The FTC, Justice Department and Congress have given the online-advertising industry a chance to prove it can regulate itself and that new privacy legislation -- a "do not track" law for the internet -- isn't required to protect consumers.
The question now is whether the industry can adopt a set of "principles" endorsed by the Digital Advertising Alliance, made up of an alphabet soup of marketing trade associations, or if that even matters now that the Obama administration and the New York Times are calling for legislation, and Microsoft, Mozilla and Google are offering browser-based tools that help consumers control their data.
Broadly speaking, the "principles" require that ads and websites disclose what information is being collected and used to target advertising, and give consumers an easy way to opt out. Advertisers and publishers deemed to be in compliance with the "principles" get to use a new icon that has already started showing up on display ads around the web: the Advertising Option Icon, or, as some are calling it, the "Forward I," (This is in lieu of the "Power I," which didn't survive a trademark search).
All players in the online ad ecosystem are required to adopt the principals, or risk getting kicked out of the trade organizations involved -- the IAB, 4A's, BBB, DMA, AAF, ANA and NIA (for a full glossary, check aboutads.info) -- and getting referred to the Federal Trade Commission and the Department of Justice for enforcement for deceptive advertising practices.
In February, the industry tacked on a six-month deadline to comply. Indeed, the business of complying with the rules seems big enough that a number of companies are trying to grab a piece of the action: Truste, DoubleVerify, and the only new startup in the mix, Evidon, once known as Better Advertising. Evidon has the contract with the Digital Advertising Alliance to power its self-regulatory program. "We built the business from the ground up to solve this problem," said Evidon CEO Scott Meyer. "The expectations have been set; the time to implement this program is now."
But the regulation issue is complex and rife with misunderstandings. Allow us to decode some of them:
Myth: If this self-regulation plan works, Congress won't pass a do-not-track law.
REALITY: Congress may pass a law either way. Sen. John Kerry, D-Mass., is drafting an online privacy bill of rights with support from Sen. John McCain, R-Ariz.
Myth: FTC commissioners are in favor of do-not-track.
REALITY: Actually, they've shown they're in favor of giving the industry a shot at self-regulation.
Myth: All online ad companies oppose do-not-track legislation.
REALITY: Many view some kind of legislation as inevitable and some, like Microsoft, see it as potentially beneficial to the ecosystem.
Myth: I have to work with Evidon, DoubleVerify or Truste to come into compliance with the industry program and to use the icon.
REALITY: You may wish to work with one if it makes economic sense, but you are free to use the icon as long as your practices are in line with the principles, and you pay a $5,000 annual fee to the Digital Advertising Alliance.
Myth: I have to use the icon on all my ads to comply with the rules.
REALITY: Only on ads that use behavioral data, though some marketers are using them on their "dumb" ads as well.
Myth: There's a privacy law I need to comply with.
REALITY: There is no law other than those already on the books to protect consumers from deceptive trade practices.
Myth: This self-regulation effort has no teeth and the Feds have better things to do than dig in the weeds of online advertising.
REALITY: Those deemed not in compliance will be referred to the FTC and Justice Department by one of the above trade associations. The FTC has already settled with ad targeting firm Chitika, which was caught deleting consumer opt-outs after 10 days.
Myth: So the Feds made an example of one company. That won't affect me.
REALITY: The FTC is preparing action against a whole lot more and has hired a technical staff to scour the industry for scofflaws.
Myth: I never see these icons, so they're not really catching on among advertisers.
REALITY: You will, if you're on the internet, that is. Evidon has served 15 billion between December and January alone.
Myth: Consumers are scrambling to opt-out, which is going to pretty much end data collection on the web.
REALITY: Opt-out rates are remarkably low, actually. A couple of studies have shown that click-through rates to the privacy page run about half of a standard ad click-through rate. And once there, very few opt-out or adjust their preferences. Truste claimed 2% in a November study and Evidon says the rate is 1%. "We think consumers at the end of the day are OK with targeted ads as long as you do the right thing with their information," said Chris Babel, CEO of Truste.
Myth: Since the opt-out rate is low, that means self-regulation is a failure.
REALITY: Click-through rates are as bad a yardstick for this as they are for display ads; better to consider the ubiquity of the icons on the internet.
Myth: Any new rules will cause marketers to pull dollars out of behavioral targeting.
REALITY: The uncertainty is probably keeping dollars on the sidelines. Only 10% to 20% of online ads are targeted using behavioral data; that could go up when the rules are clearer.
Myth: These are all the protections that the industry is offering consumers.
REALITY: Publishers, advertisers and technology vendors see privacy as a selling point, and many are offering even more protection. Microsoft, Google and Mozilla have rolled out browser-based options to give consumers more control over their data.
Myth: If this works, it settles the privacy issue for good.
REALITY: This whole debate is about a tiny slice of the digital ad industry; on the horizon are potentially withering fights over mobile, data-collecting apps, interactive TV, offline-online tracking, location-based services and sensitive data such as financial or medical records.