Will The FTC’s Privacy Initiative Undercut $51 Billion Plus In Projected Ad Spend?

The online privacy issue just will not go away, and it may well come to a head next year. In May, I wrote about the fact that the U.K. was mirroring the U.S. in terms of its concern about online privacy and, more specifically, the use of behavioral targeting without an opt-out provision.

Now the Federal Trade Commission of the U.S. has sprayed lighter fluid on the charcoal fire by issuing a document titled “A Preliminary FTC Staff Report on Protecting Consumer Privacy in an Era of Rapid Change: A Proposed Framework for Businesses and Policymakers.” While the general direction the FTC is taking is laudable, there is a ticking time bomb embedded in the report: a federally run “Do Not Track” mechanism.

The FTC describes this mechanism as “likely a persistent setting on consumers’ browsers – so consumers can choose whether to allow the collection of data regarding their online searching and browsing activities.” As the Interactive Advertising Bureau (IAB) points out, the name “Do Not Track” is reminiscent of the National “Do Not Call” Registry, which was instituted as a result of a law passed in early 2008. The law created the registry to protect consumers who did not want to receive telemarketing calls.

“Do Not Track” and “Do Not Call” are Not Alike

Essentially, “Do Not Call” is an uncomplicated opt-out service. The consumer registers a phone number and the telemarketer avoids calling that number. While the FTC surely knows that the Internet is a very different animal (at least one hopes so), it has characterized “Do Not Track” in a similar fashion by its nomenclature and its description.

The IAB’s response to this is right on target:

“Do Not Track” is a misnomer because you cannot turn off data sharing online and, if you could, consumers would encounter a severely diminished experience since they would lose out on the remarkable benefits provided by data sharing. Policy makers should not promise a ‘consumer protection program’ they cannot deliver without disenfranchising the American public.”

The IAB suggests that the industry’s “Self-Regulatory Program for Online Behavioral Advertising” already addresses the issue and allows the consumer the ability to opt-out without the need for government regulation.

Two Sides to the Issue

It’s easy to see both sides of the issue from opposing perspectives. On the one hand, government regulators are increasingly concerned about protecting consumers in what they may perceive to be a hostile online world in which advertisers prey on unknowing consumers and obtain far too much personal information about them. This may sound paranoid, but in an era of airport pat-downs and cyber-terrorism, heightened awareness of the dangers associated with the Internet is to be expected.

On the other hand, those companies whose very existence depends on online advertising and e-commerce have reason to be extremely concerned when the government looks at them cross-eyed, especially when it could lead to some kind of broad control that could directly impact revenue.

A New York Times analysis of the issue suggests that a “Do Not Track” system:

“Would cause major harm to the companies like online advertising networks, small and midsize publishers and technology companies like Yahoo that earn a large percentage of their revenue from advertising that is tailored to users based on the sites they have visited.”

However consumer watchdogs groups are quick to point out the flaw in the IAB’s stance. First, the IAB does not represent the entirety of online marketers. Second, “self-regulation” rarely works and in a coalition of marketers all competing for their share of a projected $51 – $72 billion in revenue, the chance of them successfully self-regulating is even less likely.

It’s All About Money

Now we’re getting to the real heart of the matter. It all comes down to the financial implications of “Do Not Track.”

John Montgomery, Chief Operating Officer for GroupM Interaction, digital division of ad agency WPP, told the Times, “If a number of consumers opt out, it might limit the ability for companies to monetize the Internet.” An even more serious argument surrounds the fact that advertising basically supports all the free content on the Web. Montgomery adds, “Think about the number of times you access the Web and how many times you have to pay for the content you look at. This is about a value exchange.”

Dilip DaSilva, chief executive of Exponential Interactive, which owns the Tribal Fusion online advertising network, agreed. “If you remove tracking, you remove advertisers,” he said, adding that if “Do Not Track” is implemented, much of the free content on the Internet could become unavailable.

The FTC has asked for comments on the report over the next two months. Needless to say, the IAB and its members will offer significant feedback. It is likely that, even if the FTC moves forward with the “Do Not Track” initiative, Congress will have to be involved for any substantive legislation to be enacted. That could end up being a good thing – we all know how long it takes for them to get anything accomplished.

About Barry Silverstein

Barry Silverstein is a freelance writer/marketing consultant. In addition to writing for ReveNews, he is a contributing writer to Brandchannel.com, the world’s leading online branding forum. He is the author of three marketing books, The Breakaway Brand (co-author, McGraw-Hill, 2005), Business-to-Business Internet Marketing (Maximum Press, 2003) and Internet Marketing for Technology Companies (Maximum Press, 2003). Barry ran his own Internet and direct marketing agency for twenty years. You can find Barry on Twitter @bdsilv.

Website: http://www.barrysilverstein.com