NEW YORK (AdAge.com) -- The clients of Adam Woods' T-shirt printing outfit don't necessarily know he's gay. But some firms that place advertisements on websites he visits apparently do. That can prove awkward when a client -- say, a representative of a Baptist nonprofit -- peers over his shoulder at shirt designs displayed alongside offers to "hook up with local guys," Mr. Woods, of Camden Printworks in New Jersey, said.
Such situations are among the reasons privacy advocates, lawmakers and Federal Trade Commission regulators have behavioral targeting in their sights. The approach Washington chooses could have a sweeping impact on the fortunes of advertising networks and data aggregators. But online marketers say that effect would ripple through an ecosystem of advertisers, web publishers and consumers, too.
The fear is regulation meant to block potentially abusive practices, such as those Mr. Woods confronts, could also declaw legitimate kinds of web advertising. Online display was a $4.7 billion market in 2009, according to eMarketer. An estimated 80% of that spending was targeted to consumers based on their online behavior or other information collected online or offline, according to an estimate from the Interactive Advertising Bureau.
The debate could flare later this month, when Rep. Rick Boucher, D-Va., is expected to unveil legislation that could curb some targeting practices. Meanwhile, the FTC is expected to update its guidelines for behavioral targeting later this year and recently said it is "carefully reviewing" a complaint filed by several privacy groups over the targeting practices of online advertisers, a move that is notable because two incoming commissioners give the FTC a new makeup and could affect the outcome of online privacy debates now gaining traction in Washington.
The worst-case scenario for the industry -- albeit an unlikely one -- would be a requirement that consumers explicitly volunteer to receive targeted ads. "An opt-in really would disenfranchise every player in this industry," said Mike Zaneis, the Washington lobbyist for the Interactive Advertising Bureau.
Short of an opt-in for all cookies, which would stall simple management tasks like ad rotation, networks said they would stay in business. But, they argue, their troves of behavioral data have helped replace spam with more relevant displays that benefit advertisers and consumers alike. Also, targeting nourishes publishers, boosting the value of inventory as much as six-fold. Limits on data use could sink fast-growing portions of their businesses and reverse those consumer-friendly advances, networks say.
A report last year by University of Pennsylvania and Berkley researchers found that 66% of Americans don't want "tailored advertisements." But such surveys don't inform consumers of the trade-off they may face if ad revenue falls, said Jeff Hirsh, CEO of AudienceScience. "If you asked whether people would rather have targeted ads or pay for content, I think you would get a different answer."
Consumers who reject ads that seem to know their birthday or vacation destination may find the alternatives even less appealing. "You would see top brand advertisers display elsewhere," said Joe Apprendi, the CEO of Collective, a network that behaviorally targets at least half its ads. "You would see a vast sea of unfilled inventory," ready to be filled with pop-ups, flashing displays and cheap pitches for acai berries.
Yet there's also the counter-argument: Publishers could benefit from limits on targeting because then premium environments would become even more valuable. Advertisers would have to use premium sites as a proxy for their audience, rather than the troves of data they're now using to target them around the web.
Lobbyists said regulators increasingly recognize these possible repercussions of an opt-in approach. But in September Mr. Boucher wrote in congressional newspaper The Hill that firms that provide behavioral information to third parties should get explicit permission from users to do so. That situation could create a problem for data firms, such as Blue Kai, that do not come in direct contact with consumers to offer a chance to opt in.
It would also treat online marketing with a heavier hand than offline direct marketing. "I'm hoping that's not where [Mr. Boucher's] draft will come out," said Stuart Ingis, an attorney at the Washington law firm Venable. Though he believes Mr. Boucher's views are now more aligned with the industry's than in September, Mr. Ingis was not yet ready to write off an opt-in for at least some business models.
A likely approach
The more likely approach is one many in the industry are already pursuing: Clear notice that ad firms are collecting information, and a chance for consumers to opt-out. Those and other principles were listed in the latest FTC guidelines, published early last year.
The Network Advertising Initiative -- a group of more than 40 networks and data exchanges -- already offers users that choice. A separate coalition of four major advertising and marketing trade groups, and the Council of Better Business Bureaus, is developing a separate opt-out plan.
