FTC Weak on Online Ad Industry Regulation, Watchdogs Say

The Center for Digital Democracy (CDD) Executive Director Jeff Chester is fuming about online ad practices, but it’s more than spyware he’s concerned about. It’s the technologies that drive the booming industry, enabling user tracking, data collection, Web analytics, behavioral targeting and audience segmentation.

The CDD and U.S. Public Interest Research Group (US PIRG) have submitted an extensive letter to the Federal Trade Commission (FTC) requesting the commission analyze industry consolidation, and investigate online ad practices they claim threaten user privacy. Their first target: Microsoft.

“The FTC has a ‘don’t ask, don’t tell’ policy when it comes to interactive advertising,” said Chester, who filed the complaint in anticipation of the FTC’s tech-focused public hearings, to be held next week in Washington, D.C. The letter requests the FTC investigate the online marketplace, expose privacy-infringing practices and help guide relevant legislation.

“Consumers entering this new online world are neither informed of, nor prepared for, these technologies and techniques…that render users all but defenseless before the sophisticated assault of new-media marketing,” notes the letter.

“Privacy is, and has been, a priority at the FTC, and we will review this complaint carefully,” FTC spokesperson Claudia Bourne Farrell told ClickZ.

“I don’t think [Chester] is giving consumers enough credit,” said Interactive Advertising Bureau President and CEO Greg Stuart, adding that consumers have control through their Web browsers to disable cookies, rendering tracking and targeting technologies inoperable. “I’m not suggesting that privacy isn’t something we should take seriously,” he continued. However, he wondered exactly what the advocacy groups believe is harmful about the online ad practices they cite in their missive.

The document serves as a who’s who of the interactive ad industry, calling into question several online publishers, ad networks and ad serving, tracking and targeting technology firms including ClickTracks, Fox News Corp’s IGN Entertainment, PointRoll, 24/7 Real Media, Blue Lithium, ValueClick Media, Specific Media, Claria, Yahoo, Coremetrics, DoubleClick, Google, Tacoda Systems and Revenue Science.

These companies and those using their products and services, said Chester, are “participating in a commercial surveillance society.” The popularity of behavioral targeting technologies, coupled with the introduction of Microsoft’s AdCenter product, he continued, prompted him to “sound the alarm.”

Some of the firms mentioned in the complaint, including 24/7, Tacoda and DoubleClick, are members of the Network Advertising Initiative (NAI), an industry trade group that provides a tool for consumers allowing them to opt-out of targeted ads delivered by member ad networks.

Most technology firms providing tracking and targeting technologies contend they are not invading privacy because their technology does not collect or use personally identifiable information (PII). Chester calls this a “fig leaf” the FTC should deem inadequate, arguing that attributing a tracking number to an individual user is the same as attributing a name to that user.

He also said that most privacy policies are unclear, and dismissed the notion that online tracking and targeting results in ads that are more relevant to users. “The interactive advertising industry does not want consumers to have any autonomy over their information, and it’s time the federal government stepped in,” he added. Chester played a role in the passage of the Children’s Online Privacy Protection Act of 1998.

More so than other companies contributing to the huge growth in online advertising revenues, Chester singles out Microsoft, specifically its AdCenter platform and related products.

The letter argues that Microsoft is in defiance of a 2002 FTC ruling by collecting user data to target ads via AdCenter. It names other Microsoft products as suspect by contributing to the company’s data collecting and ad targeting operation, including MSN, Hotmail and Xbox 360.

As a culprit of user privacy infringement, Chester said, “I think Microsoft stood out, but certainly we’re looking closely at Google, and we’re looking at Yahoo’s new Panama project.”

“[Chester’s] arguments sound like he’s trying to remove personal consumer choice, and I think that is really counterproductive,” said IAB’s Stuart.

The consumer advocacy groups also call for the FTC to inspect increasing consolidation of the Web ad industry, citing Microsoft’s acquisition of Massive, News Corp’s purchase of MySpace and Google’s YouTube buy. Such activity, said Chester, “raises a question about the level of competition in the industry”

Established in 2001, the Center for Digital Democracy aims to preserve Internet openness and diversity. According to Chester, the nonprofit is funded by The Rockefeller Foundation and The Ford Foundation, among others. U.S. PIRG is a nonprofit umbrella organization representing statewide consumer advocacy PIRGs.

Related reading