FTC Warns of Impending Government Regulation of Web Ad Industry

All signs point to official government intervention in the online ad industry.

As the Federal Trade Commission, Federal legislators and state agencies heighten interest in how marketers use consumer data, it’s clear the industry is running out of time to establish a self-policing regime.

“We sounded the clear call for self-regulators,” said Eileen Harrington, Deputy Director of the Bureau of Consumer Protection for the FTC. That clear call was a set of self-regulatory guidelines put forth by the FTC late last year.

Either firms involved with behavioral targeting provide clear notice to Web users about data collection, she continued, “Or it’s going to get done.” In other words, if the industry doesn’t start enforcing guidelines for behavioral targeting — including providing clear, concise and prominent statements about online data collection for advertising — the government will step in to ensure enforcement occurs.

“This is a very juicy policy issue in Washington,” said Harrington. The longer the debate goes on, she suggested, “the more likely policies are going to develop.” Harrington described the back-and-forth between government and industry entities as “a game of chicken.”

Legislators have shown increasing interest in the online ad industry, including the privacy implications of behavioral targeting. During a hearing held in July by the Senate Committee on Commerce, Science and Transportation titled “Privacy Implications of Online Advertising,” Democratic Senator Byron Dorgan told industry representatives from Google, Microsoft, Facebook and ISP ad targeting firm NebuAd, “The FTC might need to go further and ensure enforcement of any guidelines.”

The House of Representatives has been poking around, too. The House Energy and Commerce Subcommittee sent requests for information to a slew of ISPs, along with some of the Web’s largest ad players: AOL, Google, Microsoft, and Yahoo. The goal was to determine which companies engage in behavioral targeting practices and how those activities affect consumers. Most of the ISPs responded that they don’t engage in such ad targeting practices.

Speaking at the OMMA Conference in New York Friday, Harrington said the FTC and legislators are not satisfied with the information they’ve gleaned from industry participants. “The facts are obscured,” she said, noting the only thing policy and lawmakers want to know is what consumer information is being collected online.

“They haven’t been forthcoming much at all” in any meaningful way, added Harrington.

Exactly what the FTC might do to get the information it wants is unclear. Harrington told ClickZ News she wouldn’t speculate about what the FTC’s next action will be, noting there are many possibilities.

Harrington played a role in developing the Do-Not-Call program, an effort to quell the scourge of excessive telemarketing. She said the direct marketing industry was warned but did not self-regulate to the degree desired by the government. “If [the industry doesn’t] exercise some restraint,” she said, it is “potentially on a similar trajectory.” The difference that might make the online ad industry an even more likely target of government regulation is the huge amount of data collected on a very frequent basis, she suggested.

One barrier to harmony between the industry and government is determining precisely how consumers are harmed by collection or gathering of Personally-Identifiable Information (PII). Mike Zaneis, VP public policy for the Interactive Advertising Bureau, stated that in order to move forward, there must be agreement on the definition of harm to consumers. He added that efforts to define PII only lead to speculation about potential for harm to consumers.

Despite some points of contention, the industry appears to be taking the FTC’s signals to heart. Zaneis implied the industry itself, as led by the IAB and possibly other organizations, may be close to implementing some form of enforcement mechanism. “We have moved very far into discussions,” he said, alluding to communications the IAB has had with possible third-party enforcement bodies including the Media Ratings Council, the National Advertising Review Council, and Web site and application validator Truste.

“The IAB is probably not the right enforcement mechanism,” he said, suggesting a third party in conjunction with a regulatory backstop, á la the FTC, may be the most appropriate structure.

“Meaningful self-regulation includes policing,” said Harrington. Self-regulation is preferable, she-added, because government regulations will become stale as technologies zoom ahead.