• by Wendy Davis , Staff Writer @wendyndavis, September 30, 2009

For the last decade, Web companies have insisted that behavioral targeting, or tracking consumers online and serving them ads based on their presumed interests, will benefit both consumers and marketers.

The ad companies say that marketers will benefit because they won't waste ad dollars reaching people who have no intention of buying their products. For consumers, the theory is that they benefit by receiving ads that are relevant.

While consumer advocates have questioned whether behavioral targeting infringes on people's privacy, ad companies have largely dismissed such concerns. The industry argues that targeting is anonymous, so people are at no risk of either identity theft or exposure of sensitive information. Criticisms on the ground that tracking is "creepy" are dismissed as irrational, and privacy advocates are presented as "elitists" who are out of touch with mainstream consumers.

Well, a new study released today by professors at the University of Pennsylvania's Annenberg School for Communication and the University of California, Berkeley, School of Law debunks the notion that consumers don't object to online ad targeting. On the contrary, the researchers found that two out of three Web users don't want customized ads.

For the study, based on a telephone poll of 1,000 Web users, respondents were asked whether they wanted ads, discounts or news that was tailored to their interests. Not only did 66% of respondents reject tailored ads, but 57% said they didn't want tailored news stories and almost half, 49%, said they didn't want customized discounts.

What's more, more than half of those who accepted tailored ads in theory also said they didn't want those ads customized based on their activity at other Web sites.

Tellingly, respondents indicated they viewed online tracking as a threat even when done anonymously.

"The rejection of even anonymous behavioral targeting by large proportions of Americans may mean that they do not believe that data about them will remain disconnected from their personally identifiable information. It may also mean that anonymity is not the only worry they have about the process. Being labeled in ways they consider unfair by marketers online and off may be just as important a concern," states the report.

Researchers also speculated that Web users are afraid of embarrassment. For instance, the study says, people might worry that a computer they use at work might receive ads that are more relevant to non-work activities.

Executives at ad networks often say that consumers would accept behavioral targeting if they viewed it as the price of free content. Note, this argument might overstate the connection between free content and targeting, considering that behavioral targeting currently accounts for only a small percentage of online ad dollars. Besides, paid sites as well as free sites work with behavioral targeting companies.

Regardless, researchers reported that respondents said they didn't want to be tracked even for free content.

The Network Advertising Initiative's initial response is that the report is "a one-dimensional view of a more complex issue."

"The online industry is working to find a balance between consumers' demand for free services and their expectations of appropriate privacy controls -- and through initiatives like enhanced notice, we are working hard to get that balance right," Charles Curran, executive director of the NAI, tells MediaPost.

The Federal Trade Commission has emphasized that ad companies should do a better job of notifying users about tracking. Currently, many Web companies convey information about tracking in legalese-filled privacy policies that very few people read, much less understand, and that have so many loopholes that they're virtually meaningless.

But this study suggests that better, clearer notifications might not solve the ad targeting industry's problem. In fact, the study seems to indicate that merely informing consumers about ad targeting -- at least in its current incarnation -- will result in a wave of opt-outs.

Still, that doesn't mean that online ad targeting is doomed. The report's authors offer some suggestions for making targeting more palatable. Among others, companies could let consumers wield more power over the type of data gathered. "In return for collecting and using consumers' data, marketers should allow those consumers to learn exactly where the information came from and how it is being used," the report states. "Marketers should also allow consumers to decide which of the collected data should be used and for what purposes, and which should be deleted."

Jules Polonetsky, co-chair and director at the think tank Future of Privacy Forum, says that industry executives would do well to take such recommendations seriously. "It's important for the industry to take reports like this as a wake-up call," he says. "Even the most enthusiastic privacy advocates aren't looking to shut down commerce. They're looking to drag some of this into the sunlight."