MediaFile

Privacy regulation and the “free” Internet

By Adam Thierer
December 23, 2010

Adam Thierer is a senior research fellow at the Mercatus Center at George Mason University. The views expressed are his own.

Would you like to pay $20 a month for Facebook, or a dime every time you did a search on Google or Bing?  That’s potentially what is at stake if the Obama administration and advocates of stepped-up regulation of online advertising get their way.

The Internet feels like the ultimate free lunch.  Once we pay for basic access, a cornucopia of seemingly free services and content is at our fingertips.  But those services don’t just fall to Earth like manna from heaven.  What powers the “free” Internet are data collection and advertising. In essence, the relationship between consumers and online content and service providers isn’t governed by any formal contract, but rather by an unwritten quid pro quo: tolerate some ads or we’ll be forced to charge you for service.  Most consumers gladly take that deal—even if many of them gripe about annoying or intrusive ads, at times.

Nonetheless, calls for regulation persist, especially as advertising grows more sophisticated.  More targeted forms of online advertising hold the promise of better ads more closely tailored to consumers’ interests.  But that also raises anxieties among some Web surfers who fear their privacy might be undermined by increased data collection or “tracking.”

To address those concerns, the Federal Trade Commission (FTC) and the Department of Commerce have stepped-up activity in this arena and has suggested that new rules may be needed. Earlier this month, the FTC released a report endorsing a new regulatory framework, including a so-called “Do Not Track” mechanism to allow easier consumer opt-outs of online data collection and advertising.  Last Thursday, the Commerce Department followed suit with a new report calling for expanded oversight and a new Privacy Policy Office within Commerce.  Meanwhile, discussion continues in Congress about a new “baseline” privacy law.

The stakes in the debate are significant since regulation could fundamentally alter the nature of online commerce and the future of how digital content and services are provided.  Curtailing data collection and online advertising could be killing the goose that lays the Internet’s golden eggs.  Such regulation will likely have a particularly deleterious impact on small publishers and service providers, who depend almost entirely upon online advertising.  In turn, this could curtail new entry and innovation—and new forms of speech and culture.

Some regulatory advocates don’t hide their desire to move the U.S. in the direction the European Union has charted with its “data directives” and more stringent forms of privacy regulation.  But America’s refusal thus far to walk down that more regulatory path offers scholars the chance to evaluate Europe’s more restrictive approach and study whether America’s lead in the global digital marketplace might be tied to its more “hands-off” approach to online regulation. A recent study by Avi Goldfarb and Catherine Tucker found that “after the [European Union’s] Privacy Directive was passed [in 2002], advertising effectiveness decreased on average by around 65 percent in Europe relative to the rest of the world.” They argue that because regulation decreases ad effectiveness, “this may change the number and types of businesses sustained by the advertising-supporting Internet.” Regulation of advertising and data collection for privacy purposes, it seems, can affect the global competitiveness of online firms.

Regulatory efforts will be complicated by the fact that privacy is a highly subjective condition and definitions of consumer “harm” vary widely.  Many of us don’t much worry about data collection or advertising online; we merrily go along our way surfing free sites, services, and content.  But a handful of vocal pro-regulatory privacy advocates and organizations have successfully convinced many policymakers that the hyper-sensitive concerns of a small minority should trump all other considerations.

Ironically, many of those privacy advocates bash copyright law and claim it is an information control regime, yet privacy regulation would constitute a stronger information control regime by creating the equivalent of copyright for personal information (which would, in turn, conflict mightily with the First Amendment).  In essence, privacy regulations limit the right of people to talk about other people, or communicate facts about them.  This raises serious free speech concerns and has particularly troubling ramifications for press freedoms.  Restrictions on advertising could also have an effect on non-commercial speech, such as political ads or non-profit communication.

Some proposed privacy regulations, such as a “Do Not Track” mandate, would also require a re-architecting of the Internet and the potential regulation of every Web browser to ensure compliance.  If our experience with attempting to eradicate email spam through regulation proves anything, it’s that such schemes are unlikely to work given the Net’s borderless nature.

There is a better path to balancing privacy interests and economic growth than through an onerous privacy regulatory regime. Educating and empowering consumers with more, and better, privacy-enhancing tools can help alleviate much of the concern about data collection or advertising intrusiveness.  The most-downloaded add-on for both the Firefox and Chrome web browsers is AdBlock Plus, which blocks advertising on most sites. A host of other tools are available to block or limit various types of data collection, and every major browser has privacy control tools and anonymous surfing modes to help users limit data collection.

Again, because privacy is a subjective condition, not everyone takes advantage of these empowerment tools.  The crucial point, however, is that the tools exist and they need not be perfect to be preferable to government regulation, which, in this case, could decimate the “free” Internet as we know it.

