Online privacy: what’s at stake

It is widely believed that a flourishing democracy requires an independent, diverse, and financially solvent press. With print newspapers set to disappear in the next few years, the future of quality journalism is highly uncertain. This year, the online version of the New York Times will generate about $200M in revenue, a number that will need to approximately triple to support the current Times newsroom.

Most people who understand Internet economics believe that the best hope for online journalism is online advertising. Luckily, online advertising has significant room for improvement. Most of the revenue of the Times’ online business is generated through display ads. The main metric used to price display ads is derived from the rate at which users click on the ads, a rate which today is dismally low. Thus the Times could continue to support its current newsroom staff if display ads became even moderately effective.

Lots of smart people are working on improving the efficacy of display advertising. Large companies like Google and Microsoft are investing billions in the problem. As usual, though, the best ideas are coming from startups. Companies like Blue Kai and Magnetic are bringing search intent (particularly purchasing intent – the core of Google’s profits) to display ads. Companies like Media6Degrees are using social relations to target ads based on the principle that “birds of a feather flock together” (Facebook will likely start doing this soon as well). Solve Media turns the hassle of registration into an engaging marketing event. Convertro is working on properly attributing online purchases “up the funnel” from sites that harvest intent (search, coupon sites) to sites that generate intent (media, commerce guides). All told, there are a few hundred well-funded ad tech startups developing clever methods to improve display advertising.

Many of these targeting technologies rely on gathering information about users, something that inevitably raises concerns about privacy. Until recently, online privacy depended mostly on anonymity. There is a big difference between advertisers knowing, say, users’ sexual preferences and knowing users’ sexual preferences plus personally identifiable information like their names. Like most people, I don’t mind if it’s easy to find my real name along with my job history, but I do mind if it’s easy to discover other personal details about me. When I’m not anonymous (e.g. on Facebook) I want to control what is disclosed – to have some privacy – but when I’m anonymous I’m far less concerned about information gathered for marketing purposes.

Before the rise of social networks, online ad targeting services (mostly) tracked people anonymously, through cookies that weren’t linked to personally identifiable information. Social networks have provided the means to de-anonymize information that was previously anonymous. Apparently, the wall has been breached between 1) my real identity plus my self-moderated public information, and 2) my anonymous, non-self-moderated private information.

The good news is that the things users want to keep secret are almost always the least important things to online advertisers. It turns out that knowing people are trying to buy new washing machines or plane tickets to Hawaii is vastly more monetizeable than their names, who they were dating, or the dumb things they did in college. Thus, there are probably a set of policies that allow ad targeting to succeed while also letting users control what is associated with their real identities. Hopefully, we can have an informed and nuanced debate about what these policies might be. The stakes are high.

Note: As with almost everything I write on this blog, I have a ton of conflicts of interest. Among them: I’m an investor, directly or indirectly, in a bunch of technology startups. Some of these – including some companies mentioned above – are trying to create new advertising technologies. I am currently the CEO & Cofounder of Hunch, which among other things is trying to personalize the internet through an explicit user opt-in mechanism.

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http://blog.ginsudo.com ginsu

Chris, it almost seems like you’re saying that quality journalism will perish unless advertisers have unfettered access to consumer personal information. I know that your post is more nuanced than that, but it sure is easy to hear this alarmist tone.

Unfortunately, a call for an “informed and nuanced” debate is often a veiled charge that opposing viewpoints are ignorant and unsophisticated. Again, I know you’re better than that, but I think overall your post supports the common refrain in the Internet industry that people who complain about privacy issues are dumb about technology and blind about the future.

I understand how frustrating it is to see major national publications continually distort simple technical facts to sustain a fear-mongering story line. But it does those of us in the technology industry no good to claim that people who care about privacy just need to learn to see things the right way (which is our way, natch).

The fact is, people care, and their fears are not entirely unjustified. People have their information used in unexpected ways by unknown people, with no apparent warning or recourse. We all know that you cannot expect anyone to read the fine print – we all *should* know that what much of the Internet is doing about privacy is simply *bad design*.

It’s ironic – the leaders in the Web have fine tuned the art of optimizing every pixel on the screen – we know that the end user should never be confused and should always have the best choices be the fastest and easiest choices for them. And yet, when users get upset about our failure to meet their expectations about how their information is used, why would we say they need to get more informed and more nuanced? Why should they need to spend time educating themselves, why should they need to read the fine print?

