The FTC wants to regulate data brokerage: Where were they last century?

By Dan Raile , written on May 28, 2014

From The News Desk

This week in the-one-hand-knows-not-what-the-other-is-doing news, the Federal Trade Commission took a principled stand against data brokerages that collect user data across disparate sources and sell it on to enhance targeted advertising.  Never mind that, a mere 30-minute drive away from FTC headquarters, the NSA has been shown to be doing much the same, only more so.

The Commission’s report, released Tuesday, bears the heading “a call for transparency and accountability.” Meanwhile, Edward Snowden is forced to laugh at Vladimir Putin’s jokes or risk deportation into the eager arms of American justice for the transparency and accountability he forced upon the government’s surveillance operations. The FTC report details the system of commercial surveillance which collates data from government records, purchasing behavior and social media to “collect and store a vast amount of data on almost every U.S. household and commercial transaction.” Which, sounds familiar.

The FTC's call for legislation is a positive development, nevertheless. People-qua-consumers ought to know what data is being stored about them and where. There ought to be clear rules about this, especially as the kinds of data being collected reaches ever more deeply into our lives. It’s too bad that other government agencies don’t feel that people-qua-citizens deserve the same. And anyway, this is coming rather late in the game.

Of course, we should be aware that there is a multi-billion dollar industry around tracking our shopping habits and online behaviors. By now, I thought we were. It's certainly nothing new.

In his 1998 book “Burn Rate”, Michael Wolff describes the atmosphere in Time Warner boardrooms in 1994, two years before Netscape, when Time was launching Pathfinder to compete against industry leaders like AOL, Excite, Prodigy and Compuserve.

“We would be able to follow a consumer’s every click of the mouse! We, as marketers, would have that information! This was holy grail stuff!”

The holy grail analogy is apt. Holy grails are elusive. Even with all the information floating out there and changing hands, the advertising we receive often refreshingly misses its mark. There’s always going to be a kernel of unpredictability in a person’s behavior, irreducible to the neat categories that brokers and marketers slot us into. Past performance doesn’t predict future results, whatever the claims of Big Data enthusiasts. Or, in the spirit of mid-century existentialism, we are constantly becoming what we are not.

Holy grails also, historically, lead to crusades which can be disastrous (Rape and pillage, the fall of the Byzantine empire 800 years ago – more recently, Pathfinder was a black hole of capital for Time Warner. Many believe its failure precipitated the merger with AOL, which destroyed another couple of hundreds of millions of dollars for shareholders.) But they can also ferment unintended cultural byproducts. The actual Crusades, in their wake of blood, opened up new commercial markets, and some say laid the groundwork for the Renaissance by introducing to medieval Europe the repository of ancient Greek and Roman texts preserved by Islamic scholars.

In the modern day, advertising, and the increasing ability to personalize it, has driven successive waves of internet-based business, right up to today. It’s the underpinnings of the entire economic phenomenon, soundly outpacing subscription- and transaction-based models. See also, Google and Facebook.

That said, there is no doubt that advertisements are steadily approaching the almost-perfectly-targeted asymptote. Advertisers would tell you that this is actually a good thing for consumers. It means we (in some better, future world) get advertising for products that actually appeal to us, and less for products that don’t.

Of course, compare the Big Mac on the billboard to the one in your lap and you may sense that advertising has other aims than to simply provide you with timely and welcome information about what you want for lunch.

Luckily, when targeted advertising misses the mark, it means we just groan or giggle at receiving a slew of ads for things we would never want. But with ever-better targeting, and the potential spread of gaze-tracking wearables,  privacy concerns are mounting. The government, historically, has not proved adept at understanding and protecting against these incursions into privacy.

This is due, in part, to the fact that privacy concerns vary demographically and are constantly in flux. If the government had taken a hard line in the ‘90s to protect the kinds of data people found invasive at that time, it’s possible it would have limited the economic growth we’ve seen in the interim. There's a widely held perception that younger Americans are more willing to provide potential advertisers with data that in turn will be used target them. It deserves mention that some studies have shown this to be a function of the hidden nature of data collection.

Jude Gomila, CEO and founder of mobile ad network Heyzap (which doesn’t engage in data brokering) likes to talk about “the privacy onion,” a series of concentric circles with a person’s physical body and stream of consciousness at the (probably impenetrable) center.

“If you peel too fast, it burns you, but peel too slowly and it gets old and crusty,” Gomila says. “It makes sense that the FTC is providing ground rules on data sharing for brokers. Hopefully consumers will have a better experience if the rules are well thought out.”

Gomila believes that as a general principle, users should know what information is being captured about them. This makes for happy users, and happy users makes for good business.

Heyzap is focused on improving targeting in the mobile ad ecosystem. The fact that it and most of its competitors don’t engage in the brokering trade is instructive. (“Our ad ecosystem doesn't use brokers because it collects data internally and doesn't need to broker any data off,” Gomila says.)

Mobile applications have the potential to access a trove of user data – including geo-location data, and all kinds of contextual and behavioral data – and the promise of gathering that data from across many apps means that brokers become less valuable.

The current FTC howling about the brokerage trade might be coming just as that trade becomes less valuable to the advertising industry. As mobile devices continue to garner an increasing share of eyeballs, strategies for gathering and deploying data are changing in ways that could make data brokerage companies obsolete. After struggling to apply the successes of desktop-based advertising to mobile platforms, advertisers and publishers are finally finding a groove. When we look back on the FTC report years from now, we may decide that the Commission was too late in recognizing this paradigm shift – stuck inside of mobile with the desktop blues again.