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(Originally published in iMediaConnection, August 2010) by Eric Picard

Privacy is something I’ve been concerned about for some time when it comes to online advertising. John Hagel and Marc Singer’s excellent book “Net Worth” raised the issue in a significant way for me from a business perspective, way back in the ’90s, and Cory Doctorow’s recent novel “Little Brother” paints a bleak picture of what could happen to private citizens if privacy isn’t carefully guarded.

I raise this, of course, because of the recent Wall Street Journal and New York Times articles that have raised the specter of major privacy concerns because of the widespread tracking done by numerous parties in the online advertising space. I began worrying about the likelihood that targeting and privacy would begin to clash in a significant way back in 2004 when I started to understand what was going to happen with display advertising as we moved as an industry away from selling mainly context-based display ads and toward personalized, highly targeted audience-based display ads. And as we began moving toward automated buying systems and real-time bidding for ads based on audience attributes over the last five years, I knew we were in for it once again. From my point of view, it’s always been about when, not if, we were going to run into a consumer backlash against how much data we can (and do) collect in the online space.

Of course, the part that is a little ironic is that very detailed tracking of purchasing behavior and extrapolation of that behavior to other personal life stages and psychographic profiles (a process that is pretty accurate) of each person’s behavior has been common for decades via credit cards, financial services, and offline (traditional) targeting for direct marketing. And for the most part this hasn’t been widely reviled by the press, nor has it caused a consumer backlash against so-called massive mega-corporations with vast amounts of data about what we personally buy, do, and who we are.

Yes, it’s ironic that traditional marketing media have been tracking far more data than we can today online, and yes, it really could be interpreted that we are “less bad” than our traditional media cousins. However, this is not really a strong defensive statement, though it is still frequently stated by my colleagues in this industry. Perhaps only slightly less frequently than that other old nugget about consumers getting the benefit of “more relevant” or “personalized advertising” if they submit to being tracked for the purposes of selling targeted advertising against their anonymous profiles. This is, of course, only a statement I’ve ever heard espoused by folks in the online advertising industry — and not something consumers are consciously happy or excited about, nor something almost any consumer would react positively to.

It’s a bad meme — something we as an industry know to be true (after all, many magazines, as an example, are bought just as much to see the ads as read the articles. Think fashion, home improvement, and technology magazines if you disagree.) But that just isn’t a powerful message for consumers, and it is generally used by the press with some sarcasm to show how out of touch we are with consumers. And don’t get me wrong — I’ve made these statements myself. In fact, I was videotaped last year for a privacy-related video where I talk about targeting and online advertising — and I ultimately don’t get much beyond any of the arguments above in my short clip.

So, what is the issue here? Let’s look at some of the main questions being posed:

• Should we be able to target ads based on tracking of anonymous user behavior? I believe so.
• Is there significant chance of consumers being personally identified and something nefarious happening to them? Not today — although down the road, that could change as computing power gets much more advanced.
• Do consumers get any value from targeting that we can use as a value proposition in educating them about these issues? Absolutely yes, but which messages we should use are not always clear.
• Is the massive amount of data being tracked about consumer behavior a good thing or a bad thing? Well, that depends.

The advertising economy
When my parents were children in large working-class families in Massachusetts, it was a very big deal to have chicken for dinner. Chicken dinner was something their families typically had on Sunday — with a large family carefully dividing up a relatively small bird (by today’s standards.) Oranges might be available at certain times of year, but year-round access to all sorts of fresh vegetables and fruits was simply unheard of. And products in general were scarcer, relatively costlier, and were generally less affordable to large swaths of the population.

But with advances in supply chain management, modern manufacturing and farming techniques, and reduced transportation costs, the way the average modern family lives would be considered vastly wealthier and more privileged by the standards of my parents’ or grandparents’ generations.

As technology across all industries improves, we continue to see cost reductions in products and a wider variety of products due to general efficiencies and capabilities growing over time. And as media has fragmented, we’ve seen the costs and inefficiencies of marketing and advertising grow significantly as well. Targeting and personalization of marketing are mechanisms that help us rein in the growing costs and gain efficiency as well as effectiveness.

I have a core belief that I’d like to share with you. I believe that advertising is a fundamental driver of our economy. Advertising, as it so happens, actually works. Companies that advertise (especially those that do it well) sell more products and services. Those companies prosper, and hire more employees to work for them, thereby creating more jobs. And this virtuous cycle is very clear.

It is fairly well understood that watching the marketing spend of major corporations is a major predictor of the economy. When marketing spend drops, the economy soon drops as well. And it’s a leading indicator of a return to economic health — when marketing spend increases, the economy is on its way back to health. The question is: Which is driving which effect? Ultimately, I believe that advertising is both a predictor and a driver of the economy. It’s been shown repeatedly that those companies that increase marketing spend during an economic downturn generally do better during that downturn than competitors, and they tend to have incredible long-term advantage over competitors that decreased spend during the downturn. In some cases, this long-term advantage can create a market-leading company.