That’s just bad design, and I think that the people who already have the knowledge and nuance should attend to fixing it rather than suggesting that the consumers need to educate themselves.

http://mickw.com mickwe

No idea how you read that – he doesn’t ‘almost’ say that at all and there’s nothing alarmist here.

http://blog.ginsudo.com ginsu

Mick, my apologies, perhaps I should have said “seems to me” instead of “seems” – let me try to explain how it seems easy to me to hear an alarmist tone. The following is a fair (I think) one-sentence summary of each paragraph in the post:
– Quality journalism is essential to democracy, and expensive to produce.
– Online advertising is the best hope for growing revenue for journalism.
– There is a lot of innovation in online display advertising.
– A lot of that innovation relies on user information, which has been mostly anonymous.
– The rise of social networks has enabled linkage of formerly anonymous info to real identities.
– Let’s be careful about how we balance ad targeting with user control, because the stakes are high.
I think that’s a fair summary of a fair post. But I also think it’s easy to draw the alarmist conclusion from this summary that if targeted ads don’t succeed, then democracy is endangered. Or at least, it seems easy to me.

http://twitter.com/cdixon chris dixon

I must have done a poor job writing this because I don’t think we disagree very much. I think there should be policies that govern what information collected. I just think it should be done in a way that acknowledges that advertising supports more than advertisers and that protects users and I think there is a way to do that (as I suggest at at the end) since the info most important to each side tends to be different.

And of course I don’t think democracy will die if online advertisers can’t collect certain information. But the reality is online advertising is the economic fuel behind the web and hence web investment and much of its innovation, and I just think it’s important for privacy advocates to realize this and factor it into their decisions.

http://blog.ginsudo.com ginsu

Nah, you’re a good writer, and we probably agree more or less completely. The thing is, we’re expressing our dissatisfaction with different players in the conversation. You’re dismayed at the reactions of privacy advocates (and by extension some consumers). I’m dismayed at the reaction of our own industry – advertisers, publishers, technologists. The audience for your blog is largely in the latter group; we are the ones who actually have the power to change things by designing better user interaction for personal information sharing.

But too many of us treat privacy concerns as if they are irrational. My point is that even if they are irrational, why should that prevent better design? It’s not rational to prefer content on one side of the screen vs the other, it’s not rational to prefer green over red – but we figure out these user desires and we design for them.
Enrico

I completely agree.
The problem is not collecting personal data,
the problem is:
1) people are not aware of it
2) companies make money selling personal data without permissions
3) personal data are used not for the benefits of the people but for the benefits of companies.

solve these 3 “little” issues and people will be more than happy to “trade” their data

http://twitter.com/skbohra123 Shree Kant Bohra

We at Iddhis.com are building a completely new way of online communication, the idea of removing noise from the conversation, what I would like to see is similar take on other services by more people.
http://mickw.com mickwe

Thanks for the strong overview Chris. In your last paragraph you imply with the ‘thus’ that marketers should be satisfied without accessing our private information, since that’s less valuable to them than explicit purchasing intent. I don’t think that’s a reasonable assumption going forward. As Hunch itself shows (in an entirely ethical, opt-in way), there’s tremendous value in linking seemingly random personal details to consumer patterns. If we accept that, which I imagine is part of Hunch’s thesis, then the breach caused by the Rapleafs of the world threatens both individuals and services like Hunch that are approaching the issue responsibly. Agree?

http://twitter.com/cdixon chris dixon

My view is anything non-anonymous should be explicitly user opt in (e.g. via OAuth or FB Connect). Hence at Hunch that’s our policy. We never share anyone individual person’s data without explicit user consent.

Regulation is probably inevitable and necessary. I just hope it’s done intelligently.

http://www.optimizeandprophesize.com/ jonathanmendez

Chris, I don’t think it should be incumbent on users to have to define privacy settings across the web.

This is all about ads. The web to people is not ads. The web to people is sites and links. It is our obligation as advertisers to make privacy work for people – not their obligation to make it work for us.

I wrote my opinions about this (sparked by Esther Dyson’s comments on privacy) yesterday on my blog http://bit.ly/dvogDa

http://twitter.com/cdixon chris dixon

Hey jonathan
I don’t disagree with you. Not sure where you got that I think it’s incumbent on users. When I talk about “policies” I’m assuming those would be industry or government mandated.
Chris

http://www.optimizeandprophesize.com/ jonathanmendez

I didn’t get that. Really I was just chiming in. As you know most digital ad people want opt-out. That’s really the crux if my issue. That and sharing any data third party without specific disclosure. Of course that’s the wave the current display world and (and their investors) are riding. We can do better. Technology has answers to these problems and I think the solutions will actually deliver better relevance.

http://twitter.com/swells_ Scott Wells

Chris, nice article and debate going on here. Just to give my two cents-

Collecting information from users (private or not) seems inevitable with the rapid development of services like Rapleaf, Trendrr, etc. Most users acknowledge that by using the web, they enter into a sort of social contract and know that by getting access to tons of free content, their data is probably being mined. While there no doubt should be industry/government mandated policies that aim to protect users, can we really rely on them to protect us? And for every Hunch out there that operates with the integrity of an explicit user opt-in, won’t there be 3 others that operate under a veil of integrity? My point is, the web has created a massive rise in autonomy and transparency for everyone, and with that we need to act increasingly autonomous instead of relying on regulators. If there’s information you don’t want found out, don’t put it online.

http://www.cdixon.org chris dixon

Yes, but what about implicit info like what you search for, click on etc.
People aren’t intending to put that online and have their name associated
with it but it might be happening…

http://tinyurl.com/DakinAssociates Shaun Dakin

Thanks Chris.

