The way online marketers make money could change dramatically if a movement called "Do Not Track" gains steam and blocks their access to key user data.
Basically, Do Not Track is a way to protect user privacy on the web by allowing people to choose how their data is used. When people click a Do Not Track button on their browsers, their computer sends a request asking advertisers not to use their browsing history for targeted ads.
The major browsers are all on board. Microsoft announced -- to the outcry of advertisers -- that Internet Explorer 10 will enable Do Not Track by default, and it already has tracking protection options in IE9. Mozilla Firefox and Apple Safari currently include the Do Not Track setting, though disabled by default, and Google Chrome pledged to offer a Do Not Track option by the end of the year. In the mobile space, the Apple Safari browser already disables third party cookies. Several other major online companies, including Yahoo, Twitter and AOL, have also pledged support.
But users aren't guaranteed privacy because advertisers aren't legally required to comply with Do Not Track requests, and many don't. Even when advertisers comply, they are still allowed to track and collect user data for "research purposes." They just can't use the information for targeting ads to users. Consequently, Jeff Chester, executive director of the Center for Digital Democracy, calls Do Not Track "toothless" and "a complete misnomer."
The World Wide Web Consortium, an international group focused on creating web standards, hopes to broker a consensus between advertisers and privacy and consumer advocates by early 2013. FTC chairman Jon Leibowitz said the agency would step in if the industry-led talks remain gridlocked, which is an increasingly likely scenario.
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How Do Not Track works and what it means for online advertising:
Advertising companies would not be allowed to tailor ads for Do Not Track users with information they gather by following them across multiple sites. Such ads, known as "third-party behavioral ads," are tailored so closely to users' preferences that they have the highest click-through rates. Because they can be so effective, they are the most expensive type of online ads.
The economic impact of Do Not Track depends on how big a slice those targeted ads account for in the $40 billion U.S. online advertising pie, which is a subject of debate.
Do Not Track could affect 80 percent of web ads and "kill the internet as we know it," forcing free content sites to charge subscription fees, says Mike Zaneis, senior vice president and general counsel for public policy at the Interactive Advertising Bureau. Meanwhile, Stanford University privacy researcher Jonathan Mayer says the industry's 80 percent figure is "bogus" and that only 7 percent of ads would be affected by the privacy provision.
Mayer pointed to the many types of ads that don't involve tracking a person's browsing history across multiple sites. For example, a site like Amazon can track a visitor's browsing behavior or past purchases within the confines of its own site and use that information to tailor its own ads. That is known as a first-party behavioral ad, and to the chagrin of many privacy advocates, it even applies to search engines like Google or Yahoo.
Also, a website can still sell ad space to marketers based on its own content as opposed to the content of its users' cookies. Golfballs.com, for example, can sell ads on its site to golf apparel companies that want to reach its visitors. These ads, known as "contextual ads" in industry lingo, tend to have reasonably high click-through rates. Additionally, Do Not Track wouldn't affect social networking ads, search ads and, of course, completely random or "non-targeted" ads (think: "Click to win an iPad!).
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Businesses that could be affected most:
As of May, Mozilla said 9 percent of desktop and 19 percent of mobile Firefox users had adopted Do Not Track, and those numbers are growing. Apple and Microsoft have not released the Do Not Track opt-in figures for Safari and Explorer, but if Microsoft activates Do Not Track by default on Internet Explorer 10 as promised, the amount of Do Not Track users is set to jump significantly.
The more than 100 advertising companies that use third party cookies to place relevant ads for their clients could suffer significant revenue losses. And the most affected websites would be those that have trouble replacing lost revenue from behavioral ads with income from other sources, such as contextual ads.
Divyank Turakhia, founder and chief executive of contextual ad service Media.Net, says contextual advertising "simply can't work" for certain sites. If a website's content has obvious commercial appeal -- an online travel site, for instance -- contextual ads can be easy to place. But for companies with less commercially relevant content, such as a weather site, Turakhia predicts revenue could dip as much as 30 percent.
Entrepreneur Val Starr is concerned about the potential impact on her online radio site GotRadio.com. When Starr launched the site in 2003, she opted for a subscription-based revenue model. When that didn't work, she switched to behavioral advertising.
If Do Not Track gains traction, "it might force me to try a subscription model again, and I don't think the business would survive," she says. Starr makes only pennies from non-targeted ads, she says, and worries that only a portion of her behavioral ads could be replaced by lower-paying contextual ads.
A potential opportunity for others:
Though it garnered little attention, research by Mayer and his associates at Stanford has identified methods of behavioral targeting that wouldn't require tracking. Last week, a Netherlands-based company called Sequential Media unveiled a newly patented behavioral targeting system that follows a similar principle, using a cookie-less tracking-free methods.
There is a significant opportunity for entrepreneurs and venture capitalists to help "solve the privacy riddle," says Chester of the Center for Digital Democracy. "Marketers are digging in their heels because they know the old way works, but true entrepreneurs can face the dilemma and create a product that protects privacy and makes money."
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