by Berin Szoka & Adam Thierer
This morning, the House Energy & Commerce Committee will hold a hearing on "Behavioral Advertising: Industry Practices And Consumers' Expectations." If nothing else, it promises to be quite entertaining: With full-time Google bashers Jeff Chester and Scott Cleland on the agenda, the likelihood that top Google officials will be burned in effigy appears high!
Chester, self-appointed spokesman for what one might call the People for the Ethical Treatment of Data (PETD) movement, is sure to rant and rave about the impending techno-apocalypse that will, like all his other Chicken-Little scenarios, befall us all if online advertisers were permitted to better tailor ads to consumers' liking. After all, can you imagine the nightmare of less annoying ads that might actually convey more useful information to consumers? Isn't serving up "untargeted" dumb banner ads for Viagra to young women and Victoria's Secret ads to Catholic school kids the pinnacle of modern online advertising? God forbid we actually make advertising more relevant and interest-based! (Those Catholic school boys may appreciate the lingerie ads, but few will likely buy bras.)
Anyway, according to National Journal's Tech Daily Dose, the hearing lineup also includes:
We have previously set forth a framework for analyzing advertising policy issues in two PFF reports: "Online Advertising & User Privacy: Principles to Guide the Debate" and "Targeted Online Advertising: What's the Harm & Where Are We Heading?" At root, our model depends heavily on two common-sense, and inter-related, principles:
We are deeply concerned that too few people are talking about--or even understand the relevance of--those two principles in the debate over targeted online advertising. It seems that too many who wish to retard the further evolution of the advertising marketplace are living a lie based upon the antithesis of our model. Many privacy advocates seem to imagine that regulatory actions don't have consequences and that Congress can simply mandate new privacy standards for the Internet without having any impact on the free flow of ideas supported by, and direct facilitated through, advertising.
Simply put, the privacy critics often imagine that their values are indicative of everyone's values. Our blogging colleague Jim Harper of the Cato Institute has referred to this as "preference imposition" but we'll use a simpler term: Elitism. In essence, privacy advocates seem to believe that:
The regulatory advocates complain that giving consumers the right to opt-out of data collection and use isn't meaningful because very few consumers will exercise the opt-out. Again, they presume that this must be because users just don't know what's good for them because of course if they really understood what was being done with "their data," they would never choose to just "give it away" for a few scraps from the advertisers' table. It never occurs to them that (i) many, perhaps most, users just don't care and that (ii) that their "ignorance" about the all specific details of "how the sausage is made" (online data collection and use practices for targeting advertising) may be completely rational.
But just as importantly, would-be privacy regulatory don't seem to understand--or perhaps simply don't care--that what's true of opt-out is also true of opt-in: in practice, few people will bother doing either. In a world of perfect information and infinite time, of course, there would be no difference in outcomes with the two different rules. But in the real world with real constraints on time, knowledge and everything else, mandating opt-in would make all the difference in the world by severely limiting the ability of advertisres to target advertising.
The Ignored Trade-offs
We've been assembling evidence on the real-world costs of restricting targeted advertising. Here are just a few data points we've seen to give you a sense of what's at stake:
But if such websites could target advertising to users' user's likely interests based on an anonymous profile of their interests created by collecting data about their browsing "behavior," web content becomes valuable because of the audience it attracts, not just because the content itself serves as a rough proxy for a user's interests. This democratization of Internet advertising revenue is essential for sustaining the future of journalism in particular, but also for "free" culture more generally.
As we noted in our response to the FTC's proposed self-regulatory guidelines on data collection for advertising:
Depending on how regulation is structured, therefore, it is possible that new privacy mandates would severely curtail the overall quantity of content and services offered--and greatly limit the ability of new providers to enter the market with innovative offerings. Alternatively, or perhaps additionally, companies would change the character of their offerings and water-down sophisticated services that cater to consumer demand; in other words, the quality of service would deteriorate.
