’re talking about is the value exchange that exists here. The consumer is getting all of this free content in exchange for this advertising-supported business model. When we have conversations on the Hill, part of what we’re trying to do is keep them aware of the fact that there is a value exchange and it’s one that needs to be considered as the discussion continues.”

IAB’s constituency is much more broad-based than OPA’s, which is a pretty homogenous group with the common pursuit of producing and investing in the creation of original content. Zaneis notes that the IAB includes in its membership portals such as Yahoo, ISPs, ad networks, advertising agencies, Web measurement companies, as well as online publishers. Even so, Zaneis says that even this diversity is part of a larger ecosystem, so the IAB has teamed up with the ANA, the AAAA and the DMA to craft a set of the industry’s own privacy principles for online advertising and data collection and use. “Number one is to get up and educate and continue to educate Congress about the actual business models and the complexity of our industry and I think more importantly we’re going to have to stand up and demonstrate that we have effective, comprehensive industry self-regulation that protects consumers’ legitimate privacy concerns,” says Zaneis.

Next Steps and the potential Implications of Regulation

Zaneis says the FTC is close to releasing its final online privacy guidelines, perhaps as soon as right after Thanksgiving. Beyond that, no one’s quite ready to predict how the debate will go and on which side of privacy legislation the government will fall in the coming year.

“I think that time will still tell,” says Horan. “I think this is an issue that has to be taken very seriously. I don’t think we yet know what timeframe it’s going to be for them to start to really get the process moving. It’s one that we’re staying very close to.”

UBM’s Day notes that Congress is keen on privacy issues and will push for action. “It’s high headline material and some Congressmen really want to do something, and because the FTC has a notice and comment period out there, sooner or later they will do something. The FTC doesn’t just start something and then leave it hanging.”

Zaneis also thinks Congress is hot for the subject, and may push for legislation that doesn’t take all sides of the issue into account. “I think there will be rush to judgement by certain members of Congress who will want to simply take the FTC principles, whatever they are, and simply use those as baseline legislative language and I think that would be a big mistake because by their own admission, the FTC is not putting these forward to be codified into law. But I think we’ll have some knee-jerk reactionary members of congress who will want to rush to regulate and so we’ll have to rise to meet that challenge,” he says.

In the meantime, Zaneis thinks the industry must fortify its own policies in, at the very least, a goodwill show of effort that it’s serious about not just remaining self-regulatory, but responsibly supporting the model. “We need to do a far better job as an entire industry of providing clear consumer notice of our data collection and use practices. If you think you have a business model that’s immune from this, you’re underestimating how strong the privacy debate will be in this next congress.”