Internet Marketing: Is Regulation Coming?

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She adds that this project was a case study of one company and therefore doesn't necessarily indicate broader trends. But generally, she chose Levi's partly in the interest of "selecting a product most people could relate to," and because fashion is among the industries, such as autos and finance, that are known to rely on behavioral targeting to stay current with consumer tastes.

Big Internet companies say they are giving users more control over their privacy than ever before. During the congressional hearing, Google Deputy General Counsel Nicole Wong demonstrated a tool introduced in March that lets surfers see which categories advertisers are pitching them based on search history, and opt in or out of any specific category, such as "auto financing" and "interior design." Yahoo's privacy head, Anne Toth, told the subcommittee that her company recently reduced the period of time it retains user data to 90 days instead of 13 months.

Both companies also highlighted a new anti-tracking technology—opt-out "buttons" that remove cookies from a user's computer without depositing new cookies.

Industry Plans New Self-Regulation

Yahoo says it does not oppose government regulation but expresses concern that any law created might not be able to adapt with changes in technology. "Self-regulation is ideal for our industry because technology moves very rapidly, and by using self-regulation we can respond in kind," says Toth.

So far, government attempts to set up guidelines have fallen short, while the industry's self-policing efforts are unwieldy. In February the Federal Trade Commission's new guidelines on behavioral targeting were faulted for not providing specific durations for how long records should be kept and failing to spell out definitions of terms like "sensitive data."

Some time this summer, the Interactive Advertising Bureau (IAB), a trade organization for online publishers, plans to unveil a set of self-imposed guidelines for the industry that were created in conjunction with the Association of National Advertisers, the Direct Marketing Assn., and other trade groups. Drafting and enforcing self-regulatory principles is difficult because it requires being compatible with many different business models, according to Mike Zaneis, vice-president for public policy at the IAB.

Washington may step into the role of regulator. "The issue ultimately depends upon the interest of the Democratic leadership in Congress and the White House to move the issue of online marketing forward," says Jeff Chester, executive director of the Center for Digital Democracy.

Silicon Valley's White House Influence

The stakes are high. According to a report released by the IAB in early June, the online ad business contributes $300 billion in "economic activity" to the U.S. and employs 1.2 million workers. At the same time, the advertising industry is sagging and increasingly turning to the Web because of tools that let it increase the efficiency of each ad dollar by tailoring pitches to individuals. "Targeting the message is fundamental to what online advertising is all about," says the IAB's Zaneis. "There clearly will be negative impacts if you cut off the flow of data and make advertising less relevant and less profitable."

The Obama Administration has been quiet on the issue of online privacy. While the President has made stronger regulation of the financial and other sectors a top priority, some wonder whether Silicon Valley's influence in the Oval Office might put the kibosh on any legislation that has the potential to constrain online advertising.

"Google has played a significant role in the Obama Administration," says EPIC's Rotenberg. But, he adds: "That doesn't mean they're above the law. I don't get the sense that [the White House] is afraid to legislate if they think it's important."

Douglas MacMillan is a staff writer for BusinessWeek in New York.

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