Analyzing the Perils of Government Regulation

During my 14 years in the online marketing business, I’ve never seen this much government scrutiny of digital marketing practices. Some may see government interest as a sign of a maturing industry now large enough to capture the attention of regulators, lawmakers, and enforcement agencies. I’m concerned, however, that the digital media industry (a far broader industry than just SEM (define) and online marketing) may find itself trying to unring a bell if zealous and perhaps misguided regulators put in place rules and regulations or take other measures that harm the overall digital marketing ecosystem. Search, in particular, is vulnerable because the behavioral trigger profile information contained in search behavior is extremely good at targeting ads to consumers in a relevant way outside the SERP (define).

Over the last year, I’ve gotten calls from several state attorneys general, the Department of Justice, staff from more than one U.S. senator, and the Federal Trade Commission (FTC). And those are just the calls I can remember. These regulatory, enforcement, and lawmaking bodies are reacting to a variety of stimuli, including advocacy and nonprofit groups, lobbyists, the media, and perhaps even their constituents.

A legal issues panel at the Affiliate Summit this week discussed several legal and regulatory topics that we as an industry may find ourselves facing in the future, as well as those we must worry about now. The panel was made up of highly knowledgeable and influential players in the legal arena, including Leonard L. Gordon, regional director, FTC; Jeffrey Greenbaum, partner, Frankfurt Kurnit Klein & Selz; Will Haselden, founder and chief of the Florida Attorney General’s cyberfraud section; and Bennet Kelley, founder, Internet Law Center.

Interestingly, the common theme among presenters is that regulation and enforcement are inevitable and that as an industry we may be unprepared for new rules and enforcement actions. There are federal, state, and local laws and standards, not to mention international issues. The overlapping jurisdictions and inclusion of self-regulating industry associations and bodies further muddy the water. Many enforcement agencies and attorneys general have fairly broad latitude to right any wrongs they perceive occurring online and off-, using doctrines relating to “unfair and deceptive acts or practices.”

In presenting this material, all the presenters discussed case studies where a marketer or business was taken to task based on their violation of a specific law or deceptive practice. Quite often, things didn’t end well for the business, which received significant fines and faced restrictions affecting its ability to do business in the future. These cases often caused regulatory scrutiny to go way up, not only for the specific offender but also for the industry as a whole, particularly the offender’s closest competitors.

If as an industry we aren’t prepared for the onslaught of regulatory activity, we may find our evolving ecosystem hobbled before it can demonstrate that many technologies in question actually create a better overall user experience for the consumer — as in the case with behavioral targeting of advertising when accompanied with adequate disclosure and opt-out options. The Interactive Advertising Bureau (IAB) has been attempted to manage the threat of government regulation, particularly when that regulation may not be in the best interest of the consumer as well as publishers and marketers. However, my greatest concern is that the IAB, individual publishers, ad networks, search engines, and other organizations, like the Direct Marketing Association (DMA), are being primarily reactive, not proactive, to the regulatory threats.

Adequate disclosure was another huge theme in this session. It’s also one I’ve encountered in many of the calls I’ve fielded. The FTC has gone as far as to draft Dot Com Disclosures. I doubt many of you have read it; I read it only because it was brought to my attention. (Gotta love the FTC font choices in this thing. The commission clearly has a sense of humor.)

With all the unsold remnant inventory out there, this industry has an opportunity to educate consumers on why better targeted advertising is good for them and that, like television, online advertising helps support the content they like. In addition to the ad inventory, the industry has the ability within the blogosphere to be more balanced on the positives associated with profile-based advertising accompanied by adequate disclosure and control. AOL’s Mr. Penguin was a great move in that direction, but it doesn’t contrast the relevant ad with an irrelevant ad (emphasizing that you get an ad anyway). Nor does it mention that without targeted advertising, much of the better content may need to move to a pay-per-view or subscription model.

If you are a publisher and have remnant inventory you often provide to nonprofit organizations, I applaud you. But perhaps 10 or 20 percent of this inventory should go toward helping us protect the industry we love and keeps us employed. Similarly, if you run public service announcements to do a controlled test of ad effectiveness, why not create or pick an ad that helps educate consumers on cookies or ad targeting?

Meet Kevin at SES San Jose, August 18-22 at San Jose Convention Center.

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