The Office of Fair Trading has just (May 2010)  announced the result of its

study into on line targeting of advertising and pricing and calls for more transparency to allay users fears about privacy and misuse of personal data. The OFT has indicated that web users need to know when they are being served targeted ads and be provided clearer ways to opt out and that if the industry does not improve self regulation the OFT and the Information Commissioners Office will increase external regulation.

Why does this matter? The behavioural advertising sector is already worth and estimated £64-£95 million and is growing. The benefits to advertisers of reaching targeted audiences are huge. A failure to adopt good practices, such as set out in the IAB’s Good Practice Principles could lead to legislative intervention and restrictions on behavioural advertising and even the adoption of an opt in regime rather than a opt out system as presently exists.

One recommendation by the OFT is to “increase transparency to consumers by developing ‘clear ad’ notices alongside behavioural adverts including information about opting out”. This is rather alarming and suggests that users might be served some sort of notice on their screens every time a targeted ad appears…what could be worse and more invasive! It also assumes the majority of Internet users are fools. Clearly more needs to be done to educate users and for advertisers to fully comply with the IAB’s  transparency recommendations but there is a concern that alarmist media and privacy advocates will lead to unintended consequences.

For example on line publishing is financially unsustainable with the current model,  hence  shrinking news organisations and attempts to require paid for news services on line. Advertising pays for our diverse and free media , further restrictions could back fire leading to less choice, reduced services and poorer quality content. Interestingly the OFT’s research discovered that many consumers were not concerned by behavioural advertising, and that any concerns that did exist would be greatly reduced if they were told it was happening and given control over the process.

“We found that attitudes to online targeted advertising are mixed with 40% of consumers holding neutral views, 28% disliking it and 24% welcoming it,” said the report. “Concerns decreased when consumers were able to opt-out of behavioural advertising, and the associated tracking, if they wished. Around 40% of consumers said they would take some actions to prevent behavioural advertising (such as deleting cookies), although only a very small minority would reduce their internet usage to avoid it. Around 60 per cent would not alter their behaviour at all.”

The OFT’s report has though stopped short for the time being of calling for more formal regulation of the area, saying that the IAB’s Privacy Principles governing members’ conduct were a good start and allowing the Internet advertising industry time to apply and extend them. It will only step in and introduce more formal regulation if that does not happen, though, it said.

“Based on our work and the results of the consumer research, we believe that it is proportionate to focus on improving and supporting self-regulation”

How will the industry work to obtain greater transparency and provided notice to consumers? In his Brand Republic  blog and other interviews Nick Stringer said that the IAB is now committed to a behavioural advertising logo as the best method by which to alert Internet users to the serving of ads based on their behaviour.

“The enhanced notice is very important in meeting the objective of being more transparent about this. Work has already gone on in US about an icon that sits beside ads, we think that that is the way forward.” However the IAB is presently working towards an EU-wide agreement similar to its UK Good Practice Principles and it is unlikely the industry will introduce a UK icon, waiting instead for an EU-wide implementation of the notice.

Trade bodies in the US have already created an icon,a stylised ‘i’ within a circle, that advertisers use to identify ads that are the result of behavioural targeting. That icon is backed by the American Association of Advertising Agencies (4As), Association of National Advertisers (ANA), Direct Marketing Association (DMA USA), the Council for Better Business Bureaus (BBB), and the Interactive Advertising Bureau (IAB) USA.

The OFT’s study also looked at the practice of charging different consumers different prices for goods based on their web browsing behaviour, previous purchases or geographic location. The OFT said that companies using these techniques without informing users would be in breach of the Consumer Protection from Unfair Trading Regulations 2008 (CPRs). However it is accepted that  such price targeting was “largely hypothetical”  and the OFT said that it had found no evidence of any businesses increasing prices to consumers on the basis of their on line behaviour.

Thus advertisers and their agencies will need to keep abreast of changes in this arena. Advertisers who adopt behavioural advertising techniques also need to be careful to ensure providers, affiliates and agencies adopt the best practice guidelines and existing legislation because brand reputation can be easily damaged if consumers feel they are being abused.