Study: Consumers Would Not Benefit From Privacy Regulation

privacy A new study by the think tank Technology Policy Institute concludes that new online privacy measures won't help consumers and could hinder Web companies.

"Regulation should be undertaken only if a market is not functioning properly and if the benefits of new measures outweigh their costs," states the 56-page report, "In Defense of Data." "Our analysis suggests that proposals to restrict the amount of information available would not yield net benefits for consumers."

To a large extent, the paper reiterates arguments that online ad companies first made a decade ago: Targeted ads are more relevant to consumers, subsidize free content, and pose no threat to privacy because they are anonymous.

"More privacy implies less information available for producing benefits for consumers," state the writers, economists Thomas M. Lenard and Paul H. Rubin. Lenard has previously worked in the Office of Management and Budget and the Federal Trade Commission.



The report comes as policymakers are calling for increased privacy protections online. Rep. Rick (D-Va.), chairman of the House Communications, Technology and Internet Subcommittee, recently vowed to introduce new legislation. In addition, FTC chair Jon Leibowitz has said the industry should do a better job of notifying Web users about online ad targeting and allowing them to opt out. In one recent interview, Leibowitz went even further and urged companies to obtain users' explicit opt-in consent.

Mike Zaneis, vice president for public policy at the Interactive Advertising Bureau, praises the report for highlighting the value of online advertising. "It's good to have experts and think tanks identify the fact that you can't take information out of the information economy without harming the ecosystem," he says.

But Zaneis adds that Web companies can institute privacy measures without hurting their bottom line. "It's absolutely in our interest to meet consumers' privacy expectations," he says.

Alissa Cooper, chief computer scientist at the digital rights group Center for Democracy & Technology, points out that the paper doesn't differentiate between collection of sensitive data and other types of information, but rather, "lumps all data collection into a single bucket."

The FTC, in its recent guidelines for behavioral advertising, said that companies should obtain users' explicit consent before collecting sensitive data such as financial or health information.

The report also goes further than many industry insiders to argue that even voluntary self-regulation has a potential downside. "While self-regulation is more flexible than imposed regulation, it can still be quite rigorous," the report says. The authors warn that companies that agree to follow self-regulatory principles could be subject to Federal Trade Commission enforcement actions if they don't honor the policies.

In addition, they assert, a common set of self-regulatory standards would result in more uniform privacy policies -- which they view as a negative because those policies would leave some consumers unhappy. "Firms would agree to a common privacy regime that might be consistent with the preferences of a subset of consumers, but would likely not satisfy the preferences of the majority of consumers."

Separately, another think tank, the Future of Privacy Forum (initially funded by AT&T), said Tuesday it had tapped ad agency WPP to devise new ways of informing Web users about behavioral advertising, or tracking people and serving ad-based sites visited.

"We thought it might be very useful to actually ask creative and communications experts to do this -- rather than lawyers, who have done their most to complicate privacy policies," says Jules Polonetsky, co-chair and director of the Future of Privacy Forum.

1 comment about "Study: Consumers Would Not Benefit From Privacy Regulation".
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  1. Warren Lee from WHL Consulting, May 20, 2009 at 2:49 p.m.

    Opt-in, opt-out, regulation, deregulation, self regulation, free content, pay for content and blah, blah blah. Oh for goodness sake, by all means let's get the Government and their Lawyers involved. Oh and for the kicker, let's get the privacy advocate groups as well as these entities need to be seen as doing something for their money. This all goes from the ridicules to the absurd very quickly and it really does not need to.

    What is really being debated here is the core business model that will drive internet content going forward. It is very apparent that untargeted advertising will not provide a viable business model for content providers. In addition to untargeted ads not providing enough revenue for the publishers, untargeted advertisements do nothing to add to the user's experience. These factors being agreed upon, all parties have come to a middle ground, which is trying to find a way for users to pay for content without coming out of pocket for it each time that it is accessed.

    And the winning business model is: Increase the revenue to the content providers by allowing highly targeted advertisements that are relevant to individual groups of users, with out using any Personally Identifiable Information (PII data). So simple, so easy . . . NOT!

    The above, being agreed upon by the industry and users, obviously needs to have some rules and regulations, which the government agrees with as well. The industry has said that it will provide an opt-out option for those users who do not want to get relevant ads, that it will not use or store any PII data and that it will safeguard the data that it uses or stores (even though there is no PII data involved).

    Seemingly this is a very elegant solution to the revenue problem for content providers as long as they are able to abide by the three rules above. If the Government and privacy advocates want to oversee the implementation and compliance with those rules I'm sure that the industry would be most welcoming. If the Government wants to get involved in a more invasive manner then there will be resistance and resulting inefficiencies.

    The bottom line is that there might be a point in time when the content providers, sick of Government attempts to create yet another boondoggle, just give up and state: "If users would like to continue with the free content model, great, here are ads that are relevant to you. If users would rather pay for each item of web site generated content, that's fine too."

    The Governing bodies should be aware that as loud as the "Privacy Advocates" can scream, the sheer number of users that will be screaming, if all content needs to be paid for, will make sure that the upcoming vacancies in Government are filled by people who have just a bit of common sense and are not driven by the need to dwell in the what if, then present an absurd scenario. Does the Government and Privacy Advocate's case boil down to: Well if the data gets stolen, this after all of the security concerns are met and there is no PII data involved, then irreparable damage has been done to . . . I'm sorry, who?

    Sorry for the rant, but this debate should be over because the concerns of the Government and privacy advocates seem to be self serving scare tactics with no real basis in reality. Am I missing something? Let the debate continue!

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