Behavioral Targeting Under Fire As ISP Backs Away From Tracking Subscriber Activities

Privacy is dead, get used to it. In the effort to rescue display advertising from its historically dismal performance and so-called “banner blindness,” behavioral targeting (BT) was born a few years ago with Tacoda. It has both increased in popularity and infamy since that time. Consumers prefer more “relevant” ads but they also dislike being tracked. That’s the paradox and the problem with BT.

Here’s the issue in a nutshell. According to a March 2008 survey by Truste (written up in MediaPost), “nearly three out of four people, or 71%, said they realize that companies track their Web browsing activity for purposes of sending them targeted ads. The majority–57%–said they are not comfortable with the practice, even when their browsing history can’t be linked to their names. At the same time, 72% of Web users also told researchers they find irrelevant ads ‘intrusive and annoying.’”

The US Federal Trade Commission (FTC) held hearings on personal data collection and last year proposed voluntary rules for ad targeting on that basis. Just this week the IAB adopted formal guidelines around consumer privacy and when users should be notified and given the opportunity to opt-out of targeting. The IAB’s rules are apparently more “flexible” for publishers and advertisers than the FTC’s and don’t require as many consumer disclosures and notifications.

Every BT firm and practitioner out there will say that it works effectively without personally identifiable information. However, there are many in Washington and Europe, as well as privacy NGOs, who simply don’t buy those claims.

Earlier this year ISPs in the US and UK began collecting data on user behavior for resale to ad networks and others. In the US a firm called NebuAd provides the enabling equipment that captures the data and permits it to be shared with third party advertisers and networks. In the UK NebuAd competes with a company called Phorm. And there are others seeking to bring more targeting capabilities from deeper data mining of user profiles and activities. Yahoo is on the forefront of this in the US.

Yesterday, however, cable ISP Charter Communications backed away from a plan to work with NebuAd, citing privacy issues. According to the Washington Post:

The company had been planning to harvest the stream of data from each Internet customer for clues to their interests and then make money from advertisers who would use the information to target online pitches.

The data-collection effort would have protected personal information, Charter officials said in describing the plan, but critics likened the practice to wiretapping.

Charter said the plan had indefinitely been put on hold. This week, in a parallel but contrary development, the US House of Representatives passed domestic spying legislation that enables federal officials to obtain copies of all communications (phone or Internet) in the US without first obtaining a search warrant or court order.

Privacy advocates see little difference between what firms like NebuAd are doing and the efforts of the US government to spy on citizen communications. It’s therefore somewhat ironic that the US FTC is asking private companies to offer broad disclosures about data collection when the government is adopting an entirely different standard for its own activities. (The justification for the double standard is criminal law enforcement.)

On the advertising side, the question of who “owns” the data and what the scope of protection for that data should be will continue to be the subject of debate for some time. In Europe, it has been proposed that an IP address should be treated as personal information. That position has all sorts of privacy implications that fly in the face of BT and other targeting initiatives. Indeed, most advertisers and ad networks argue against such a policy.

Investor Esther Dyson, in a related piece in the Wall Street Journal this past February, wrote that a “coming ad revolution” is tied to individual management of personal data (on social networks). She also supports NebuAd and related firms in their effort to provide more relevant ads to users. Dyson’s bullishness has a one-sided, naive quality about it, however.

Facebook’s tracking initiative Beacon failed because it was manipulative and somewhat deceitful. Many users didn’t know their behavior was being rebroadcast to their networks. When they found that out, they were upset in many cases. Facebook was forced by bad PR and related negative coverage to drop the program, just as Charter Communications made a similar calculation before the PR problems could begin.

The issue of data mining and ad targeting is extremely complicated. The genie is out of the bottle, however, given that these capabilities exist. And users do prefer more relevant ads. In this environment the challenge is to find the right balance between data collection, discloses, and consumer choice around being tracked.

And that’s not an easy thing for anyone.