Privacy Trade-offs and the Importance of Experimentation

Over at my previous blogging home, Adam Marcus has a good post enumerating some of the advantages of behavioral advertising:

The problem is that, even if online video services can sell ad time for 3 times as much as broadcasters, because there is almost 15 times as much ad time on broadcast television than online services, the online service will still earn only 1/5 as much revenue as a traditional broadcaster. This is why online video is expected to drive adoption of personalized (or “behaviorally targeted”) advertising: If online video programmers can target advertising to the individual user’s likely interest, rather than to a crude profile of their likely audience, they can generate much higher revenue per ad because advertisers won’t be wasting their ad budgets showing users ads for things they aren’t interested in! The increased revenue for online content providers made possible by targeted advertising is the “mother’s milk” that many websites need to survive.

These are strong points, but I’m not totally sold on this analysis. I think it’s quite possible that as in the cases of the recording and newspaper industries, the future may very well be one in which video content generates less revenue than it used to, and video producers are forced to find creative ways to produce more content on tighter budgets, which isn’t necessarily a bad thing. But Adam’s larger point is surely right: there’s a trade-off here. At least some forms of personalization are likely to increase advertising revenues, and disallowing tracking will mean that content producers will have smaller budgets which will, on the margin, reduce the quality of content. Obviously, some people will prefer that outcome. But others might think the risks of personalization are worth the benefits of more expensive content.

I also think it’s a mistake to focus too much on the financial benefits of personalization. Consumers benefit indirectly from content producers with bigger budgets, but personalization can also offer more direct benefits. If I turn my television to the wrong channel at the wrong time of day, I’m likely to see a lot of ads for incontinence aids, feminine products, children’s toys, and other products for which I currently have no use. If I had a way to signal to the television that I wasn’t interested in these product categories, that would not only benefit the advertisers, but it would benefit me as well, because I’d be more likely to see ads for products I actually care about. Google goes to great lengths to only show search ads it thinks users are likely to click on. This benefits not only Google and its advertisers (who make more money and attract more business, respectively) but it also benefits users themselves, because their time and attention isn’t wasted with totally irrelevant ads as often.

So it’s important to remember that there are trade-offs here. But not only do people disagree on how exactly the balance should be struck, in many cases they even have a clear idea of what the relevant trade-offs will be. There are many possible business models for online video; the best ones probably haven’t been invented yet. If we write privacy regulations now, we not only limit consumers’ choices among existing options, but we may prevent the emergence of new options that could be more congenial to both sides. Not only is it difficult to predict how websites of the future might work, it’s even more difficult to predict how users will feel about services that don’t exist yet. The only way to find out what the options are is to allow experimentation to continue in a decentralized fashion, and to let each user decide for him or herself which options make them the most comfortable.

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One Response to Privacy Trade-offs and the Importance of Experimentation

  1. Rhayader says:

    Yeah privacy regulations don’t seem all that necessary to me. If individual privacy is something customers prefer, then services or advertisers that are perceived to have violated that privacy will suffer some harm to their reputations and, presumably, their bottom lines.

    It reminds me of public smoking bans; I live in North Carolina, which just jumped on the indoor smoking ban bandwagon (ban-wagon??). Before the law was passed, businesses all over town were putting up no-smoking signs because it reflected customer preference. The law merely codified — and, to at least some degree, calcified — a natural response to customer preference.

    Same thing here. We’ve already seen plenty of examples of user backlash against this or that EULA clause, or targeted ad practice, or whatever. In every case I can think of — please point out anything I am forgetting — the company being criticized eventually acquiesced and altered their practices to suit customer preference. I don’t see what’s wrong with allowing a business to experiment and find a model that satisfies the most customers.

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