Contracts and Behavioral Advertising

Contracts No one would suggest that you enter a contract

with the New York Times when you scan the headlines as you stand in line at Starbucks, or with a bookstore when you leaf through a book, even if you read several pages.

So how you enter a contract when, you visit the news site, CNN.com, for a two-minute glance at the latest headlines?

Non-lawyers: “That’s not just wrong. That’s bizarre.”

Exchanges of Value Websites typically offer free products and

services that would simply not be available offline, at least not for free.

Our information generates advertising revenue that offsets the cost of providing the good or service, so there is and exchange of value.

Like any traditional exchange of value—with just one difference: the value we exchange is the permission to collect our information and use it to send us advertising.

Pay-With-Data Exchanges

Billions of such pay-with-data transactions occur daily, whenever someone visits a website to obtain a product or service for free or for a fee—plus allowing the use of information for advertising or other commercial purposes such as market analysis or sale to third parties.

The provisions in the contracts governing these exchanges determine the tradeoff between privacy and the benefits of information processing.

The ecosystem: A Simple Model

Five entities profilers advertising agencies advertising networks or exchanges websites that display the advertisements businesses that purchase the

advertisements.

Profilers

Profilers segment buyers into groups in order to predict their willingness to buy.

eXelate collects information about age, sex, ethnicity, marital status, profession, Internet search information, and information about sites visited. It combines this data with data from offline sources.

Exelate “We are capturing billions of deep granular data

points . . . . We analyze [these data points] . . . and roll them into specific Targeting Segments . . . . These categorizations include Demographic data . . ., consumer Interest data gathered from specific site activity . . . (such as parenting and auto enthusiast sites), and deep purchase Intent data culled from relevant activity on top transactional sites. We further segment and sub-segment this data into relevant buckets that in many cases drill down to the product and keyword level.”

Identification of Individuals Profiles routinely identify particular individuals. TARGUSinfo

“With our authoritative data and proprietary linking logic, no other company can match our ability to accurately identify businesses and consumers in real time—helping you target and recognize your best prospects, even at the moment of live interaction.” The data includes “names, addresses, landline phone numbers, mobile phone numbers, email addresses, IP addresses and predictive attributes.”

Advertising Exchanges Advertising exchanges deliver text and display

advertisements to the websites. Google’s AdSense, Interclick

WebsiteVisitors

Website

Website

Website

Website

InterclickAdvertisers

The Interclick network

Exchanges and Advertisers “Advertisers bid against each other in real

time for the ability to direct a message at a single Web surfer.”

Garett Sloane, amNY Special Report: New York City’s 10 Hottest Tech Startups, AMNY (Jan. 25, 2010).

When a buyer visits a website, an advertising exchange combines the buyer’s profile with information about current website activity to more precisely target advertisements.

The Auction

The exchange then conducts an auction in which businesses bid for the opportunity to present their targeted advertisements (the whole process takes milliseconds). Datran Media promises “to identify who is

visiting your Web site, who is being exposed to your advertisers’ campaigns, and who is responding to specific ads. Real-time reports paint an accurate picture of whom your audience really is and who is responding to your communications—at the household level!”

Buyers’ Lack of Choice Advertising is personalized, information processing is

not. Information processing does not vary to conform to the privacy preferences of individual buyers.

Technological reason: Efficient information processing requires standardized routines.

Marketing reasons: “technology drives results for advertisers by automatically leveraging massive amounts of internal and third-party external data and serving only the best impressions in the context of each advertiser’s unique marketing objectives.”

Rocket Fuel CEO John Says Ad Exchanges More Like a Technology Platform than Media Source, ADEXCHANGER .

Buyers Acquiesce The vast majority of buyers acquiesce in

information-processing practices, thereby guaranteeing sellers significant advertising revenues. We are about to explain why.

Thus, sellers can easily afford to ignore the relatively few buyers who refuse to do business with them unless they adjust their information-processing practices.

Phil’s Preferences

(Don’t Swerve, Swerve)

(Swerve, Swerve)(mutual cowardice)

(Swerve, Don’t Swerve)(unilateral cowardice)

(Don’t Swerve, Don’t Swerve)

Phil PhoebeChicken!

Chicken!

ChickenPhil Phoebe

Chicken! Chicken!

Chicken!Chicken!

One-Sided ChickenPhil Phoebe

Chicken! Chicken!

Chicken!

Chicken!

Pay-With-Data Exchanges As One-Sided Chicken

We name the players’ choices “Give In,” (the “swerve” equivalent) and “Demand” (the “do not swerve” equivalent).

Buyers’ preferences parallel Phil’s. Sellers’ preferences parallel heart-broken,

“collision‑second” Phoebe’s.

Demand/Give In for Buyers

For buyers: “Demand” = refusing to use the website unless

the seller’s data-collection practices conform to the buyer’s privacy preferences.