Comments
5 comments so far | RSS Comments RSS

I agree completely. If you don’t want to be tracked there are tools to prevent it, but the vast majority of the time, it doesn’t really matter that much. Nothing about my actual privacy is compromised if Google knows what news sites I visit.

I worry more about the information I knowingly give to websites. I’ve spent the past couple weeks changing my passwords on numerous websites and forums thanks to Gawker Media’s poor security.

Posted by CapitalistBagel | Report as abusive
 

Online marketers have deliberately created a consumer privacy nightmare by transforming the Internet into a data collection digital octopus. Consumers want to be treated fairly–and not subject to being secretly followed, profiled and targeted wherever they go online–including on their PC and mobile phone. Mr. Thierer ignores how online marketers and publishers have stealthily developed more ways to collect information from us–what we spend, where we go, our race or ethnicity, health and financial concerns, say on social networks, and what our children do online. He offers the public a false choice: it’s not about killing the golden goose of advertising online. A individual consumer should decide what data can be collected by marketers, including the scores of online data “third-parties” who buy and sell our information. With consumers back in control of their information, they can vote with their dollars and data about which online sites they trust. Those online publishers will thrive.

Posted by jeffchester | Report as abusive
 

This blog responsibly reflects on the conundrum we face as online publishers. Though we would like to charge the public for things like email, video and social networking, the precedent for free binds all of us; the public is very much accustomed to receiving our wares for free. We have worked over the past decade to make it possible to offer free services to the public, and we have created systems that enable us to deliver advertisign that is valid and demographically sensitive to each visitor. This requires to leaving cookies on internet browsers, collecting web addresses visited by users, then returning this list of URLs back to ad networks, each of whom must calculate the most relevant ad for each visitor. This takes place almost-instantly, and results in better-quality marketing on each website. If the government enables the public to opt-out, they will gradually move the internet to a place where free-content providers must collect dramatically more information about each user overtly, such as is done in facebook, then ask for a dramatic reinvention of the way free content is delivered. This will cause a shake-out of all internet properties that cannot collect information in a uniform way, and enable only a few properties to remain. Facebook and a handful of others who maintain their own advertising networks will survive, and take over the entire realm of free services, causing the internet to capitulate into a small number of content aggregators. Only journalism will disappear, and all social networking beyond facebook as well. YouTube will also become regulated, and lose profitability. Hulu will survive, as it already collects fees from the same advertisers who monetize network television.

The US FTC could turn this moment into an important victory for privacy activists by strengthening penalties for the misuse of individually-identifying information for sites like facebook, who loosely safeguard the individually identifying information of each user. This business has wrongly been allowed to give away important personal information about its users, while online ad networks, who anonymously collect non-personal information, are targeted.

It is good government to investigate further into this issue, but the public should continue to receive free content of high-quality that is continuously improving, especially in the realm of information and services that assist everyday users to improve their lives. When only a small number of sites can survice the FTC’s regulation, the vast wealth of online content is quickly decimated in favor of the mediocre offerings of sites like Facebook.

Posted by stefanbund | Report as abusive
 

This is the first intelligent article i’ve read on the issue. Allowing excessive government control and regulation of the Internet in order to protect privacy isn’t going to be effective and is going to silence free speech and undermine the whole purpose of the interent – free sharing of thoughts and ideas.
We already have and can tighten laws to protect the public from sexual predators etc…
People have the choice of participating and sharing their information online or not…when they choose to *share* they shouldn’t complain about privacy.
Everyone knows the internet is a PUBLIC DOMAIN.
It’s like shouting it out on the street…whoever hears it hears it.

Posted by SuzyQPA2010 | Report as abusive
 

The folks who conjured up the World Wide Web, back when the Internet was still largely a tool for academic research paid for by the Pentagon, with a mind to its becoming a self-supporting entity. The first Web browsers had the capacity to store “cookies” specifically to track “visits” for follow-up sales efforts, and to facilitate secure log-ins and money transactions. Absent that, you surely wouldn’t be reading this.

What’s caused all the trouble is that there are those in the Internet “business” who aren’t willing to play nice. They in turn get helped by greedy ad-placement services who don’t care if they’re showing you a “click-through” banner that plants a Trojan on your computer, so long as they got paid for it. The problem is compounded by the inherent insecurity of the great majority of computers in use (thanks a lot, Microsoft!) and the extreme reluctance of the entities who profit from “the Internet” to spend a dime fixing the essential problems as long as they accrue more profit by offering the public more glitzy whiz-bangs instead.

Posted by Art_In_Seattle | Report as abusive
 

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