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FTC’s “Do Not Track” Initiative Portends Major Impact on Online Advertising

By Chip Cooper in Featured

The Federal Trade Commission’s (FTC) publication earlier this month of a proposed framework for protecting online privacy portends a major impact on online advertising. If your website’s business model depends on advertising revenue, either directly from the site itself or via a smart, mobile device, you have a big stake in the outcome of the dialogue kicked off by the FTC report.

The FTC report suggests implementation of a Do Not Track mechanism – similar conceptually to the current Do Not Call list regarding annoying telemarketing calls – that would enable consumers to block the collection of online browsing data. Do Not Track, if implemented, will dramatically change the rules of the road regarding Internet advertising – with a potentially huge impact on relatively smaller websites that publish free content supported by behavioral ads.

The Target – Behavioral Advertising

Behavioral ads are targeted to a user’s browsing history, thereby increasing relevancy – and dramatically increasing conversions to sales. Behavioral ads are based on anonymous data collected on how a user’s computer browses the Internet, including websites visited, searches made, and content read. This data is used to create a behavioral profile that is linked to a specific demographic. The result is that the ads seen by the computer’s user are tailored to the user’s interests. Many industry advertising executives believe that the overwhelming success of behavioral ads is a significant factor in the growth of the Internet commercially.

Behavioral ads should be distinguished from contextual ads that are based solely on the content of the specific website page the user is viewing. Because contextual ads are generally not as relevant to the user’s interests as behavioral ads, contextual ads are less effective, and therefore less profitable.

Behavioral advertising is a big FTC concern regarding consumer privacy. Although behavioral data is essentially anonymous when collected, privacy advocates are concerned about where new data collection technology and methodology may take us. For example, the amount and depth of some data could lead to personal identification of users. In addition, even if users are not personally identified, the enhanced data about them could rise to the level of an invasion of privacy.

How Would Do Not Track Work?

Although it’s unknown at this time exactly how Do Not Track will work, one approach could involve a list similar to the Do Not Call list for telemarketers.

Another, more likely approach, would be for Web browsers to provide a built-in option for a persistent setting that would enable consumers to choose whether to allow or block the collection of behavioral data and behavioral ads. Users would have the ability to turn this option on an off. While on, the user would be able to surf the Web in a mode sort of like stealth mode.

Who Would be Affected by Do Not Track?

The effect of Do Not Track on ad-serving websites would be to lower revenues based behavioral ads. Relatively large websites that publish premium content would likely not be affected significantly by Do Not Track because the vast majority of their ad space is typically sold directly to marketers which may be able to rely successfully on contextual ads. This would not be true for smaller websites that typically rely more heavily on ad networks to place their ads. For this reason, smaller websites which publish free content supported by behavioral ads could face a significant impact on revenue from Do Not Call.

For consumers, Do Not Track could dramatically affect the quantity and quality of content they see on the Web. This is due to the fact that much of the free content on the Web is supported by ad revenue. Consumers operating in stealth mode would likely see limited or reduced content, plus ads would not be as relevant.

Conclusion

Some legal commentators question whether the FTC has the authority to unilaterally implement Do Not Track regulations. They argue that Congress must give them that authority. If Congress must act, it may be that the political appeal for Do Not Track would not be as strong Do Not Call. Many consumers understand the benefits of behavioral ads, and they may believe that behavioral ads are much less intrusive than unwelcome and annoying calls at dinner time by telemarketers.

In any event, the stakes are high for all websites that depend on adverting for revenues. The FTC has requested public comments on their framework report by January 31, 2011, for a final report later in 2011.

If you may be significantly affected by Do Not Track, it’s recommended that you strongly consider providing your comments before the deadline passes.

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Leading Internet and software attorney Chip Cooper has automated the process of drafting Website Legal Forms with his Website Legal Forms Generator. Use his free online tool – Website Documents Determinator – to determine which legal documents your website really needs. Discover how quick, easy, and cost-effective it is to draft your website legal forms at www.digicontracts.com.

Hey Bloggers! Let’s Hear It For Government Regulation!

By Catharine P. Taylor in Featured

There was a certain air of inevitability to the Federal Trade Commission’s edict earlier this week that bloggers have to disclose when they have a relationship with advertisers. And, even though there are those who would prefer that the industry self-police, I’m with the FTC on this one: Just as ads dolled up to look like editorial or infomercials dolled up with sets to make them look like “The Larry King Show” have to disclose their true nature, bloggers need to account. Many do, many don’t, and thus, the FTC needs to be involved.

I know that’s not what everyone wants to hear, but we’re now living in a world where we are all, prospectively, endorsers, and where industry self-regulation starts to get much more complex than it was when there were a limited number of media outlets. (I’ll leave to one side, for the purposes of this column, how the FTC will actually pull this off from a logistical point of view – although no doubt a few good algorithms will help.)

If self-regulating were entirely up to advertisers, that would be one thing – I’m normally a supporter of self-regulation. But in social media, as we’ve learned time and time again, the message is essentially out of advertisers’ control, and while one would hope, via self-regulation, advertisers would monitor those with whom they have a relationship and what they are saying about a product or service – indeed that’s the point of having such a relationship in the first place – the actual endorsement is out of their control. Can an advertiser actually reach into someone’s blog post and add in disclosure where it doesn’t exist? With the exception of adding a comment into the discussion thread, the answer is no, unless I’m missing something.

The onus has to be put on bloggers to an extent, and with the advent of these new endorsement guidelines, it is. (While, we’re on the subject of disclosure, I admit I didn’t wade through all 81 pages of the FTC document, but you can right here if you want to.)

People I know, and like, don’t necessarily agree with me on this, but I don’t view the guidelines as really being about what we generally consider to be the marketing/social media/advertising industry. To us, the fact that bloggers should disclose that they are paid by an advertiser, or gets free product from one, is obvious. To not do so shoots down one’s credibility, which is the coin of the realm in social media.

But the people who read this column have all grown up being schooled in this tradition. As social media tools come into broader use, more and more people without that grounding are going to become part of the conversation. If the history of so-called “mommy bloggers” is any guide, advertisers will reach out to them.

That said, I still think there’s ample room for some of the initiatives already out there to help develop a code of conduct for blogging, such as Blog with Integrity. (I tried to get in touch with Liz Gumbinner, who is one of the bloggers behind it, to get a few thoughts, but she is currently out of the email sphere.)

There’s still a need for bloggers to let it be known that not only do they play by the FTC’s rules but also are being honest and transparent, no matter what the topic. Thankfully, that’s something no government organization can regulate.

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Catharine P. Taylor has been covering digital media and advertising for almost 15 years. Contact her here.

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