“Give In” = permitting the seller to collect and process information in accord with whatever information-processing policy it pursues.

Demand/Give In for Sellers For sellers:“Demand” = refusing to alter their

information-processing practices even when they conflict with a buyer’s preferences.

“Give In” = conforming information processing to a buyer’s preferences.

Pay-With-Data Exchanges: BuyersPhil Buyers

Chicken!

Chicken!

(Demand, Give In)

(Give In, Give In)

(Give In, Demand)

(Demand, Demand)

Pay-With-Data Exchanges: SellersSellersPhoebe

Chicken!

Chicken!

(Give In, Demand)

(Give In, Give In)

(Demand, Give In)

(Demand, Demand)

The Pay-With-Data One-Sided Chicken

(Give In, Demand)

(Give In, Give In)

(Demand, Give In)

(Demand, Demand)

Sellers

(Demand, Give In)

(Give In, Give In)

(Give In, Demand)

(Demand, Demand)

Buyers

Buyers’ Only Options

The buyer prefers giving in to not using the site, so the buyer always gives in.

Assume the buyer knows the seller has the (Demand, Demand) preference second. Then the buyer has only two options.

(Give In, Demand)

(Demand, Demand)

What IS Do Not Track? “When finished, the DNT standard will

create a simple machine-readable preference expression mechanism ("Do Not Track") and technologies for selectively allowing or blocking tracking elements.”

“The charter tells us to create a technical specification . . . and a compliance specification . . . The compliance spec ‘sets out practices for Web sites to comply with this [DNT] preference.’” Peter Swire, Full Steam On Do Not Track, W3C Blog, ttp

://www.w3.org/QA/2013/02/full_steam_on_do_not_track.html

Controversies Does “abiding by the do not track request” mean that

businesses do not collect any information for the purpose of targeting advertising (or at all),

or does it permit data collection but merely bar the delivery of targeted advertising? How users will be asked to set their preferences. Most users never adjust the original settings of a

web browser, so the online advertising industry seemed ready to accept “do not track” if browsers would be delivered to users with the do not track box unchecked.

Advertisers’ Attitudes Microsoft announced in June 2012 that it would ship the

next generation of Internet Explorer (Internet Explorer 10 in Windows 8) with the do not track box checked,

The online advertising industry revolted. The Network Advertising Alliance (NAI), announced that “NAI can’t accept a browser mechanism that threatens the health and vitality of the entire online ecosystem.”   Marc Gorman, “Why NAI Cannot Support DNT On-By-

Default,” NAI Blog, June 15, 2012, http://naiblog.org/2012/06/why-nai-cannot-support-dnt-on-by-default/.

Is Do Not Track On Track? “Outcomes of the group's latest face-to-face

meeting (minutes) in Washington, . . . We are seeing tentative agreements on a number of important topics:

The fundamental shape of first and third parties. The basic notion that server logs can be held in

raw form for a limited amount of time. Data that's not linked to a person can be used.”

The state of Do Not Track, W3C Blog, http://www.w3.org/QA/2012/04/the_state_of_do_not_track.html.

FireFox’s Do Not Track Default Setting

FireFox has just released a patch that blocks third party cookies by default.

It plans to build this in as a default setting in future versions of the browser. http://blog.mozilla.org/privacy/2013/02/25/firefox-getting-smart

er-about-third-party-cookies/

Advertisers’ Reaction

"While the intentions of FireFox are most likely good, the unintended consequences may outweigh the benefit that's achieved," said Ramsey McGrory, president and CEO of social sharing platform and data firm AddThis. "It just reinforces that the waters are choppy when it comes to anything having to do with data and privacy.“ http://adage.com/article/digital/online-ad-industry-

ignore-firefox-s-track-feature/240024/

Do Not Track and Norm-Generation

Assume that every buyer possesses close-to-perfect “do not track” technologies.

A tracking-prevention technology is perfect if it is completely effective in blocking information

processing for advertising purposes, is completely transparent in its effect, is effortless to use, and permits a user full use of any website.

The Norm-Generation Argument

(1) Buyers will use the “do not track” technologies. (2) Use of these technologies will threaten sellers

with a dramatic decline in advertising revenue. (3) Sellers will respond by offering buyers

information processing consistent with their preferences.

(4) The ultimate result will be a collection of value-optimal norms governing pay-with-data transactions.

Norms? Yes. Value-Optimal? Yes, but. . . The result will be a number of behavioral regularities of

the form, “buyers demand such-and-such trade-off.” Eventually, not only will the trade-offs be value-optimal,

but buyers will also believe they are. As advertising unites buyer demand into suitably sized

groups, buyers will continue to engage in billions of pay-with-data exchanges daily. The trade-offs implemented in the exchanges will

cease to be merely accepted; they will become acceptable. Buyers will ultimately recognize the trade-offs as value-optimal.