Web Banner Ads Targeted

Most recently, FTC said it's going to train its guns on banner advertisements that appear across the Internet and are a key factor in the growth of that vital new medium. Specifically, FTC is aiming its sights on "advertisers who place banner advertisements on Web sites using online profiling technology." FTC aims to regulate mightily in this area, as it intends to do in virtually every other online area. FTC Chairman Robert Pitofsky proclaimed recently that this practice "can be troubling" and announced that it merits FTC's "careful examination."

DID CHAIRMAN ACKNOWLEDGE THAT NET ADS ARE SMALL PERCENTAGE OF AD UNIVERSE?

No, he didn't. Actually, Chairman Pitofsky pointed to the large growth of Internet advertising as follows:

"Online advertising revenues in the United States grew from $300 million in 1996 to almost $2 billion in 1998, and are expected to reach as much as $11.5 billion by 2003."

INTERNET ADVERTISING GROWTH FIGURES

Chairman Pitofsky didn't mention exactly what percentage of the overall advertising universe consists of Internet advertising. 1995 estimates indicate the advertising industry is a $170 billion industry--one growing at around 7% annually. But FTC officials virtually always cite Internet advertising growth figures in a vacuum without any relation to total advertising revenues.

Looking at those figures in that light, they're really not quite as "spectacular" as FTC officials consistently point out. Here are a few examples of FTC officials' overheated "The Internet is Skyrocketing: Quick, Let's Regulate" language and predictions:

• FTC Commissioner Orson Swindle pointed out that online advertising has experienced "exponential growth--from approximately $125 million at the beginning of 1997--to nearly $500 million by the end of 1998." ("Self-Regulation and Privacy Online: A Report" submitted to Congress by FTC, July 13, 1999.)
• "The phenomenal growth of commerce on the Internet has provided a greater sense of urgency to the FTC's seeking cooperation with its foreign counterparts," said Orson Swindle. "In fact, this is an issue with implications far beyond North America. Electronic commercial transactions, with their unequaled efficiency and speed, could turn the planet into one giant, interconnected shopping mall." ("Enforcement of Consumer Protection and Competition Laws in the Global Marketplace: the North American Experience," Prepared Remarks of Commissioner Orson Swindle, U.S. Federal Trade Commission, Before the Sydney Global Commerce Conference 1998, Presented by the Australian Competition and Consumer Commission, Sydney Hilton Hotel, Sydney, Australia, November 10, 1998.)
• On June 25, 1998, FTC told a House Committee that business on the Internet could grow--from $2.6 billion in 1996 to $220 billion in 2001--but if the trend is to continue, "... consumers must feel confident that the Internet is safe from fraud." (FTC testimony to the Subcommittee on Telecommunications, Trade and Consumer Protection of the House Commerce Committee, Eileen Harrington, Associate Director of FTC's Bureau of Consumer Protection, FTC File No. P97 4406, June 25, 1998.)

Looking at FTC's estimates of Internet advertising growth as compared to total advertising expenditures produces a completely different picture. The 1998 figure of $2 billion means that Net ads represent only about 1% of total advertising expenditures. Even its predicted "as much as" $11.5 billion figure for 2003, if accurate, would still mean that Net ads would garner only 5% of the advertising universe in that future year.

Advertising Compliance Service has asked several FTC officials during the past year what percentage of FTC's budget is currently devoted to Internet advertising regulation. Not one FTC official could give us the answer to that question. Reason: Since Internet advertising comprises about 1% of advertising revenues, you would expect about 1% of FTC's budget to be devoted to this new medium. It appears to be much, much greater. (See Advertising Compliance Service, "Brave New World of Internet Advertising Compliance Has Arrived," Tab #15, New Media, Articles #74, 75 and 77.)

WHY PITOFSKY FAVORS THE TRADITIONAL MEDIA

Referring to online profiling, Pitofsky conceded that "consumers can benefit from online advertising that is tied to their specific interests." To assuage advertisers in such traditional media as the direct mail industry, Pitofsky said:

"The use of conventional demographic information by advertisers to target consumers most likely to be interested in their products and services is a staple of the advertising industry, and does not raise any eyebrows."

Pitofsky did not mention that the current use of "conventional demographic information by advertisers to target consumers most likely to be interested in their products and services" by non-Internet advertisers also heavily relies on computer databases. The goal of all advertisers is certainly to deliver efficiently the right ad to the right person. By coming down in favor of obviously less efficient "conventional demographic information," Pitofsky has revealed his agency's increasing anti-Internet advertising bias. The "old ways" of the advertising industry don't raise eyebrows at FTC any more (though they certainly used to). But Internet advertising apparently doesn't pass FTC's "eyebrows" test.

WEB ADS USING PROFILING ARE "DIFFERENT BEAST"

"Online profiling, however, looks like it may be a very different beast," Pitofsky opined. He added:

"When I see, read, or hear an ad in the offline market place, `it' takes away no information from me. But, the online entity placing the ad may have the ability to watch me as I surf across various web sites, record what ads I already have seen, make sure I do not see them again, and show me ads it presumes will be of interest to me based upon the sites I have visited and whether I have clicked on other ads I have seen. And, all of this can take place without my knowledge, let alone consent. On a personal level, I find this more than a bit disturbing."

ANOTHER WORKSHOP

Internet advertisers haven't even begun to digest all of the many net regulations FTC has mustered, when FTC held another one of its Workshops. This workshop was called the "Public Workshop on Online Profiling." It took place on November 8, 1999. FTC jointly sponsored it with the Commerce Department. What was "a central question for this workshop"?

"How can we preserve and develop consumer confidence in online commerce while balancing the interests of online marketers who want to target their ads to interested audiences and balancing certain benefits to competition and consumers that may flow from target marketing?"

Pitofsky noted that the workshop would examine "new findings on consumers' views about online profiling and the need for privacy disclosures by online profiling companies." It would "explore both the privacy implications of online profiling technology and its costs and benefits for consumers and business."

LAWYER'S REFERENCE SERVICE

Opening Remarks, FTC Chairman Robert Pitofsky, Public Workshop on Online Profiling, November 8, 1999.

Volume XIX
Issue 22
November 15, 1999
Page 5-8

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