Behavioral Advertising - An Advertiser's Dream Or A Privacy Nightmare?

Monday, September 1, 2008 - 00:00

Imagine a bald gentleman walks into a department store, and the clerk at the counter asks him if he is interested in buying a hair dryer. This scenario sounds farfetched. A typical department store clerk would notice that the customer had certain characteristics and would seek to offer the customer a product that matched his unique profile.

It is therefore perplexing to some why there has been such an uproar recently over the form of online marketing known as "behavioral advertising." Behavioral advertising is the practice of capturing vast amounts of non-personal consumer data, developing a profile of the consumer and then delivering a targeted message to that particular consumer. Such data might include purchasing habits, Web sites visited and online services used, but would not include name, email address or telephone number.

The dream of Internet marketing has always been to harness the vast amounts of data available online to marketers and to use such data to deliver the right message to the right consumer at the right time. In a word- relevancy. In this perfect world imagined by marketers, they would be able to convert sales at a much higher rate than through other media, the cost per acquisition of new customers would go way down and they would be able to establish a one-to-one relationship with the consumer. Advertising rates would also soar as these ads began to generate higher returns on the investment. In addition, most consumers can tolerate advertising that is relevant to them, whereas they tend to completely tune out irrelevant content.

Despite the business and consumer benefits of behavioral advertising, there are some legitimate concerns that cannot be ignored and must be addressed in order for this practice to flourish and be successful. Primary amongst those concerns is privacy.

Consumers are generally unaware of the sophisticated data collection practices that occur in the background every time they use the Internet. Web sites and third-party service providers have implemented elaborate systems to collect and analyze consumer data, and then to sell advertising products and services based upon the results. While the information is generally considered to be "anonymous," the profiles have become so rich that it may be possible at times to identify an individual from this supposedly anonymous data. In 2006, AOL mistakenly posted anonymous Web search queries of some AOL users online. The New York Times used such data to engage in an investigatory exercise, and was ultimately able to personally identify User No. 4417749 by the nature of her anonymous data as a woman living in Georgia.

On December 20, 2007 the Federal Trade Commission released proposed principles regarding behavioral advertising.These proposals were issued six weeks after a public workshop and forum held by the FTC to discuss the issues surrounding such practices. The four principles addressed are: (1) transparency and consumer control - giving consumers more disclosures and the ability to control their participation in the process; (2) security - in order to avoid the AOL-type problem discussed above; (3) affirmative consent for material changes to privacy practices - to ensure that an initial consumer consent is not later abused or twisted; and (4) opt-in requirements for using sensitive data in behavioral advertising - such as requiring affirmative consent to use medical information for advertising purposes. This last principle addresses an obvious flaw in the behavioral advertising model. If a consumer searched online one day for information about a disease that had just killed a family member, they may not want to see advertisements every day thereafter for drugs that could have prevented the loss of their loved one.

The House Committee on Energy and Commerce has begun to look into the issue as well. In making requests of various major Internet publishers and media companies, the committee has learned that many popular services already engage in behavioral advertising without making substantial, or any, consumer disclosures.

Consumer advocacy groups would like to see changes that, at a minimum, address the FTC's proposed principles. However, they would prefer to see lawmakers and regulators go further and require simple and obvious opt-out procedures so that consumers can avoid having their data used without their knowledge and consent. To take it a step further, some would prefer to prohibit behavioral advertising without an affirmative opt-in from the consumer.

When a new form of advertising has obvious benefits to online services and marketers and can benefit consumers as well, there would seem to be a strong impetus towards resolving any obstacles that exist. However, privacy is a challenging and sensitive obstacle these days, not just in the online marketing world, but in virtually any consumer-facing business. While lawmakers and regulators continue to address privacy issues on a piecemeal basis, the time may come when comprehensive federal legislation to address a multitude of privacy issues might become necessary so that businesses and consumers alike can move ahead profitably and in a mutually beneficial manner.

Upon resolution of all of these issues, our bald friend from the department store will hopefully not be inundated with coupons for hair care products the next time he surfs on the web.