The Ad Predicament and the End of Tracking?

At a very crude level here’s where we are today:

• Traditional media are less and less effective because of audience fragmentation
• Agencies are still largely clinging to traditional media because of “inertia” and familiarity
• The Internet is where huge audiences are today but they’re harder to effectively reach
• Arguably search is the most effective online ad medium
• Brands generally don’t want to spend money on search
• Taking the lessons of search to heart, display advertising — where most of the brand advertising is seeking to go online — is tapping behavioral targeting (BT) and other, similar strategies to make display more “relevant”

Previously I wrote that if publishers, portals and other became too aggressive in their efforts to data mine and target/retarget, you’d see regulation and legislation. Well here’s the first of it:

After reading about how Internet companies like Google, Microsoft and Yahoo collect information about people online and use it for targeted advertising, one New York assemblyman said there ought to be a law.

Assemblyman Richard L. Brodsky, the sponsor of a New York bill to limit how companies collect data on computer users.

So he drafted a bill, now gathering support in Albany, that would make it a crime — punishable by a fine to be determined — for certain Web companies to use personal information about consumers for advertising without their consent.

And because it would be extraordinarily difficult for the companies that collect such data to adhere to stricter rules for people in New York alone, these companies would probably have to adjust their rules everywhere, effectively turning the New York legislation into national law.

From a legal standpoint this law wouldn’t survive a court challenge because, assuming it passed, it would violate the Commerce Clause of the US Constitution, which doesn’t allow individual states to regulate “interstate commerce.” Of course there are exceptions one can find but this wouldn’t be one of them.

What’s significant here is that it represents a first step in what is sure to be an ongoing legislative and regulatory discussion of consumer privacy. This is analogous to what happened with Click Fraud only more extreme: the search engines failed to “get out in front” of the issue from a PR perspective until they’d been repeatedly hammered in the press.

There are efforts to “self-regulate” BT within the IAB. But those efforts will need to be stepped up and become a lot more public or all the anticipated benefits of BT and other, similar schemes are going to go away as legislators impose restrictions on Web publishers and ad networks that require notification of tracking and the ability to opt-out.

That legislation or regulatory action would likely come amid a flurry of negative publicity in newspaper articles and on TV news broadcasts — publicity that will make ad networks and companies like AOL, Yahoo, Microsoft, Google and others look highly sinister. In that context, how many consumers, once they discover they’re being “tracked,” are likely to not opt out? I would say fewer than will buy the argument that the ads they’re getting by not doing so are more “relevant.”