The FTC Takes On Targeted Web Ads

Jon Leibowitz, Obama's top consumer watchdog, hints that he's losing patience with the behavioral-targeting practices of Internet marketers

By Douglas MacMillan

On a side table in his Washington offices, Federal Trade Commission Chairman Jon Leibowitz keeps a framed image of Arnold Schwarzenegger from the 1984 film The Terminator. It was given to Leibowitz a couple of years ago by one of the FTC's regional offices, an homage to his crackdown on spyware that surreptitiously gathers information on Web users' surfing habits.

Now, Leibowitz wants to terminate—or at least rein in—a different practice he finds no less harmful to consumers: delivering ads to individuals based on the Web pages they visit and searches they carry out. Appointed by President Barack Obama in February to run the country's top consumer watchdog, Leibowitz has made so-called behavioral targeting a top priority.

How far he goes in regulating the practice could have big implications for a host of companies that depend on Web advertising and engage in some form of targeting. These include Google (GOOG), Facebook, and Microsoft (MSFT), which on July 29 announced a plan to partner with Yahoo! (YHOO) in the area of Internet search. It would also affect the way legions of companies and advertisers craft marketing campaigns.

Behavioral targeting has become more prevalent as it gets easier and cheaper to use software to track online behavior and then use the data to pitch Web users related goods and services. These ads are more likely to induce a customer to make a purchase or otherwise respond to a pitch, researchers say.

Web Ad Spending Is on the Rise

The pitches' growing effectiveness is helping to attract more ad dollars to the Web. Researcher eMarketer estimates that advertisers will spend $960 million on personally targeted ads next year, accounting for about one-fifth of all display ads on the Web, up from $705 million this year, when they accounted for 15% of the total. The average Web surfer benefits, too: An array of free services, from Google's Gmail to social network Facebook, are partly supported by targeted ads.

But the FTC and a growing chorus of consumer advocates warn that online advertisers are not always forthcoming about their use of targeting. And some are downright deceptive, Leibowitz said in an interview with BusinessWeek. "There's a critical issue about whether consumers have notice of what companies are doing with their information and whether they're making informed choices about [sharing] information," Leibowitz explains. For example, if an advertiser sends an ad based on sensitive information about a person's health, "you might want to take that off the table."

Seated in his office in the Apex Building, less than three blocks from the Capitol rotunda, the balding, bespectacled Leibowitz hardly looks like a tech-industry Terminator. Of medium height, Leibowitz readily admits that his basketball buddy Julius Genachowski, chairman of the Federal Communications Commission, "has been schooling me on the court for over a decade."

But confronted with the suggestion by one consumer-privacy advocate that the FTC lacks the technical chops for an issue as complex as behavioral targeting, his pugnacious side surfaces. "Our guys are pretty good on technology issues, and I think they're learning more," he says emphatically.

stalking spyware perpetrators

As an FTC commissioner since 2004, Leibowitz has been outspoken about the need for stronger protections for consumer privacy online—evidenced by his aggressive spyware and data-security cases, as well as public positions he's taken on mobile privacy and online ads. In June retailer Sears (SHLD) settled an FTC complaint charging that Sears had failed to disclose the extent to which it was tracking the activities of certain shoppers, who had been paid $10 to download a piece of "research" software to their computers. The settlement forced Sears to end the practice and destroy all the data it had generated.

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