FTC – 1; Cookie Monster – 0: Impact of “Do Not Track” Legislation on Behavioral Targeting

Last week, the FTC published its proposal for regulating how advertisers track online consumers for the purpose of better serving digital advertisements.  The proposal is spurred by repeated consumer complaints about perceived privacy violations with respect to how consumers are targeted with display ads online.  The New York Times published several articles in the fall around how consumers were getting “stalked” by advertisers who follow them around the web – which has roused popular ire.

What does this mean to advertisers – specifically around display and social media advertising? (This is less of a paid search issue.)

Here are my thoughts on the issue:

• First, consumers already have the ability to temporarily opt out of all digital advertising — it is called “clear your cookie cache” in the browser controls.
• But this proposal says that any advertiser (or browser) must offer the option to opt out at the point of the cookie “drop” – so on the ad itself.   The goal seems to be to make it more targeted and easier for consumers to opt out (as opposed to having to click three times in the Windows Control Panel).
• There is an apt and excellent parallel between the expected impact of this type of legislation.  The decade old “Do Not Call” registry for telemarketing calls works in a very similar way.  I used to do credit card marketing for several large credit card companies and we used telemarketing aggressively.  The impact of Do Not Call was that ~15% of the overall consumer list had opted out after 10 years.  So this was an important, but not necessarily a material change.
• It is valuable to note that for the Do Not Call list for telemarketing and direct mail there was an unintended consequence for consumers.  The credit card companies continued to market, but they just did so in less targeted ways. Instead of telemarketing calls, they did more direct mailers, more TV ads, more statement stuffers – all of which were less effective, more expensive, and bombard the consumer with different types of unsolicited advertisements and marketing.

For digital, behaviorally targeted ads account for a large part of the overall display and digital media pie. IAB estimates 80% of display ads have some level of targeting involved.  And why? Because they work!  People who search for “auto loan” are tipping their hand that they are in the market – so they are going to be bombarded with car-related ads.  So similar conclusions can be drawn.

My view – this type of regulation is dumb.  It creates inefficiencies in the market.  Advertisers that abuse their use of personal information will be punished by the market.  Same way telemarketers are.  Let me provide an example.  One of our clients is a manufacturer of cancer related drugs.  They were using retargeting aggressively, but they stopped when they received feedback that consumers did not want to be stalked around the net by companies promoting cures for cancer.  They received the feedback, they agreed that their product was not ideally suited to this type of behavioral targeting, and they self regulated.

Advertisers have the right to market their products – and if they can use public information (which is what cookie-based behavioral targeting is based on) to divine user intent – they are creating more efficient markets, not invading privacy.  The FTC proposal provides consumers with “recourse” – but at a cost.

1. Customers will have a recourse to “punish” marketers who abuse their behavioral targeting.
2. The impact, if like in telemarketing, will not diminish inventory significantly – and in fact acts like a form of behavioral targeting (expressed massive disinterest).
3. Consumers, even if they opt out, will still get marketed to – just with “spray and pray” advertising – i.e., non-targeted.
4. Overall, the cost of marketing will increase, with little to temper consumer dissatisfaction with advertising. The only remedy is to … well, build better ads.

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