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Slouching toward regulation in digital advertising

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The Senate Judiciary Committee “took a hard look at digital advertising” on Tuesday, May 21, coming at the issue from the points of user privacy and whether entities reliant on that data to support their businesses are too big to be trusted.

First, size does not matter in this conversation. As we found in our report “The Fraud Is Coming from Inside the Ads” (download it from our homepage), there are vulnerabilities at all levels. Focusing on “edge companies” shows a lack of understanding about how the digital ad ecosystem works.

Using personal data to target ads is fundamental to an open web. That said, consumers absolutely should have the ability to know - and control - what data is shared, and with whom. That seeming conflict underscores the complexity of the issue - and is a warning against conflating all digital advertising with fraud..

Solving malvertising, hijacking, forced redirects and numerous other consumer exploits requires technology, commitment by all publishers to provide protections and informing consumers of how online media actually works.

Since publishing our paper, we’ve had the opportunity to speak with numerous industry groups, foundations, university journalism and advertising schools, and forward thinking organizations such as the World Economic Forum. What that’s taught us: There is very little understanding of the digital ad ecosystem.

Content on a web or mobile screen is only 20 percent of what’s happening on that page.

When news trust organizations talk about media literacy, few of them discuss the economics of the business and how many intermediaries there are between an ad buyer, the platform the ad appears on and the end user. They should. Content on a web or mobile screen is only 20 percent of what’s happening on that page. The rest is code-driven ads called from thousands of network ad providers, recommendation engines, and so many lines of third-party Javascript that you’d think it was kudzu.

Coverage of the Judiciary committee did have bright spots in the expert testimonies. Witness Brian O'Kelley, founder of AppNexus, suggested three ways to protect consumers while preserving startup innovation:

  1. Protect consumers rights to their own data (the long-talked-about privacy "bill of rights");

  2. Create a regulatory entity that can keep up with innovation

  3. Close the advertising antitrust loophole

That loophole, O’Kelley said, was using consumer prices as the only measure of consumer welfare. (Think on that. It’s like saying the tobacco industry only is regulated by the size of its cartons.)

And witness Avi Goldfarb, Ellison Professor of Marketing and the Rotman Chair in Artificial Intelligence and Healthcare at the University of Toronto, offered cautionary research from Europe to underscore the double-edged nature of privacy efforts.

“MIT professor Catherine Tucker and I found that early European privacy regulation (the European Union’s e-Privacy Directive EC/2002/58) was associated with a 65% decrease in the effectiveness of online advertising,”Goldfarb said. “In other words, the regulation appears to have improved privacy protection as advertisers likely used less data to target ads.

“As a consequence, it is probable that the regulation hurt the European advertising-supported software industry—an industry that has been particularly innovative in the U.S. and China over the past decade.”

Consumer education is key to understanding this complex issue. All levels of the digital ad ecosystem owe it to consumers to provide protections from fraud. Anything else signals complicity.

Note: Read testimonies from the hearing here.

Rusty Coats