No wonder Internet companies are so anxious about stricter privacy rules.
Research by Catherine Tucker, a professor at the M.I.T. Sloan School of Management, has found that European Union regulations that limit the tracking of Internet users were associated with a 65 percent drop in the effectiveness of online marketing. In other words, if Internet companies cannot track what you do online, they find it harder to pitch you stuff that you may be persuaded to buy.
This is relevant now because lawmakers in the United States are weighing legislation to regulate consumer privacy on the Internet, to the dismay of Internet giants that rely on advertising revenue. Ms. Tucker is scheduled to testify before a Congressional subcommittee on Thursday.
The success of online advertising relies on Internet companies tracking and analyzing an unwitting consumer?s behavior online: following a user as she searches the Web and chronicles her habits and desires on social networks like Facebook.
For companies, that data can be used ?to deliver online advertising in an extraordinarily precise fashion,? Ms. Tucker points out in her planned testimony. For consumers, she goes on, it can seem ?creepy.?
The European Union in 2002 moved to limit behavioral targeting. According to Ms. Tucker?s testimony to the Congressional subcommittee on commerce, manufacturing and trade, it led to a two-thirds decline in ?purchasing intent? ? effectively, a measure of how likely an Internet user is to purchase the product after viewing an advertisement.
?Online advertising became much less e?ective in Europe relative to elsewhere after the regulation was enacted,? she said.
The impact was not equally felt across all Web sites, according to the research she did with Avi Goldfarb of the University of Toronto, which was published earlier this year in the journal Management Science.
Even without targeting, advertising on specialized sites, like those selling discounted flights or baby items, was not significantly affected. Advertising on sites that are not explicitly commercial, like news sites, was the most affected because, as Ms. Tucker explained, ?they needed external consumer data to target ads effectively.?
She is among five witnesses due to testify at the hearing, ?Internet Privacy: The Impact and Burden of E.U. Regulation.?
The term burden drew the ire of some consumer rights advocates on both sides of the Atlantic. A coalition of advocacy groups named TransAtlantic Consumer Dialogue, which calls for regulations in the United States to limit online tracking, fired off a letter to the subcommittee chair, Senator Mary Bono Mack. It said, ?U.S. privacy laws lag woefully behind current technology and business practices.?
The letter added: ?Certainly, there is much the United States could learn from other countries about how to address such challenges and the E.U. Data Directive provides a very good starting point.?
Google and Facebook target ads based on what they know about their users. Twitter recently started showing ads in the form of tweets, based on the kinds of people and products a user follows. Concerns about behavioral marketing prompted Mozilla, the maker of the Firefox browser, to recently create a do-not-track option for users.
American companies, chiefly Google and Facebook, have been wrestling with privacy restrictions across Europe. Facebook recently hired a former member of the European Parliament, Erika Mann, to head its advocacy efforts in Brussels.
Source: http://bits.blogs.nytimes.com/2011/09/15/less-web-tracking-means-less-effective-ads-researcher-says/
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