Bottom line: Something must give because there is no free lunch. Regulation is a giant game of economic whack-a-mole: Attempting to control one of the primary variables of price, quantity, or quality inevitably results in non-optimal adjustments in the other two variables. The absence of price as a variable in this context means there is one less variable for the government to control in the first place. Simply stated, stifling the evolution of the online advertising marketplace will likely result in fewer free online services and less content, less high-quality online services and content, or some combination of both...
We stand at an important crossroads in the debate over the online marketplace and the future of a "free and open" Internet. Many of those who celebrate that goal focus on concepts like "net neutrality" at the distribution layer, but what really keeps the Internet so "free and open" is the economic engine of online advertising at the applications and content layers. If misguided government regulation chokes off the Internet's growth or evolution, we would be killing the goose that laid the golden eggs....
These observations are even more relevant to the online marketplace, where advertising has been shown to be the only business model with any real staying power. Walled gardens, pay-per-view, micropayments, and subscription-based business models are all languishing. Consequently, the overall health of the Internet economy and the aggregate amount of information and speech that can be supported online are fundamentally tied up with the question of whether we allow the online advertising marketplace to evolve in an efficient, dynamic fashion. Heavy-handed privacy regulation (or co-regulation) could, therefore, become the equivalent of a disastrous industrial policy for the Internet that chokes off the resources needed to fuel e-commerce and online free speech going forward.
For these reasons, we have repeatedly issued the following three-part challenge in our previous work to those who advocate the regulation of online advertising:
We've also made it clear that there is an alternative to the pre-emptive, one-size-fits-all regulation demanded by the regulatory advocates: We've proposed a "layered approach" based on user education, user empowerment, self-regulation and FTC enforcement of privacy policies. Our goal is as follows:
The ideal state of affairs would be to create a system of tools and data disclosure practices that would empower each user to implement their personal privacy preferences while also recognizing the freedom of those who rely on advertising revenues to "condition the use of their products and services on disclosure of information"--not to mention the viewing of ads!
Self-regulatory efforts can be refined, especially through technological innovation to better satisfy the concerns of policymakers, privacy advocates, and average consumers. For example, if websites and ad networks participating in a self-regulatory framework supplemented their current "natural language" privacy policies with equivalent "machine-readable" code [e.g., P3p], that data could be "read" by browser tools that would implement pre-specified user preferences by blocking the collection of information depending on whether the privacy policies of certain websites or ad networks met the user's preferences about data-use. Such robust and granular disclosure, if implemented for behavioral advertising, would exceed the wildest dreams of those who argue that users currently do not read privacy policies--without disrupting the browsing experience or cluttering websites. But this system would only work if users had to make real choices about "pay*ing+ for 'free' content and services by disclosing their personal information."
On some level, this debate isn't about user privacy at all, but about the alleged evils of advertising as inherently manipulative. Jeff Chester straddles both camps. His rantings about the use of "neuromarketing" boil down to the same simple idea that the Neo-Marxists have been pushing for decades: Since people are stupid, ignorant and/or lazy (see above), they're easy to control and trick with shiny objects, pretty faces, memorable slogans, and catchy jingles. No better response to this argument has ever been made than was offered in this 1959 magazine ad by the ad firm Young & Rubicam (emphasis added for Chester's benefit):
There is no chestnut more overworked than the critical whinny:
"Advertising sells people things they don't need."
We, as one agency, plead guilty. Advertising does sell people things they don't need. Things like television sets, automobiles, catsup, mattresses, cosmetics, ranges, refrigerators, and so on and on.
People don't really need these things. People don't really need art, music, literature, newspapers, historians. wheels, calendars, philosophy, or, for that matter, critics of advertising, either.
All people really need is a cave, a piece of meat and, possibly, a fire.
The complex thing we call civilization is made up of luxuries. An eminent philosopher of our time has written that great art is superior to lesser art in the degree that it is "life-enhancing." Perhaps something of the sane thing can be claimed for the products that are sold through advertising.
They enhance life, to whatever degree they can.