On 13 September, the UK government launched a consultation on changes to privacy law that could curtail the targeting of online marketing to consumers based on their behaviour. This article examines the background to these changes and looks at what retailers can do, both legally and reputationally, to negotiate this potentially tricky area.
Online behavioural advertising ("OBA"), sometimes also known as behavioural targeting, works by grouping web users into audience segments based on the websites such users visit over a period of time. Behavioural advertising can be undertaken on three basic levels:
(i) Website – a single site monitors the use of that site by users (including keeping a record of purchases) and serves them advertising relevant to their interests whenever they visit the site. This is also commonly known as "first party" OBA.
(ii) Network – here a number of sites are grouped together and "share" consumer history. So if a consumer visits the pages of a car manufacturer in the network, he or she may be served advertisements for car-related products on (say) an insurance website in the same network.
(iii) ISP – technology such as Phorm works at the ISP level using deep packet inspection of the sites that users visit in order to build up a profile of their browsing habits. Thus, all browsing history is potentially subject to analysis by Phorm – not just visits to specific sites. ISP and Network level OBA are commonly grouped together as "third party" OBA.
All three of these types of OBA are based on "cookies" which allow a profile to be built up by collating data on the consumers. More controversially, OBA can also be used to target (or vary) prices according to a user's apparent price sensitivity, based on their browsing habits. The use of behavioural pricing without consumer consent was recently flagged by the Office of Fair Trading as a likely breach of UK consumer protection legislation.
The advantages to retailers of using behavioural advertising are clear. Web users can be served advertisements that are tailored to their interests and behaviour. Online behavioural advertising has seen considerable growth in the last few years – according to figures from the Office of Fair Trading in 2008 it accounted for between £64 million to £95 million and whilst this is a modest proportion of overall online advertising spend of £3.35 billion, it is anticipated the value will grow considerably in the coming years due to the effectiveness of such advertising.
The use of OBA has recently been the subject of policymakers' attention at the EU level. The current industry practice, common in parts of the EU, deploys cookies on an "opt out" basis, where users have actively to refuse OBA. Critics argue that such an approach does not conform to the requirements of European privacy law.
Much (but not all) of the marketing industry is understandably concerned that an "opt-in" approach (which would require users actively to give their assent to OBA by (for example) clicking "yes" in a pop up window) is commercially impractical and will leave Europe at a competitive disadvantage.
This debate has been sharpened by changes to European privacy laws amending the Privacy and Electronic Communications Directive 2002 ("PEC Directive"), which require user consent to the serving of cookies onto their computers. There is currently uncertainty under the PEC Directive as to how this consent can be gained from users – can it be implied from their browser settings which can be set to block or allow cookies or do users have to explicitly opt-in? The amendments to the PEC Directive must be implemented by EU Member States by 25 May 2011.
The lack of certainty over the amended PEC Directive raises the possibility that different EU Member States will implement different standards by which user consent to OBA can be gained. This would create headaches for pan-European advertisers, who would have either to adopt a piecemeal approach to the different Member States or comply with the requirements of the most onerous national regime.
In the UK, the online advertising industry has, through the Internet Advertising Bureau (IAB), by and large lobbied for self regulation of OBA, arguing that explicit opt-in consent to the serving of cookies (beyond what can be inferred from browser settings) is not required either by existing legislation or by the amended PEC Directive. The consultation on the UK implementation of the PEC Directive, launched on 13 September, will see further debate over which approach is to be preferred. The consultation paper, which indicates that the UK government is minded to leave the interpretation of the consent question to the Information Commissioner's Office, can be found at this link (the relevant paragraphs are 228 – 232).
Until the legal arguments around OBA are settled, any potential downside of using OBA for retailers is, in our view, as much reputational as it is legal. With this in mind, Olswang set out in Autumn 2009 to find out whether antipathy to OBA was the preserve of a few privacy campaigners or of wider concern and carried out a survey in conjunction with the IAB that revealed some intriguing insights:
· 4 out of 10 respondents found the idea of OBA initially unappealing. Stated reasons for this lack of appeal included a general sense of invasiveness and worries about personal date being stored and used without the individual's consent.
· The majority of users expressed indifference as to a business's use of OBA. However, 25% stated that they would find a brand that used OBA less appealing to some degree.
· 58% of respondents claimed to be using software to block online display advertising, a figure which, if correct, means only 42% of UK internet users actually see any type of online display advertising (whether targeted behaviourally or not).
Further details of the survey's findings can be found here.
Advice for Retailers
In terms of practical steps for retailers, it should be noted that controversy around the use of OBA tends to be directed at internet service providers, advertising networks and OBA providers (such as Phorm) rather than businesses that are advertising using OBA. Nonetheless:
· It is worth weighing carefully the benefits of deploying OBA against the possible risk of the brand being damaged in the eyes of consumers. While retailers may be limited in what steps they alone can take in respect of third party OBA at the network or ISP level, they should consider carefully whether the advantages of deploying OBA on an opt-out basis on their own web real estate outweigh any reputational downside, especially as the law may well move against the opt-out approach in the near future.
· Retailers should keep abreast on the UK implementation of the changes to the PEC Directive. The government consultation on the implementation closes on 3 December 2010, and the outcome of the consultation will give more clues as to the likely approach the UK will take to the issue of user consent to OBA.
· The end result of the audience targeting of third party OBA may be a potential customer being served the same banner advertisement again and again across much of their web experience for the duration of a campaign. Such exposure may be desirable, but retailers should be alive to the fact that consumers may feel irritated or intruded upon by such repetition (and so be more likely to opt-out or employ ad blocking software in the future).