The coalition envisions an icon embedded in all ads served by its members. The icon would link to information about how the ad is targeted and an opt-out page, and compliance would be monitored by an outside firm. Regulators publicly support these efforts, but Kathryn Ratte, an FTC attorney, said it's not unusual for the commission to "augment" such support with more requirements.
Industry players view these opt-out initiatives as a happy compromise, and suspect the added transparency may be good for business if it means alienating fewer customers. But some fear a federally mandated opt-out could do to behavioral advertising what the do-not-call list did to direct marketing. That registry includes 195 million phone numbers, an FTC spokesman said, nearly half of the total U.S. cellphone and household lines.
By contrast, the NAI has received roughly 300,000 opt-out requests, the group reported in December, though its members reach hundreds of millions of users. Networks expect an uptick as the public grows more aware of behavioral advertising and an opt-out choice becomes the industry standard.
Still, "universal opt-out is a perfectly fine way to go," said Jarvis Coffin, CEO of Burst Media, who has registered his home number on the do-not-call list, but believes users' aversion to telemarketing doesn't extend to targeted ads. "An online advertisement has never interrupted my dinner hour. And it never will."
That may not be enough for privacy advocates. "These companies are invisible," said Peter Eckersley of the Electronic Frontier Foundation. "What we really need to ensure is that people who don't want to be tracked and targeted are able not to be and are aware." Awareness would be hard to prove unless users give express consent.
But networks are betting the average consumer is not as wary as Mr. Eckersley. For instance, Mr. Woods, the T-shirt printer who has been outed by internet ads, sometimes finds targeting annoying but sees its value. He said by e-mail, "I was tickled to death yesterday when Facebook offered me an iPhone case that had a Tennessee Vols logo on it," referring to the University of Tennessee Volunteers sports teams, Mr. Woods' hometown team. "I promptly shelled out $35."
Getting Specific, but Not Personal: Data Companies Are Employing Variety of Methods to Maintain Privacy
The data that fuels behavioral advertising is at the heart of the privacy debate. But what do online ad firms actually know about users, and if users aren't comfortable with that knowledge, what recourse do they have? Here's a look at a few approaches.
DataLogix, an offline data provider that fuels networks like Collective and AudienceScience, can target , say, 30-something male Southerners who drive trucks and fish. The firm stacks age and location data from Nielsen PRIZM or KnowledgeBase on top of Polk's list of likely pickup drivers. Its own shopping data -- gathered during a past life in direct marketing -- could narrow the segment to buyers of fishing tackle.
The company purposefully chooses data sources that have been "vetted and blessed" by the traditional advertising industry, and steers clear of personally identifiable information, DataLogix President Eric Roza said. Eschewing creepiness, he said his firm wants to be predictive -- but not too predictive. "Advertisers don't want to reach John Smith. They want to reach millions like him," he said.
The social-networking information that consumers volunteer about themselves is another trove for advertisers. Ad network Lotame tracks what people post, comment and share on its social website partners, such as Huffington Post and Blingee. The firm pairs that information with demographic, intent and interest data. It could place ads, for instance, in front of known animal lovers who have recently commented about pet food.
'Guessing to knowing'
By combining these data sets, Lotame has gone from "guessing to knowing" whether a viewer is a likely customer, Andy Monfried, the company's CEO, said. If users aren't comfortable with Lotame "knowing" their consumption habits, Mr. Monfried promises all data is anonymous. In addition to opting out, consumers can edit their preferences, though few have done so.
A few firms are also hoping to dodge the privacy question by getting users to volunteer information useful to advertisers. British firm Imagini has just unveiled AdZappa, an opt-in experiment which lures consumers to choose their preferences from sets of images -- ranging from things like vanilla-iced cakes to rock 'n' roll concert scenes.
Imagini CEO Alex Willcock used the same technology to build 20 million user profiles through a partnership with the dating site Match.com. But Mr. Willcock concedes users may not volunteer the kind of information they'll give up to get a date to see a better ad. "Our whole take is, don't steal data. Do it through the front door," he said. Yet "some people are saying, no user is ever going to do that."