We’d love to have you add your voice to the first Twitter Chat on #Privacy hosted by the Center for Democracy and Technology (CDT) and @PrivacyCamp #PrivChat

Details here > http://www.cdt.org/blogs/mark-stanley/cdt-host-twitter-chat-privacy

Tuesday 10.26 at Noon ET

Shaun Dakin
Founder @PrivacyCamp
Jim

Your core assumptions are wrong…the click is actually has a negative coolation to sales with the notable exception of DR focused campaigns…which means two things. First it is clear why DR or demand fulfillment has ruled the web recently and why first the ad networks, then the exchanges and now the data exchanges have been all the talk…and Second, using clicks as a metric for a successful demand creation (or advertising campaing) is a devasting mis calculation.

http://www.cdixon.org chris dixon

As I said, CTR is a proxy that is commonly used. Ultimately better metrics
are needed.

http://technbiz.blogspot.com paramendra

Ads will have to rise to the occasion. http://goo.gl/fb/zpdQP

ab

is there a good reason you need to use a URL shortener here? The original link
http://technbiz.blogspot.com/2010/10/will-online-ads-rise-to-occasion.html
seems to be short enough, and if you posted it, I could decide whether I wanted to visit technbiz or not. There does not seem to be an upperbound on the post length for comments.

Ironically, the URL shortener also allows google to correlate my click with a visit to your website, count the # of hits to your page, etc—ie, it reveals a lot of information to a third party with no corresponding upside.

http://technbiz.blogspot.com paramendra

My blog posts feed automatically into my Twitter stream through Feedburner and show up with the shortened URL which I copied and pasted.

http://hdemott.wordpress.com Harry DeMott

It’s funny – if I am watching TV and am subject to a Cialis ad – it is called pharmaceutical advertising. If I am subject to that same ad in my in-box – it is called spam.

Context seems to matter greatly from the receivers side. To the pharma company all they really care about is that I am male and of a certain age (probably 35 or more).

Think of Group deals.What is Groupon but an opt in direct response advertisement? But people think that is okay – and the lower my mortgage rate dancing people are an annoying intrusion.

Advertising on the web is like a whack a mole problem I browse with ad blocker plus turned on – and that does a pretty god job of catching ads – just as I watch television with a DVR – rarely watching ads live. For every technological improvement with ads there comes a technological way to block them or banish them somehow if you don’t want the visual clutter.

To some degree this is why I believe people are moving more and more to apps. It is harder to install ad blockers in aps – and the publisher can better control what is going in there and better control the user experience.

As hard as it is to accept for most people – quality content will have to be paid for – either through some form of subscription or through some form of advertising. Without revenue – there is no wide range of professional content that everyone seems to want. The question is: who is going to come up with the right model to make this work? And, if I accept that I am going to see advertising, why wouldn’t I be willing to share a whole host of preferences with advertisers so they can target me more successfully?

I am after all, a consumer. When my kids were babies I saw advertising to infant stuff everywhere – not because I was targeted by intelligent web agents – but because my brain filter was looking for those ads. They are out of context now – so I don’t notice them much anymore – but at the time, it would have been great to have advertising served up to me that was germane to my contextual situation. Similarly, if I am going to buy a new car – I really want those ads pushed to me. However, I’m probably in a minority of people who are self aware about my likes and dislikes in advertising – but I am guess more and more people are, but won’t admit it.
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http://twitter.com/ImmersionLabs Immersion Labs

While you express a good knowledge of the advertising issues faced by many industries which are moving to an online format, you only briefly touched on what I believe to be the most significant aspect of this transition: “With print newspapers set to disappear in the next few years, the future of quality journalism is highly uncertain.” Key phrase: “quality journalism.”

Perhaps one of the reasons the transition from print to digital media has been less than fruitful for news media outlets has less to do with advertising revenues and a more to do with quality. Without delving into the realm of politics or the technological format, readers will “buy” what they agree with not so much what they don’t.

Print news media, for example, enjoyed a run as top dog in big cities. Circulation in a dense population center is fairly simple to achieve: run the random scandal, rake in profits. Now, these same print media organizations are trying to appeal to the masses online. Those masses aren’t buying it because the masses are not in the big cities – they are everywhere else. By volume, cities no longer matter. Another example: The populous of the internet doesn’t care about Paris Hilton. In fact, it could reasonably be argued the general online public is offended at having such nonsense forced upon it.

Perhaps the best thing the print media could do to gain ground online is to respect their prospective audience. Revenues would be sure to follow.
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http://www.emergingenterprisecenterblog.com/ Dave Broadwin

A nice way to frame the issue, but also consider the application of Metcalfe’s law (the value of a network increases sort of exponentially with the number of connections). As I have said in other contexts, this has direct relevance to how we should think about regulation of privacy. Confidence resulting from sensible and reliable protection of reasonable expectations of privacy should increase use and therefor the number of connections and therefor value.

Chris Dixon