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Are online targeting regulations inevitable?

December 23, 2010

The battle over behavioral targeting rages on


Luxury marketers remain unclear about the future of Internet advertising as the Department of Commerce released new recommendations outlining the regulation of behavioral targeting and the collection of consumer data online.

The Obama administration called last week for the creation of a Privacy Bill of Rights to protect consumers on the Internet. While the Department of Commerce report outlining the recommendations supported industry self-regulation, concerns about the future of behavioral targeting, and its impact on luxury advertising online, still persist.

“One of the things that we were pleased with was that the Department of Commerce said it supported industry-developed self-regulation, but we are a little bit worried about the form that regulations could take.,” said Linda Woolley, Washington-based executive vice president for government affairs at the Digital Marketing Association.

“The report indicates some desire on the part of the Department of Commerce to take the lead in writing regulations or standards for the industry,” she said. “We would not support that.”

“Any efforts to limit or restrict targeted advertising on the Internet would have a tremendous impact on brands, in general, but probably particularly on luxury brands.”

Privacy framework

The Department of Commerce signaled its intentions last week when it released a report titled, “Commercial Data Privacy and Innovation in the Internet Economy: A Dynamic Policy Framework.”

The report recommends baseline standards for consumer privacy on the Internet and the establishment of a Privacy Policy Office under the Executive Branch.

The Department of Commerce also backed more self-regulatory programs relating to, among other things, behavioral targeting.

In particular, the report suggested Fair Information Practice Principles that would promote transparency and accountability with regard to consumer data collection and limits on the use of such information.

The Privacy Policy Office would work with the Federal Trade Commission to put together codes of conduct for data collection.

"Self-regulation without stronger enforcement is not enough," said Gary Locke, Secretary of the Department of Commerce, Washington, in a statement Dec. 16. "Today's report is a road map for considering a new framework that is good for consumers and businesses."

Mounting tension over regulation

In October, six organizations, including the Direct Marketing Association, the American Association of Advertising Agencies, the American Advertising Federation, the Association of National Advertisers and the Interactive Advertising Bureau, laid out a framework for self-regulation of behavioral targeting (see story).

However, the FTC rebuffed the groups earlier this month by suggesting that the government should mandate a universal Do-Not-Track mechanism that would be available to consumers through their Web browsers, and which trade groups fear would create unjustified panic and an avalanche of opt-outs (see story).

“The report seems to be somewhat consistent with other initiatives that the Obama administration has undertaken,” said Linda Goldstein, partner at Manatt, Phelps & Phillips LLP, New York. “He has already created this new federal financial services commission designed to handle consumer protection issues in that industry.

“I do think it’s curious that its coming at this point, since the FTC just issued its report saying that they believe regulation, rather than self-regulation is the way to go,” she said. “I think that the administration may suspect that with the changing of Congress, it will be more difficult to get any significant privacy legislation.”

Ms. Goldstein, the DMA’s Ms. Woolley and the Association of National Advertisers all said it was too early to tell if the Obama administration’s new privacy initiative would put a significant damper on behavioral targeting.

Behavioral benefits

Behavioral targeting technology tracks individuals as they traverse the Internet and interprets the patterns to determine which ads would be most relevant for specific consumers.

The technology has been the source of much hubbub recently in public discourse and the halls of government.

Many are concerned about the volume of information collected by marketers as consumer’s traverse the Internet.

Several bills have been submitted to Congress dictating the practice’s regulation, although none have yet passed, according to Dan Jaffe, executive vice president of government relations at the Association of National Advertisers, Washington.

Mr. Jaffe said that behavioral targeting is unfairly villainized, as it has the potential to provide a much more relevant advertising experience for consumers.

The benefit is magnified for luxury brands.

Behavioral targeting has proven effective for prestige marketers because it minimizes the number of ads delivered to consumers with no interest or means for purchasing luxury goods.

However, the technology gives high-end brands greater reach to hit affluent consumers with relevant luxury ads with a level of precision unavailable through traditional spray-and-pray online ad buys.

“Luxury brands are not focusing on trying to get everybody to pay attention,” Mr. Jaffe said. “They are looking for those in the higher end of the marketplace using targeted approaches, so behavioral targeting is even more important in that category than others.

“Anything that would undermine that would be really significant,” he said. “It seems as if the Department of Commerce is supporting a self-regulatory approach, which is the right approach – the most constructive and right way to go.

“But, self-regulation has to mean that the business community, seeing the interest of its own customers works out how to regulate targeting – it isn’t going to work that well being imposed from above.”

Final Take
Peter Finocchiaro, editorial assistant at Luxury Daily, New York