So when we talk about techniques for improving the effectiveness of advertising, like targeting, I get very excited. I believe there is incredible value to increasing the effectiveness, reducing inefficiency and increasing the amount of spending we do on advertising as a society. The overall increase in economic value from advertising is something I believe in. And one major way to increase the amount of spending done on advertising is to increase efficiency and decrease waste.

That’s where targeting and personalization of advertising are incredibly important. By showing ads to consumers that are relevant to them — and personalized to whatever possible degree — we can help advertisers hone their messages, spend money on reaching the audience interested in their products or services, and do it at scale. The positive impact of this isn’t well understood by most people — even many of those in our industry. Many parrot these words about “more relevant” advertising as if they are a shield to keep away the hounds of regulation. But there is a truth in this message that goes far beyond what is generally understood.

So — is this economic boom on its way? When will we feel its effects? Read on.

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In reality, even the most sophisticated systems we have for targeting and personalizing messages to consumers are pretty bad at it. Even if we knew literally every piece of information about a consumer that could possibly be used to deliver a targeted advertising experience, we couldn’t really do much with it today. Maybe publishers are able to charge a bit more for those ads that can be sold on a targeted basis. And maybe advertisers and agencies can bid higher in real-time for ads they know are going to be delivered to their target audience. But this is really just the beginning of a much more sophisticated advertising industry, and not a world where we can effectively reach an audience with the mythical “right ad at the right time in the right place.”

In a sense, the whole way we go about it is wrong. The surreptitious surveillance of the population in order to data-mine their online activity and build statistically driven models for how to deliver appropriate and relevant ads is possible to some extent today. As computing power grows over the next few years, it will become even more accurate and effective. And eventually the ad creative itself will become intelligent and customize itself to fine-tune the images, sounds, videos, and even the pitches to the individual consumer’s preferences. But doing this quietly in the background — hiding that it is being done — is perhaps destructive to the relationships businesses should be building with their customers.

Hagel and Singer raised this issue very effectively in “Net Worth.” Their prediction was that some entity would become an “infomediary,” building a set of tools and technologies that would allow the user to control what information is tracked about their behavior. This infomediary would enable the user to control which other entities would get access to this data, and perhaps even ensure that the consumer is paid for access to the data that enable better targeting of marketing. In other words, the infomediary would represent the consumer’s data to marketers on their behalf and share the proceeds with them. In 1999, this sounded like so much science fiction. And in a sense, it was. But we’re much closer to a world where this is possible — and desirable to both consumers and businesses.

So is the infomediary the only way to protect consumers?

No. There really isn’t anything shady going on here. While every industry will always have a few “bad actors” who try to game the system, the motivation for targeting marketing communications to potential and existing customers is self-evident value. Any company trying to sell its products must educate potential customers of the fact that its product exists (make them aware), educate them on the value proposition of that product (create purchase intent if it’s possible), and ultimately create demand for that product.

Some products are well suited to some consumers and ill suited to others. Enabling the kind of filtering that shows ads for adventure vacations to those who like to take them and quiet romantic beach vacations to those who are more likely to take them is an easy-to-understand motivation to most people. The concern is that something nefarious will be done with this data. People are concerned that, at best, some big faceless corporation will profit off of data collected on their customers. At worst, people fret that information that is sensitive or embarrassing would be used in a way that somehow affects the consumer.

And why shouldn’t people be worried that something bad will happen, or that they are being “used” by companies and taken advantage of?

Ultimately, we’re in a nice quiet moment where the technology is not yet advanced enough to have much happen — good or bad. While there is definitely a statistical advantage to having the data applied to marketing campaigns, the advantage is really just tightening up efficiencies for marketers at this point. But there’s little question in my mind that things will progress pretty quickly; within three to five years, much more sophisticated and effective technologies will exist.

I do think that the ad industry has a golden opportunity to self-regulate, and it’s also likely that some form of regulation will be applied to this space as well in the next few years. I’m personally not happy about this, as the nuance in how these technologies work is quite important. Heavy-handed regulations will stymie the development of this space at a time we can ill afford it.

An argument could be made that if a viable infomediary model were to arise, consumers could share in the revenue generated by it. But the reality is that we’re talking about a very small amount of money. On the individual consumer’s behalf, it’s probably not enough money to be meaningful. On the other hand, the impact that the data could have on advertising spending is significant, and the positive impact of this would be incredibly valuable to all consumers.

Before legislators begin jumping in and trying to “protect consumers” from this kind of technology, they should really understand what both the downside and upside of these technologies are likely to be. The downside is relatively painless, while the upside is potentially massive. There are great opportunities for this nascent industry to get momentum and really create a positive impact. But that will only happen if we as an industry are careful to avoid any perception of bad behavior in the way we track consumer behavior and target the delivery of ads.