Why Online Advertising Should Be Regulated

The Debate"The Debate" is a column focused on the current debate around ad targeting and consumer privacy.

Today's article is written by Auren Hoffman, CEO, Rapleaf.

The online advertising industry is going through rapid and exciting changes. In the past two years, we’ve moved from a publisher-centric model to a network-centric model and now to a data-centric model. Top advertisers can now buy specific audiences in addition to specific publishers.

All of these innovations provide consumers with a better experience with more relevant ads, customized content, and less spam while giving advertisers more confidence in the performance of online ads.

While this technological transformation is enabling a richer and more personalized web, it also raises new privacy concerns for consumers as their data is being analyzed and shared. The increasing lack of clarity about data practices for technology providers and consumers alike will likely impede further growth in online advertising.

While conventional wisdom might hold that regulation is harmful to an industry, we believe closer regulation of online advertising will promote continued innovation by allowing companies to better understand the rules while giving consumers and brands more confidence to engage with online media.

Regulation provides guidelines, promotes growth

Already, our industry is working hard to establish its own rules. The Network Advertising Initiative (NAI) has been very forward looking and has done a great job establishing standard guidelines (such as how to opt-out). The Internet Advertising Bureau (IAB) has also done a tremendous job by establishing a set of principles that govern what is reasonable for online privacy. And together, the NAI and IAB have released the CLEAR Ad specification advocating notices in online ads to tell consumers what information was used to deliver the ad to them, and how that information was collected.

These are important steps to protect privacy. Unfortunately, these institutions are still not well recognized by consumers, and because they are opt-in for advertisers, there remains a profusion of bad practices including use of flash-based cookies, IP targeting, deceptive offers that auto-bill credit cards, and many others.

Absent legislation, some advertisers may try to out-compete others by using practices that work against the long term interests of the ecosystem. Over time, these practices erode the foundation for exciting industry changes, increased use of online services by consumers, and brands’ adoption of advertising technology.

That’s why formal regulation is needed – not only to clarify what the right guidelines are, but also to make sure everyone follows them so that the advertising industry will continue to move forward.

The current state of regulation

Today the federal rules are vague on what is permissible and what is not. If you ask ten experts you are likely to get ten different answers. And we are entering a world where most innovative advertising practices are poorly understood by consumers or unknown altogether. It will take some time and debate before the dust settles and the guidelines are set.

What is clear, however, is that we are in an era where consumers are only slowly awakening to what data is readily available in the 50 milliseconds it takes to serve them an ad. And if consumers cannot fully grasp the implications of behavioral advertising, they will shy away from participation – and brands will be reluctant to drive spending to mistrusted technology.

Specific industry guidelines from Washington would be the clearest signal to consumers and brands that it is safe to participate, enabling innovation to move forward by providing much needed clarity.

Right now there is a healthy debate over the draft legislation put together by Congressman Boucher. Both industry advocates and privacy advocates raise legitimate concerns, and it’s clear that there is work left to do to strike the right balance between the benefits of better advertising and consumer expectations of privacy.

While some pieces of the draft legislation need to be changed, the spirit of the bill is a good one: clarify the rules and make online advertising safer for consumers, content, and brands. Clear federal guidelines are what we need to realize the full potential of our industry.

Follow Auren Hoffman (@auren), RapLeaf (@RapLeaf) and AdExchanger.com (@adexchanger) on Twitter.

5 Comments

  1. I'd go further - I'd also advocate a tax on email distribution large enough to impact spammers, with the proceeds going to public broadband infrastructure. Spammers exist because their revenues, though small, are large enough to offset the minimal cost of sending billions of emails. Make that cost high enough and they will be unable to operate and siphon business away from legitimate businesses.

    Reply
  2. The traditional fear that industry participants have when regulators start to create regulation is that they don't understand the issues well enough. My question here is whether the folks looking at this issue and wanting to make regulation and policy truly understand the nature of the issues they are seeking to regulate.

    I'm honestly surprised at the lack of understanding of many issues around cookies, flash cookies, real-time bidding etc. amongst people IN our industry, let alone those trying to look in and figure it out. Do we really think that those looking at this market and the activities out there will be able to figure it out well enough to come up with fair and correct (technically and business-wise) regulation?

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  3. Unfortunately, there is no such thing as "clear federal guidelines." The government is not in the business of setting "guidelines," that's the job of private industry. The government can only "regulate." Unfortunately, the people in charge of regulating an industry usually are not as well-versed as the people in the industry they're trying to regulate, and they move too slowly to keep up with meaningful developments. If regulation were the answer, there'd be no financial crisis, no gulf oil spill, etc. These things didn't occur due to lack of regulation, they occurred because the regulations were ineffective, outdated, or unenforced. Government regulation spawns ludicrous debates like "net neutrality."

    The online advertising industry cannot and should not rely on the Federal government to set its guidelines. If we do, the guidelines will end up be wrong, outdated, and meaningless.

    Reply
  4. Interesting thoughts. The book "Ruling the Waves: From the Compass to the Internet, a History of Business and Politics along the Technological Frontier", has some interesting perspectives based on history, regarding an industry asking a government to regulate it.

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