Why do so many outside of the tech and media space see programmatic buying as something to fear?

Programmatic technology allows for enhanced efficiency in media buying through automated ad exchanges that instantly serve hyper-targeted ads. While traditional behavioral advertising uses some of the same principles, programmatic buying is more sophisticated and operates on a real-time basis rather than just historical behavior. Drawing on vast amounts of data and analytics -- aka "big data" -- it relies on cookies and other tracking technologies to create profiles based on technical, network and behavioral data. Interestingly, programmatic buying does not generally use personal information but relies on sophisticated algorithms to target consumers more efficiently than the use of personal information.

With the incredible speed and real-time application, it is more efficient and in a broader sense an approach that provides better targeting.

But unless you are deeply versed in the science behind programmatic buying, it seems opaque and mysterious. This raises transparency issues that regulators and pundits keep citing as a basis to be suspicious of the marketing technique.

Worse, because the technology is so fast and almost impossible to track, some fear that it may actually help pirates and other fraudsters as well.

FTC scrutiny
The FTC has been paying attention to targeting since 2009 when it issued its seminal report, Self-Regulatory Principles for Online Behavioral Advertising. That study served as the basis for the Digital Advertising Alliance, a self-regulatory framework established by the ANA, IAB, and other key industry associations. Under DAA principles, participating marketers and other organizations that engage in online behavioral advertising inform consumers of what will be done with the information shared with the marketer and a mechanism to opt out of being targeted by that marketer in the future.

But not everyone complies with DAA principles. Since its 2009 report, the Commission has remained very active in policing companies that do not properly apply consumer privacy rules or fail to give adequate notice and choice to consumers. In a speech on January 21, Jessica Rich, director of the FTC's Bureau of Consumer Protection, warned the industry that it needs to step up the game and provide for more transparency and consumer control over the data marketers use to target consumers. While Ms. Rich cited the DAA (and the Network Advertising Initiative) as viable options for disclosure, it is clear that the Commission is not satisfied with the status quo.

As the FTC noted in its landmark report on consumer privacy, Protecting Consumer Privacy in an Era of Rapid Change: Recommendations For Businesses and Policymakers (March 2012), the FTC is willing to act whenever a company's practices might "unexpectedly reveal previously private information even absent physical or financial harm, or unwarranted intrusions." As far as the FTC is concerned, privacy protections extend to all "consumer data that can be reasonably linked to a specific consumer, computer, or other device," not just personal data.

Data brokers being watched
Data brokers are also in the target sites of the FTC. In Data Brokers: A Call for Transparency and Accountability (May 2014), the Commission specifically called out marketers that buy marketing lists from data brokers for tailoring marketing campaigns. The FTC cautioned marketers from using any lists to target on the basis of health, ethnicity or financial status. This same concern applies to programmatic buying, particularly given that today's computer systems have the ability to process huge amounts of data in nanoseconds.

According to a 2014 ANA survey among marketers, 23% responded saying that they understand programmatic buying and have used it. Amazingly, 41% of marketers responding either never heard of the term or have heard it, but don't know what it is or how to use it. Yet 76% of respondents who did use it cited better targeting and "real-time optimization" and 68% believed it offers cost savings. Those are returns no astute marketer can ignore. Programmatic buying will most certainly grow exponentially in 2015.

The ANA study supports the conclusion that while programmatic buying holds great promise, confusion remains a major concern.

Astute marketers should therefore know what's "under the hood" and understand the technology used to conduct programmatic buying. Best practices dictate that marketers

1. Periodically review their website privacy policies and ensure their actual practices are aligned to them.
2. Track legal and press reports related to online programmatic buying, behavioral advertising and data privacy.
3. Identify and consider additional categories of risk for programmatic advertising (e.g., business, legal and compliance, brand management, corporate ethics).
4. Audit media buying companies with specific attention to controls on programmatic buying.
5. Implement corresponding controls for any programmatic advertising projects, including internal policies limiting the collection, use, and sharing of data, as well as policies requiring that targeting be done on an anonymized basis with no re-identification.
6. Explore offering consent to consumers.
7. Institute contractually mandated controls with supply-chain suppliers, and demand transparency in costs incurred for the media from its media buying suppliers.

Programmatic technology enhances media buying productivity. No one argues otherwise.

But absent mechanisms that track and control and transparency that makes it understandable, marketers are seriously challenged to where their money is going and the return on investment. And consumer-privacy rules still apply.

Editor's note: This is the second in a series of pieces by Douglas J. Wood in which he puts seemingly unrelated yet converging developments about ecommerce accountability in perspective and explains why marketers need to prepare for unprecedented changes that lie ahead. Read Part One.