VC Says U.S. Ad Industry Could Lose If BT Moves Offshore

Jeremy Liew is concerned. The managing director at Lightspeed Venture Partners says that with the Federal Trade Commission framing the topic of BT around privacy, the climate is ripe for government regulation of companies that support online targeting. These restrictions could force companies to move operations offshore, which would mean losing many U.S. jobs and much revenue.

No one wants to argue against protecting consumer privacy. Those who fight for privacy just want companies that use BT advertising to give consumers a way to protect their information. But Liew agrees with me when I say that people lost their privacy with the dawn of the Internet.

He takes it one step further, however, and says consumers lost their privacy long before the Web. There is far more targeting going on with direct mail and other forms of traditional marketing than online, he says, adding it's not quite clear why the online industry can't just regulate itself. "That's what I believe, but I don't get to make the decision," he says.

Liew points to proposed legislation in the United Kingdom that leans toward an opt-in approach to protect consumer privacy -- not just for BT, but across many forms of online ad targeting. He says this will affect a lot of companies, in particular ad networks and companies that deploy BT through third parties.

These ad networks are driving significant amounts of revenue for a host of online media companies, especially the small ones that have to scale to build their own sales force. Take the six-person companies trying to get an engineering startup going that can't afford to build a sales force, relying instead on ad networks. If their ability to do BT is limited or eliminated, those startups will earn a lot less revenue.

Although government officials continue to discuss privacy, the issue should remain the viability of many of these Internet startups that support BT, Liew says. Don't misunderstand, advertisers will still have access to BT technology, but those that support the targeting will move offshore, he says.

The discussion brings me back to early 2000 when the electronic industry began to move manufacturing faculties offshore. U.S. manufacturing plants closed. Then U.S. companies offshored information technology (IT) support, transcription services, and customer service.

BT will start to move offshore just as online gambling did. And it will stay there if the government restricts online targeting. "You'll see the job creation start happening outside the U.S. rather than inside the U.S., and that to me is the more pertinent issue," Liew says. Unfortunately, non-BT supporters have framed the issues around protecting people's privacy and not saving or creating jobs for American workers and American entrepreneurs, he adds. That's still a difficult battle to fight.

When it comes to offshore online gambling, U.S. legislators are starting to sing a different tune. "Now you have [House Financial Services Committee Chairman] Barney Frank proposing deregulation of online gambling because he's realized the jobs and value created outside the U.S," he says. "The U.S. is missing out on tax dollars. This is an area of concern that we should all be sweating."

Liew says legislation only needs to pass in one jurisdiction for it to become adopted worldwide because the Internet has no boundaries.

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4 comments about "VC Says U.S. Ad Industry Could Lose If BT Moves Offshore".
  1. Jaffer Ali from PulseTV , December 23, 2009 at 12:37 p.m.

    The BT boondoggle fails on many levels...Folks who point to successes of BT in the offline world seem to idiotically miss all the failures. Science does not fail...BT is not science but snake oil dressed up as mathematical jargon to give a patina that it is effective. To disprove a hypothesis, one only needs one real example (Read Black Swan). I will liik at the portfolio of Liew and make sure I never invest in any of those companies as he seems well positioned to speak about things he knows so little about.

  2. Andre Szykier from maps capital management , December 23, 2009 at 12:59 p.m.

    We should not confuse BT for online audiences with direct marketing through print and media (email marketing is another separate topic).

    The distinction is that direct marketing is a somewhat static profile built from a collection of sources and mangled into a slowly changing profile that is offered up by companies like Axciom, InfoUSA and others. These sources derive commercial behavior from subscriptions, financial transactions, and other data and overlay this over physical data such as names, addresses, telephone numbers as well as demographics. This information is combined to form mathematical clusters such as Prizm from Claritas, that score people into statistical groups.

    BT marketing is more dynamic that continuously collects fragments of an individual's online behavior (beacons across sites and cookies on computers). The context of the content at each particular point of online viewing, whether a social media site or a website, is the key difference that makes BT online more pernicious.

    Unlike knowing that you subscribe to a magazine, online BT knows which page you saw, how long you viewed and where you came from and went.

    When you string these pearls of "wisdom" for an individual across time and across online site behavior, you definitely have crossed a privacy threshold.

    Jeremy Liew is correct that privacy was breaking down long before the web but at a much slower pace due to technology limitations. BT on the web is like global warming: we know that humans are contributing but not by how much exactly. Likewise, BT contributes to the erosion of privacy but we don't know yet how to quantify the amount; only that the erosion is definitely growing at a much faster pace.

    The solution, while distasteful to the ad industry, is simple - Opt In. The alternative - Opt Out - fails because the burden of action to preserve privacy falls on the consumer who is either uninformed, lazy or both to handle the problem.

    If Opt-Out is the standard then the simplest answer to the problem is to provide everyone a visible box on every site they visit, where you see your behavioral score or profile. This would not be hard to do and the existing BT vendors could offer that up as a service.

    It would be similar to your financial risk FICO score used by everyone in banking, mortgage, and credit cards. Click on your score and you get to see your full profile. Click on the Opt-in/out button and you allow the consumer to make the appropriate decision on their privacy.

    Choose to stay as Opt-in and receive incentives. Opt-out and your individual BT profile is no longer available as an ad targeting mechanism. You can still use it in the aggregate for statistical BT modeling but not for individual targeting in real time.

    [disclosure: I worked on FICO risk and fraud models]

  3. Andre Szykier from maps capital management , December 23, 2009 at 1:10 p.m.

    Additional comment:

    I am waiting for one of the big credit scoring or direct marketing giants to buy a few ISPs and install packet sniffer software like Phorm used by British Telecom in the UK (In the US, there is BackPorch and the FBI uses Carnivore).

    Now they just need to keep track of the traffic on their ata pipesd to provide the equivalent of a call detail record for every action anyone makes across the web, regardless of what they do.

    Once you overlay this data with contextual BT (semantic content of your destination pages), it's game over for privacy on the Internet.

  4. John Lundin , December 23, 2009 at 4:45 p.m.

    ...I give up... I am into paragraph 3 and I have no clue what "BT" is... J