5 things regulators need to consider before regulating the digital advertising industry

Google getting in trouble with streetview.

Facebook attracting the ire of the world’s community (and its regulators) through spectacular own goals like Beacon.

Companies like Phorm launching products which sail outrageously close to the wind of reasonable use of data.

There are regular examples in the mainstream press which highlight the need for a sensible approach to digital data protection. To some extent, there are specific areas which also justify and require a level of regulatory intervention, especially to ensure that data which is personally identifiable is protected.


The problem is that these high profile cases have driven a groundswell of support for  governments to regulate. Regulation, in turn, has a real danger of being blanket and covering the entire “online industry” causing significant unintended consequences.

This puts in very real jeapory an industry ecosystem which is highly successful (last year it generated in delivering three things which I think I am safe in saying are universally valuable / desirable:

1. The creation and delivery of (predominantly) free content for the benefit of internet users

2. Revenue for even small websites and publishers which would struggle to monetise their sites and content otherwise

3. Targeted audiences for advertisers who are looking to put their message only before those people who have a potentially genuine interest or need for their product or message (and therefore avoid the waste that often comes with non-targeted advertising)

5 things regulators need to think about

As regulators in the US and the EU (separately… more on that later!) develop and finalise their positions on regulation, there are 4 important things they must consider:

1. Data collected for online advertising is totally anonymous. There is no way (even if we wanted to) for companies involved in digital advertising to attribute any data to a specific person or physical address.

2. This (anonymous) data leads to more relevance for two critical groups: Users (taking a very simple and slightly basic example, no man should ever be shown an ad for a feminine hygiene product) and Advertisers (carrying on this slightly basic example, no manufacturer of feminine hygiene products has any interest in paying to put their ad in front of a man).

The idea is of course that the right ad, for the right person, at the right time, in the right place is not an ad. It is useful information.

3. Relevant / targeted advertising means everyone wins, and nobody loses. Consumers (free content), Advertisers (better targeting which they are happy to pay a premium for as it reduces waste) and publishers (money for their content) all win in what is a self sustaining ecosystem

4.  Money from these kinds of sales can be 100% of a small publishers revenue. For big publishers, revenue from targeted online ads may represent 20% of their total. For a small publisher, can easily be 100%. Ironically, it is the small, long-tail publishers who will lose the most, especially from opt-in based data collection (people may be more suspicious or value the content less than for large, reputable sites).

5. Its far from clear who can or could actually enforce / implement or manage this for an industry that by its very nature, lacks borders and clear jurisdictions.

So what’s next?

Governments around the world are trying to work out how to regulate this space. The participants in the ecoystem are generally taking the view that self regulation is the only way forward, but high profile screw-ups like those listed at the top seem to be fuelling a need for governments to act.

The online advertising  industry needs to get itself quickly aligned through relevant industry bodies and play its part in:

1. making sure that there is a robust framework for self-regulation that has clear guidelines for what is acceptable, and importantly blocks players that push the envelope

2. educating law makers in the various countries about the above arguments, and

3. being clear on what the consequences are of governments passing  restrictive  laws on how anonymous data can be collected and used

Copyright 2010 Caspar Schlickum

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Categories: Media & Technology


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