It was a matter of time before the winds of regulation blew over the mysterious world of digital advertising and behavioral targeting, just as they blew out the telemarketing-junk call industry in the 1980s, email spammers in the 1990s, and pay-per-post blogola two years ago. I think it's inevitable that the government will regulate online tracking and I believe the result -- counter to fears it will decimate digital advertising -- will be a much needed catalyst for innovation in online advertising.
From the 12.6.10 New York Times: "If the vast majority of online users chose not to have their Internet activity tracked, the proposed “do not track” system could have a severe effect on the industry, some experts say. It would cause major harm to the companies like online advertising networks, small and midsize publishers and technology companies like Yahoo that earn a large percentage of their revenue from advertising that is tailored to users based on the sites they have visited."
Nothing gets the public's libertarian hackles up like a threat to their privacy, even though 99% of them have no clue what constitutes identity and personal privacy in the digital age. The declared intentions of the Federal Trade Commission to crack down on online advertising use of tracking beacons, pixels or cookies is inevitable and has been brewing since 1995 when Mark Andreesen and Netscape first introduced the cookie to great consternation and misunderstanding.
This is an old issue, one that tracks back to the mid-1990s and was embodied by the famous comment by Sun Microsystem's CEO, Scott McNeally: "You have zero privacy. Get over it." McNeally uttered those words at a time when the technology and media industries were trying to head off government regulation by forming the Online Privacy Alliance (OPA). Evidently self-regulation hasn't been enough, and now the industry is on the brink of having some new regulations to conform to.
Let's look at what the issue is and how things got to the point that the issue officially was blessed as the most significant story of the day in early December by the front page of the New York Times. The Wall Street Journal's Julie Angwin gets the most credit for raking the privacy muck in a shrill series that is encapsulated on this page on the Journal's site which is actually a very comprehensive and chilling catalogue of news about the state of digital privacy in modern America. While some critics like Jeff Jarvis have accused the Journal of being breathlessly alarmist and turning the practice of cookie-based advertising into the modern equivalent of Reefer Madness, the Journal has persisted, making it an inevitable outcome that sooner or later some bureaucrats and Congressmen would take up the call and file a bill.
Let me attempt to simplify the issue in lurid terms: Web publishers and digital advertising companies are colluding to sneak invisible tracking devices onto your computer which report back personal information about you so they can deliver targeted advertisements to you and share your personal information with marketers, and other interested parties.
The issue comes down to whether or not a web user has the right, by default, to ban the placement of cookies or "invisible tracking pixels" on their PC when they visit a website or click on an ad. These cookies are the digital equivalent of a tracking device snuck under the bumper of your car so your whereabouts can be tracked by the cops or enemy spies.
One of the most prevalent digital bugs or tracking cookies is the Adobe-Omniture 2o7.net tracker. Omniture is a very powerful web metrics tool that web publishers and corporate web sites use to analyze traffic patterns and user behaviors. Most major e-commerce sites use the tool and I've spent a lot of time in its dashboards analyzing metrics at CIO.com and Lenovo.com. This is an expensive tool, not something a typical Internet scam artist would use to hatch some evil plan, and it never reports back any personal information about site visitors. Your name, your address, your phone number, your social security number .... none of its transferred back to the analyst.
Yet the 2o7 tracking cookie it classified as spyware and a threat by most spyware scanners. Why?
Privacy is becoming a matter of degrees. While your name may not be passed without your knowledge, your IP address is. And someone with a subpoena and some diligence can, in theory, track you down to a specific geographical address. Your personal information -- from your online medical records to your bank account numbers -- all of it exposed and can be stolen by a criminal clever enough to trick you into parting with that information on a fake site or through so-called "social" engineering. Identity theft is a very real threat online, and tends to trick the nontechnical, unsophisticated users the most.
But what does a ban on tracking cookies do to online advertising?
First, it will have an impact on re-targeting. This is where a site like Lenovo.com or Filson.com (two online retails I happen to visit occasionally) plant a tracker into your browser and then use it to trigger ads for their products when you visit other sites. So, if I go to Lenovo's ThinkPad store and check out a T410S, I can usually expect to see a lot of Lenovo ads as I surf around to CNET, PC Magazine, and any other sites that Lenovo's advertising agency deems appropriate to display the client's ads on. Do these ads greet me by name? No. Are they intelligent enough to distinguish my interest in one product over another? No. Do they get progressively more aggressive in offering me a better price as time goes by? No.
In some regards, re-targeting is somewhat pathetic. It sounds semi-intelligent to follow a visitor around and throw more ads at them, but in reality you have to keep in mind one very real fact: online advertising is, for the most part, completely ignored by most users. Click through rates have been declining on most display (graphical) ads since they were introduced in the mid-1990s, and only so-called rich media ads featuring video or some form of dynamic multimedia are getting higher CTRs. We're talking click rates under 1%. Digital ads remain noise for the most part, and the only stuff that seems to have legs -- witness the phenomenal one-trick pony known as Google -- is contextual search advertising (which does not use tracking cookies).
As tracking and re-targeting comes under fire a few things will happen. First, advertisers will lose insight into the buying patterns or behaviors of customers, and selecting media for their advertising will become more difficult. Will advertisers regress to what is known as last-click attribution, where credit for a sale, registration or other "success event" be credited to the last ad or link the user clicked before arriving in a store to make a purchase? Perhaps, but I think what will happen is the 2011 equivalent of New York City's solution to the threat of being buried under too much horse manure in the late 19th century -- technology (in NYC's case the automobile) will simply cause the problem to become moot. Advertisers and agencies have been lazy and deceiving themselves that they have some semblance of intelligence in their metrics -- which they laud as "behavioral targeting" - when in fact it's ad insertion based on cookie triggers, nothing more. Take away the cookie and I guarantee some motivated entrepreneur will rush to the table with a new ad format that performs without them.
So, bottom line, bring on the era of regulation, punish the most egregious offenders, and stay tuned for the online advertising industry to evolve into a more intelligent form of advertising which has been overdue since the invention of contextual search ads by Bill Gross.