Why Online Advertising Should Be Regulated

In a recent AdExchanger.com article, Rapleaf CEO Auren Hoffman wrote about the need for regulating online advertising and how doing so will help promote growth of the industry overall. Below is the full excerpt:

The online advertising industry is going through rapid and exciting changes. In the past two years, we’ve moved from a publisher-centric model to a network-centric model and now to a data-centric model. Top advertisers can now buy specific audiences in addition to specific publishers.

All of these innovations provide consumers with a better experience with more relevant ads, customized content, and less spam while giving advertisers more confidence in the performance of online ads.

While this technological transformation is enabling a richer and more personalized web, it also raises new privacy concerns for consumers as their data is being analyzed and shared. The increasing lack of clarity about data practices for technology providers and consumers alike will likely impede further growth in online advertising.

While conventional wisdom might hold that regulation is harmful to an industry, we believe closer regulation of online advertising will promote continued innovation by allowing companies to better understand the rules while giving consumers and brands more confidence to engage with online media.

Regulation provides guidelines, promotes growth

Already, our industry is working hard to establish its own rules. The Network Advertising Initiative (NAI) has been very forward looking and has done a great job establishing standard guidelines (such as how to opt-out). The Internet Advertising Bureau (IAB) has also done a tremendous job by establishing a set of principles that govern what is reasonable for online privacy. And together, the NAI and IAB have released the CLEAR Ad specification advocating notices in online ads to tell consumers what information was used to deliver the ad to them, and how that information was collected.

These are important steps to protect privacy. Unfortunately, these institutions are still not well recognized by consumers, and because they are opt-in for advertisers, there remains a profusion of bad practices including use of flash-based cookies, IP targeting, deceptive offers that auto-bill credit cards, and many others.

Absent legislation, some advertisers may try to out-compete others by using practices that work against the long term interests of the ecosystem. Over time, these practices erode the foundation for exciting industry changes, increased use of online services by consumers, and brands’ adoption of advertising technology.

That’s why formal regulation is needed – not only to clarify what the right guidelines are, but also to make sure everyone follows them so that the advertising industry will continue to move forward.

The current state of regulation

Today the federal rules are vague on what is permissible and what is not. If you ask ten experts you are likely to get ten different answers. And we are entering a world where most innovative advertising practices are poorly understood by consumers or unknown altogether. It will take some time and debate before the dust settles and the guidelines are set.

What is clear, however, is that we are in an era where consumers are only slowly awakening to what data is readily available in the 50 milliseconds it takes to serve them an ad. And if consumers cannot fully grasp the implications of behavioral advertising, they will shy away from participation – and brands will be reluctant to drive spending to mistrusted technology.

Specific industry guidelines from Washington would be the clearest signal to consumers and brands that it is safe to participate, enabling innovation to move forward by providing much needed clarity.

Right now there is a healthy debate over the draft legislation put together by Congressman Boucher. Both industry advocates and privacy advocates raise legitimate concerns, and it’s clear that there is work left to do to strike the right balance between the benefits of better advertising and consumer expectations of privacy.

While some pieces of the draft legislation need to be changed, the spirit of the bill is a good one: clarify the rules and make online advertising safer for consumers, content, and brands. Clear federal guidelines are what we need to realize the full potential of our industry.