FTC Gives Web Industry ‘Last Clear Chance’ to Self-Regulate Ads

Published July 1, 2009

Companies that track consumer behavior on the Web for targeted advertising without informed consumer consent are in danger of losing their right to self-regulate, according to the head of the Federal Trade Commission.

“From my perspective, the industry is pretty close to its last clear chance to demonstrate” it can police itself “voluntarily,” FTC Chairman Jon Leibowitz said at the Reuters Global Financial Regulation Summit in Washington in late April.

This isn’t the first time the FTC has threatened the advertising industry with regulation, but it signals a sense of immediacy that may pressure industry leaders to change their practices soon. In a C-SPAN interview in May, Leibowitz said the Obama administration has given the FTC free rein to regulate how Internet companies such as AT&T and Google manage consumers’ personal information.

“I don’t think deep packet inspection should be restricted, but consumers should have the ability to opt out,” said Chad Little, president and CEO of Phoenix, Arizona-based Internet marketing firm FetchBack. “The Internet has been maturing over the last 15 years. We always knew as it matured there would come a time when more regulation would creep in. This may be one part of that.”

From ‘Guidance’ to Mandate

Earlier this year the FTC issued new guidance urging Web sites to tell consumers that data are being collected during their browser searches and to allow them to opt out of data collection.

Many computer users don’t know the extent to which their online browsing habits are routinely tracked and studied by Internet service providers and the browser companies. The latest trend, and the one that has worried federal regulators, is “deep packet inspection” which looks—as the name suggests—deeper into a computer user’s data.

Benefits of Targeting

Web ads are directed to a consumer based on his or her browsing activity, but no personal information (such as credit card or Social Security numbers) goes along with the ad, notes Steve Titch, telecom policy analyst for the Reason Foundation in Los Angeles and operator of Securitysquared.com, a business that relies in part on behavioral advertising.

“How does this hurt anyone?” Titch asked. “Congress doesn’t understand how the Internet works.”

Nearly all the tracking is harmless or even helpful to consumers by enabling services to customize a user’s online experience, says Ryan Radia, a senior scholar at the Competitive Enterprise Institute in Washington, DC.

“The best way to protect such users is not through regulation but by educating and therefore empowering users,” Radia said. “Privacy mandates will place shackles on the still-young Internet advertising industry, stifling promising opportunities for making money from online content.”

No Harm Done

Titch said if someone is looking for a product or service, such as airfares to New York, and is fed an online half-off fare thanks to behavioral advertising, that user will likely be ecstatic, not offended.

“This isn’t much different from the consumer tracking that’s already done in the offline world,” Titch said. “The only difference is that firms aren’t paying thousands of dollars to get this behavioral information.”

Radia says strict new rules would make the Web user’s experience less satisfying. “Rigid mandates will prolong ‘dumb’ Web ads by delaying the evolution of targeting technologies capable of making advertisements more relevant and therefore more interesting to users,” he said.

Consumer Choice in Place

Little said, “Government pressure may not be bad at this point in time, but the government’s [attempts] to deal with this would be ineffective.

“Though Google and AT&T have a larger amount of data than most companies do, they don’t have any more control over it than other companies,” Little said. “Individuals can choose to use different services and can get information from companies like Google about how their information is being used.”

 “Attempts to regulate this are way off the mark,” said Titch.

“It is always better for the industry to self -regulate rather than have the government do it,” said Little. “The marketplace should be allowed to settle these issues on its own. We call [businesses] winners and losers for a reason.”

Phil Britt ([email protected]) writes from South Holland, Illinois.