FTC’s New Code-Cracker Says Web Marketers Don’t Need Tracking

Internet marketers may be able to persuade consumers to provide better data about themselves voluntarily than companies collect by tracking Web behavior, the Federal Trade Commission’s new technology chief says.

Edward Felten, known for cracking the music industry’s digital-copyright protection code, was hired by FTC Chairman Jonathan Leibowitz to help determine how user privacy can be protected in the $26 billion online advertising industry, which collects Web-surfing habits to deliver personalized ads.

Felten, 47, a professor of computer science and public affairs at Princeton University in Princeton, New Jersey, will be the agency’s first chief technology officer. He starts full- time Jan. 1.

If advertisers ask consumers what they want directly, “that information may be more accurate than what the company has deduced about the user,” Felten said in an interview at the FTC’s Washington office. “And the user may have a higher comfort level deciding what information to provide rather than worrying about what inferences might be made from what they’ve gathered.”

Growth of the online advertising industry, led by companies such as Microsoft Corp., Google Inc., Yahoo! Inc. and AOL Inc., is at stake as advocacy groups and regulators question how information about the online behavior of consumers is collected, analyzed and distributed.

Source: Denise Applewhite/Princeton University Office of Communications

Edward Felten, known for cracking the music industry’s digital copyright protection code, was hired by the FTC to help figure out how no-tracking tools may work in the online advertising industry. Close

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Source: Denise Applewhite/Princeton University Office of Communications

Edward Felten, known for cracking the music industry’s digital copyright protection code, was hired by the FTC to help figure out how no-tracking tools may work in the online advertising industry.

‘Feasible Options’

A privacy report issued by the FTC on Dec. 1 urged creating a do-not-track option. It would let consumers block their browsing habits from marketers.

Felten is studying the workings of such blocking mechanisms, including a tracking-protection option offered in Microsoft’s Explorer 9 browser released Dec. 7 and Google’s advertising-preferences manager. A group of researchers at Stanford University in Palo Alto, California, also has developed a way for browsers to notify websites that a visitor doesn’t want information collected.

“These are feasible options,” Felten said. “The question of what is best is something we are still discussing. I don’t get the sense the FTC is in a rush to mandate a unified system.”

Felten, who reports directly to FTC Chairman Leibowitz, won a challenge in 2001 from the music industry’s Secure Digital Music Initiative Foundation, which asked researchers to test the “digital watermarks” that secured music files to discourage copying and distribution of pirated material.

Code-Cracker

The watermarks are inaudible messages hidden in music that provide copyright information to MP3 players and recorders. The devices won’t copy music with the security code.

Felten cracked the code, and when he said he would make the results public, the foundation threatened to sue him. His findings were eventually published under an agreement with the foundation, Felten said. He also discovered security flaws in electronic voting machines.

Felten’s expertise was welcomed by Jeff Chester, executive director of the Washington-based Center for Digital Democracy, an advocacy group for online consumer protection.

“For years, online marketers have tried to pull the wool over the eyes of the FTC,” Chester said in an interview. “Now the FTC has a one-person truth squad who understands the techno- babble.”

Internet tracking uses strings of text called cookies that a website stores on the user’s computer hard drive. The cookie can collect information including the person’s unique computer- identification number, terms used for searches and names of websites visited. The data can be combined with demographic and purchasing information to create profiles of people that are sold to businesses to target ads for specific products and services.

‘Nothing Sinister’

Marketers say they can do a better job of delivering relevant advertisements if they know the individual’s interests.

Reduced consumer trust might hamper the industry’s growth, whose revenue is forecast to increase 74 percent to $40 billion by 2015 from $23 billion in 2009, according to Brian Wieser, director of industry analysis at Magna Global, a unit of Interpublic Group of Cos., a New York-based owner of advertising agencies.

“Marketers are already working overtime to approach consumers directly,” said Stuart Ingis, a partner at Venable LLP in Washington, which is advising a coalition that represents more than 5,000 advertisers led by the Direct Marketing Association and the American Association of Advertising Agencies.

“Being able to identify people’s interests efficiently through the Web and serve them ads accordingly benefits consumers and is crucial to the development of the Internet,” Ingis said in an interview. “There is nothing sinister about it.”

Closer Look

The online advertising coalition introduced a self- regulating initiative in October to let consumers opt out of being tracked across the Internet by clicking on an icon.

“There are alternatives between tracking and a dumbing down” that results in the same ads being seen by everyone, according to Felten. Marketing based on an individual’s interests can be valuable to both consumers and companies if done in ways that make people comfortable, he said.

The administrations of Bill Clinton and George W. Bush didn’t place constraints on Internet data collection in order to encourage development of the online economy. Now regulators and lawmakers are taking a closer look at what rules are needed.

The Commerce Department issued a report Dec. 16 urging Web companies to work with the government and consumer groups to craft privacy measures to protect online users.

Felten, who says he likes to run and cook Mexican food in his spare time, is taking a leave of absence from Princeton to join the FTC. He also will advise the agency on upgrading its own technology knowhow as well as its cybersecurity activity and competition reviews of technology companies.

He’ll be spending less time writing his blog, Freedom to Tinker, Felten said.

To contact the reporter on this story: Sara Forden in Washington at sforden@bloomberg.net

To contact the editor responsible for this story: Larry Liebert at lliebert@bloomberg.net

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