Will The Cookie Crumble? Web Privacy Rules Put Effective Display Advertising At Risk

News flash: the world is not perfect.  Unscrupulous operators can be found in every business under the sun, offline and online.  The challenge lies in knowing the right response to this reality.  It's natural for government to act on behalf of the consumer, but sometimes it's easy to forget that consumer protection is not solely the responsibility of government.  This is especially true online - and especially in the online display advertising industry.

If there is a general theme to the wider online world, it is one of ever-greater individual responsibility.  As users and as business owners or managers, there is little we are prevented from trying.  Government regulation has not only lagged behind the rapidly moving leading edge of internet business, regulation is a centralized force, which puts it at a natural disadvantage due to the net's very architecture.  Regulation is just like obstruction on the web - easily routed around.

With that being true, one might wonder why online consumers haven't been routinely aggressively abused by marketers online thus far.  The answer there is simple: do damage to the consumer, and you do irreparable damage to your brand.  Think of spam - the single easiest way to make your brand disreputable is to send indiscriminate spam email, which is why nobody serious about their business does it.

In online display advertising,  concern about privacy is on the rise -and according to Dave Stein at Media Post, Congress is now getting into the regulatory act. Being kicked around on the hill are proposals that would, if enacted, do far more harm to the industry than protect consumers.  As Stein puts it:

There has been a great deal of discussion about the European Union enacting legislation that would require Web users to consent to Internet cookies. This law dictates that Web cookies cannot be placed on a user's computer unless it is strictly necessary for the legitimate purpose of enabling the use of a specific service explicitly requested by the user.

For Web publishers the implications are widespread -- Web sites use cookies for countless legitimate reasons -- including session management, content management, preferences, analytics, and advertising revenue. Can you imagine a digital world where every time a user visits a Web site they are prompted with a message: "If you would like our site to enable anti-spam and flood control, would you be willing to accept our cookie / ?"

Among lawmakers in the United States, a conversation similar to what occurred in Europe is taking place. Proposed legislation is being crafted in Congress that may place restrictions on the use of cookies: as well as the collection of information, under a broad definition, that could be considered personally identifiable.

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Our outreach to Washington is necessary, since one of the most obvious impacts that potential legislation will have on publishers is on the revenue they earn from advertising. The inability for ad servers and ad networks to use cookies when serving ads substantially affects the way online ads perform. At the simplest level, without cookies, ad servers are unable to perform basic functions such as frequency capping (limiting the number of ads per advertiser shown to an individual) and fraud analysis. At a more advanced level, we lose the ability to measure conversion rates or serve an ad to someone who has expressed prior interest in a topic. Without these capabilities, large brand advertisers -- who have finally become comfortable moving more and more marketing dollars to the Internet -- will either have to buy far more impressions at much lower prices or move their campaigns offline in order to meet their marketing goals.

These are great points. The last thing the legitimate and ethical online display ad industry needs is to have its core benefits to customers  - relevance, usefulness and ethical informational value - and core benefits to advertisers - targeting, performance control and measurement -  be regulated away in a misguided effort.