NAI Says Marketers Pay More Than Twice As Much For Behavioral Targeting

In a move aimed at discouraging policymakers from enacting tough online privacy rules, the self-regulatory group Network Advertising Initiative has released a new study showing that ads targeted based on users' prior Web-surfing behavior are more valuable than run-of-network ads.

"It's clear that behavioral targeting has the potential to significantly elevate the value of the inventory -- to the advertiser, to the publisher and to the network," says report author Howard Beales, a former head of consumer protection for the Federal Trade Commission.

The study is based on a survey of 12 ad networks -- all NAI members -- about their 2009 ad revenues. For the study, researchers surveyed 12 ad networks that belong to the NAI about their 2009 ad revenues. Beales reports that marketers paid average CPMs of $4.12 for behaviorally targeted ads, compared to $1.98 for run-of-network ads.

The study also concludes that targeted ads yield more sales -- although the report cautions that only five ad networks provided data on that point. The conversion rate among users who clicked on a targeted ad was 6.8%, compared to 2.8% for run-of-network ads.

The NAI plans to submit the study to the FTC, which recently held a series of panel discussions examining privacy. Some lawmakers, also, are expressing increased concern about whether tracking users online in order to serve them ads violates their privacy. In addition, Rep. Rick Boucher (D-Va.) is expected to introduce a bill that could regulate how companies collect data about Web users.

Online ad companies say that behavioral targeting poses no threat to privacy because data about consumers is anonymous. The companies also say that users can opt out of targeting. But some people are questioning whether individuals can be identified based on supposedly anonymous data.

It's not yet clear what Boucher intends to propose, but online ad groups are opposed to any requirement that consumers affirmatively consent to targeting. Beales, currently an associate professor at the School of Business at George Washington University, says that any law requiring opt-in consent "would kill the business."

"For most consumers, there's not enough at stake in this question of 'Do I want to share my information or not?' for it to be worth thinking about," he says. "That's why they don't pay any attention to privacy policies."

Some privacy advocates are urging the government to impose more stringent requirements to ensure that consumers are able to meaningfully consent to the collection of data about them.

Jeff Chester, executive director of the Center for Digital Democracy, says that the NAI's finding that advertisers pay more for targeted ads only reinforces the need for new consumer protection laws. "The price increase they're getting from behavioral targeting is based on the hijacking of consumer data," he says.

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