Government Could Make Monetization Harder for Online Ad Networks, Publishers

 |  Includes: GOOG, NYT, YHOO
by: Jeremy Liew

In the last few years, behavioral targeting has gone from being an interesting experiment to the core success of many ad networks. Many networks are using data collected from one site to improve the targeting of advertising on other sites. But in the past two months, both the FTC and some members of the House have discussed limiting the ability for online advertisers to do behavioral targeting.

Businessweek notes about the new FTC Chairman:

Leibowitz wants to terminate—or at least rein in—… delivering ads to individuals based on the Web pages they visit and searches they carry out. Appointed by President Barack Obama in February to run the country’s top consumer watchdog, Leibowitz has made so-called behavioral targeting a top priority.

Leibowitz is not content with advertising industry self regulation:

… Leibowitz hints that he’s growing impatient with marketers’ efforts. “It’s not clear that they’re moving far enough or fast enough, even though they’re making some progress,” Leibowitz says. He supports the controversial approach of making more of the targeted ads on the Internet “opt-in”—meaning they would require consent from Web users before collecting data—and is in talks with members of Congress intent on drafting legislation for online ads.

The member of Congress that he is talking to are members of the House of Representatives’ Subcommittee on Communications, Technology, and the Internet, who are also keen to limit behavioral targeting. Businessweek again:

Representative Rick Boucher (D-Va.), who chairs the House subcommittee on communications, technology, and the Internet, has stated publicly since February that he plans to draft legislation on targeting practices this year. He says sites should maintain plain-language privacy policies, visitors should be able to opt out of data collection, and any third-party companies working with publishers must obtain permission from Web users before acquiring or using their information.

This position has bi-partisan support. Notes Paid Content:

His counterpart on the committee, Rep. Joe Barton (DR-Texas), also said he appreciated the relevance of targeted ads, but he was dismayed at how much information is collected about him on the web without his knowledge. Barton: “I hit the delete button every week and erase the cookies on my computer. I’m always amazed at how much information is taken from me. I think I have the right to know what information websites are gathering about me and what they’re doing with it. And poll after poll shows that the public agrees with me.”

The current FTC guidelines on behavioral advertising (.pdf) call for the principle of “Transparency and Control”:

Every website where data is collected for behavioral advertising should provide a clear, concise, consumer-friendly, and prominent statement that (1) data about consumers’ activities online is being collected at the site for use in providing advertising about products and services tailored to individual consumers’ interests, and (2) consumers can choose whether or not to have their information collected for such purpose. The website should also provide consumers with a clear, easy-to-use, and accessible method for exercising this option. Where the data collection occurs outside the traditional website context, companies should develop alternative methods of disclosure and consumer choice that meet the standards described above (i.e., clear, prominent, easy-to-use, etc.)

This principle is reasonable. But as noted in italics in the quotes above, what Boucher and Leibowitz are talking about is to move beyond this principle and essentially establish an opt in process for third party cookies (which would include the cookies for all ad networks).

This is an impossible position. For a start, ad networks typically don’t have space on a publisher page to even ask for an opt in. But in any event, opt in use of cookies will mean that very few users will allow themselves to be behaviorally targeted because defaults are almost always dominant.

Taking away the ability to do behavioral targeting and retargeting would reduce overall industry eCPMs. This would impact both publishers and ad networks by reducing their revenue. It would make it harder for advertisers to target their customers, resulting in overall higher customer acquisition costs. And it may even lead to more advertising in general as publishers try to make up for lower eCPMs with more ad units, which will have an impact on user experience.

Companies who rely on contextual targeting and content adjacency to sell their advertising have little to worry about as they do not use much third party data today. Examples include well know brands (e.g. (NYSE:NYT)) and sites with endemic advertisers (e.g. WedMB). The big portals (e.g. Yahoo (NASDAQ:YHOO)) and search engines (e.g. Google (NASDAQ:GOOG)) who see a high enough proportion of all web users to be able to use first party data for targeting will also have little to worry about. TBut many ad networks, and the publishers who rely on ad networks for a substantial proportion of their revenue, should be closely watching the positions of both the FTC and the Subcommittee on Communications, Technology, and the Internet.