Markets Wired

In testimony on behavioral advertising, the Federal Trade Commission today told the U.S. Senate Committee on Commerce, Science, and Transportation that “the issues surrounding this practice are complex … the business models are diverse and constantly evolving, and … behavioral advertising may provide benefits to consumers even as it raises concerns about consumer privacy.”

In the FTC’s testimony, Lydia Parnes, Director of the FTC’s Bureau of Consumer Protection, told the Committee that behavioral advertising, defined as “the practice of collecting information about an individual’s online activities in order to serve advertisements that are tailored to that individual’s interests,” typically involves the use of “cookies,” or small text files placed on an individual’s computer, to collect information about the pages viewed and other online activities. The testimony also states that, in many cases, the practice involves collecting consumer information that is not personally identifiable in the traditional sense – that is, it does not identify the consumer by name, address, or similar identifier. The practice also can involve the sharing of the information with networks that serve advertisements at Web sites across the Internet.

According to the testimony, behavioral advertising may provide a variety of benefits to consumers, including free content, personalization of ads, and a potential reduction in unwanted advertising. Consumer research has shown that consumers value online ads that are more personalized. These ads may facilitate shopping for specific products. Further, behavioral advertising may help subsidize and support a diverse range of free online content and services that might otherwise not be available or that consumers would have to pay for, for example, blogging, search engines, and instant access to news and other information.

On the other hand, consumers have expressed discomfort about the privacy implications of being tracked online, as well as the specific harms that could result. In particular, “Without adequate safeguards in place, consumer tracking data may fall into the wrong hands or be used for unanticipated purposes,” the testimony states. “These concerns are exacerbated when the
tracking involves sensitive information about, for example, children, health, or a consumer’s finances.”

The testimony also described Commission efforts and initiatives in the consumer privacy area, including its recent work to address the privacy issues raised by online behavioral advertising. According to the testimony, consumer privacy issues such as data security, identity theft, spam, and spyware have been top agency priorities since the mid-1990s, and the Commission has worked to address these issues through a combination of consumer and business education, law enforcement, and policy initiatives. As part of its privacy program, in November 2007, the Commission held a two-day town hall meeting on behavioral advertising. In response to issues raised at the town hall, in December Commission staff released for public comment a set of proposed behavioral advertising principles for self-regulation.

According to the testimony, “the Commission is cautiously optimistic that the privacy concerns raised by behavioral advertising can be addressed by industry self-regulation,” which “affords the flexibility that is needed as business models continue to evolve.” The testimony noted, however, that the FTC will continue to monitor the marketplace closely so it can take appropriate action as circumstances warrant.

The Commission vote to approve the testimony was 4-0.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 1,500 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s Web site provides free information on a variety of consumer topics.