'Do Not Track' Could Backfire

Adoption of a federal list intended to limit monitoring of Web surfers could lead to a barrage of extra advertisingon some of the most popular sites

Consumer protection advocates are pushing hard for the adoption of a "Do Not Track" list that would make it harder for online advertisers to monitor the surfing habits of Web users. The measure is designed to protect the privacy of consumers who don't want marketers to keep tabs on the sites they visit and then deliver ads based on what those sites say about a person's interests.

Backers of the list take their cues from the success of the National Do Not Call Registry, which put the kibosh on unwanted sales calls. "Our idea is really to take the model of the Do Not Call list and ask how you apply that to the Internet," says Pam Dixon, executive director of the World Privacy Forum, one of several interest groups that asked the Federal Trade Commission to adopt the list. "You would go to the Federal Trade Commission Web site, click on a list, it would download to a Web browser, and that would be it," says Dixon.

Maybe not. Adoption of the list could result in some unintended consequences that consumers may also find off-putting. For one, a Do Not Track list could actually increase the volume of online ads, according to Web advertising companies.

Compensating for the Loss of Revenue

The reason for the potential ad increase is related to a key difference between telemarketing and online advertising. When individual consumers add their names to the Do Not Call Registry, they stop receiving sales phone calls altogether. Web surfers who join the proposed Do Not Track list, however, would still see online ads, just not ads targeted specifically to them. Ad networks argue that, because targeting increases ad prices, each ad seen by those on the list would be cheaper than ads seen by people not on the list. Thus, a Web site probably would have to show more ads to compensate for the loss of revenue from targeted ads.

"The value of advertising on the Internet would drop because you couldn't say, 'This is a finance person. Let me show them a finance ad,'" says Tim Vanderhook, chief executive of Specific Media, one of the largest privately held behaviorally targeted ad networks. "So the only way to make as much money is a) make them pay or b) show them more ads."

The Likely Choice

Of course, Web publishers could choose option A. But that's unlikely. Consumers have demonstrated that they are more willing to go to free, ad-supported Web sites than to pay for access to sites. Take news sites, for example. The Wall Street Journal Online, one of the most successful paid sites on the Web, has about 1 million subscribers (BusinessWeek.com, 8/10/07). The number of registered users for New York Times' (NYT) free site is more than 10 times the number of WSJ Online subscribers. The willingness of consumers to see more ads, rather than pay subscription fees, is the chief reason the majority of Web sites rely on advertising.

And the sites most likely to be flooded with ads as a result of a Do Not Track list are also some of the most popular. Top news sites and social networks, such as Facebook and News Corp.'s (NWS) MySpace, where users supply a broad array of content, do not have the clear product association of, say, an autos site. They rely heavily on advertising networks or search providers such as Google (GOOG) and Microsoft (MSFT) to supply the additional targeting needed to raise the price of their advertising inventory.

A Lot Depends on Consumers

Ad targeting enables Web sites to display fewer ads than they would without targeting. "Sites like Cars.com are never going to have a problem getting advertising," says Dave Morgan, founder of Tacoda, an online ad network focused on behavioral targeting that was bought by AOL in July. "But sites like the Associated Press are really challenged for how they are going to get support. If you don't have techniques like behavioral targeting you are going to have a tough time supporting entities like the Associated Press in the future."

Whether the FTC heeds calls for a Do Not Track list will depend largely on whether consumers begin clamoring for one. Consumers clearly are concerned about their privacy. When AOL inadvertently released search data (BusinessWeek.com, 8/23/07) on 650,000 customers that was not expressly tied to individuals, many people sued and many more swore to stop using AOL's service entirely. The company later apologized and recently started letting users opt out of being tracked.

However, it's not clear that consumers care about privacy so much that they would be willing to pay for a service or see even more ads. Philip Kaplan, founder and president of products at AdBrite, which provides ad targeting, says his company originally refused to track user behavior, but found that nobody cared. Since not using that kind of targeting left him without a competitive edge, he eventually started using it. "Privacy is an old man's concern," says Kaplan. "Look at what kids are putting on the Internet these days…who they are married to, who their friends are, what they do."

Dixon, of the World Privacy Forum, agrees that some people may not care. The point, she says, is to give the people who are concerned a way to use the Web without being tracked and to raise awareness of what advertisers are doing on the Web. After all, consumers who don't want their online behavior tracked already have a way to opt out—at networkadvertising.org. However, few people have heard of that program, says Dixon. And few people set their browser to block so-called cookies, the tracking tags that enable much of the targeting on the Web today.

Pushing for More Transparency

Ad networks and publishers agree that more transparency in how online behavior is tracked is beneficial. Vanderhook says that companies with good practices should be highlighted while companies that target ads on sensitive information—say, showing ads about AIDS drugs to a person who may have visited a site on coping with HIV—should be called out and urged to change their practices. "We welcome innovative ideas in this area and believe the industry as a whole should, too," says a Google spokeswoman. "We look forward to learning more."

What Google doesn't want to see, however, is any list that negates the value of the ad targeting and delivery network it plans to acquire. Google announced plans to purchase DoubleClick, an ad delivery network that uses cookies to recognize Web surfers, for $3.1 billion in April, and many other major online players followed suit with ad network acquisitions of their own. The Google/DoubleClick deal is under review by the FTC and has been a catalyst to the recent privacy discussions.

In hopes that the FTC doesn't take overly restrictive measures, the industry is likely to adopt more stringent guidelines on their own behavior—what they track, how they safeguard privacy, and how they keep data anonymous. "Further transparency will lead to further tradeoffs by publishers to get individuals to say yes to targeted ads," says eMarketer's David Hallerman.

Join a debate about Web-surfing on company time

Before it's here, it's on the Bloomberg Terminal. LEARN MORE