Regulation could shape the future of targeted online advertising… and of media

Reuters has just reported that the European Union’s advisory body on data protection intends to scrutinize targeted online advertising and its implications for privacy in 2008. The Facebook Beacon debacle this week has brought to public attention the ramifications of targeted advertising for privacy, and the EU is already taking this to heart.

The EU’s machinations are among the most powerful forces shaping global business, and in particular the online world. To take just a couple of examples, Microsoft has come afoul of the EU on monopoly abuse, and Google’s mooted acquisition of Double Click is being delayed until April while the EU extends its probe. On a far broader canvas, extremely strict EU data protection laws shape how online business is conducted all over the planet.

There is no question that targeted advertising is one of the most fundamental forces shaping the entire media landscape. The greatest power of digital media (which is evolving to eventually cover almost all media, including many forms of TV, much outdoor advertising, and will also encompass newspapers come the advent of e-paper) is that it allows advertising messages to be targeted to the individual. This is not just about showing advertisements to those who will find them relevant, but also about customizing advertising content so that it is more likely to influence the individual viewer.

The diagram below, excerpted from our Future of Media Report 2007, shows the spectrum of advertising customization. More detail in the report.

Of course, by its very nature targeted advertising must be based on personal information. It doesn’t need to identify an individual, but it must provide useable insight into that person’s interests or preferences.

The ability of organizations to gather and to share the personal information on which targeted advertising is based is largely determined by regulation. Almost every developed country has established privacy and data protection laws that determine what organizations can do with personal data. It is quite possible that the EU’s moves over the next year or two will fundamentally shape the future landscape of behavioral advertising.

Part of the question is the degree to which regulation reflects public sentiment. Arguably people are gradually becoming increasingly comfortable (or accepting) of loss privacy, while the legislation is heading the other direction. However gaffes such as Facebook’s ill-thought-out Beacon advertising scheme can easily shift how people think about these issues. Facebook has lost an enormous amount of goodwill, and so far doesn’t seem to have recognized how badly they goofed. Even advertising agencies keen on targeted advertising are laying into Facebook.

As I’ve written before, information standards for attention, for example, can provide a foundation for targeted advertising that doesn’t jeopardize privacy, if the right structures such as infomediaries are in place. However if regulation is very strict, it may not allow even these kinds of systems to be established.

The issue has to be about choice. Many people will actively want to get targeted advertising. I have faith that the most effective marketers will be able to create value for their audience, because otherwise they won’t have an audience. Yet it must be an extremely easy step for us to choose to protect our privacy and information. Otherwise legislation could effectively block targeting for everyone. Let’s hope not just Facebook, but the rest of the industry, have learned from their mistakes.