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Online Advertisers Are Soliciting Trouble

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It's an asymmetrical marketplace; the trust flows in one direction and we give an implied consent by simply being there.

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Ever get the feeling you're being watched? Here's a statistic that won't help: A morning-cup visit to four websites can produce more than 300 cookies, sent to your browser by over 100 third-party domains. Some of these cookies simply make the Web experience more enjoyable while others glean personal information and track your movements. A quick check on my laptop showed me that Google (NASDAQ:GOOG) Chrome had baked enough of these things to fill 800 pages. That's just the tip of the iceberg; most information collected never leaves the Web servers, and a great deal of it is sold and shared.

Privacy has been an issue throughout the Internet age, but these days, it's taken center stage. Movement is afoot on the regulatory front with the EU passing major legislation in 2011 and similar laws (like the Do Not Track bill) being attempted in Congress. The FTC has appointed privacy expert Paul Ohm as a senior advisor. Ohm is a man best known for the concept of a "database of ruin" – a conglomeration of personal data so large and so detailed that it can no longer be called anonymous.

The conflict is also playing out in the marketplace. Microsoft (NASDAQ:MSFT) has accused Google of reading emails with its "Scroogled" campaign. A month ago, Mozilla announced that the new versions of Firefox would have third-party cookies – the lion's share – disabled by default, a move that the ad industry calls "a nuclear first strike." The New York Times has called these battles part of a larger war between advertisers and browser developers. If so, it's an underhanded one: Last year, Google was fined for sabotaging cookie restrictions on Apple's (NASDAQ:AAPL) Safari.

The Web's lack of privacy brings some clear benefits to consumers, not the least of which is all of the "free" content and services that we can access online. Free sites stay in business by selling ads against collected data. It's a large enough business that Google can pull $40 billion per year from it, a number made possible by the company's expertise on where Web users go and what they view. Social media, free email, and much of the cloud are made possible by targeted ads and the databases that guide them. It's a little like The Truman Show – life is good, if you can ignore the cameras.

There's something disquieting, though, about having information accumulated and shared by firms – and governments, and anyone else with a use for it – that we have nothing to do with. It's an asymmetrical marketplace; the trust flows in one direction and we give an implied consent by simply being there. The growth of social media, and the lengthening of our personal, digital shadows, has provided both a goldmine for advertisers and a huge source of concern for users. Foursquare encourages us to "check in," Twitter prompts us to voice every opinion, and that microphone is in our face for a reason. This is valuable information we're being asked to give up. We're left with the uncomfortable choice of avoiding these forums altogether – becoming one of those strange, antisocial creatures without a Facebook (NASDAQ:FB) page – or agreeing to live publicly.

The second option may be an acceptable compromise for some, but it's threatened by the fact that two-thirds of Web users would block data tracking if they were easily able to, according to a recent global survey by Ovum consultancy. This is a demographic that browser developers are competing for, and politicians are doing the math as well. The ad industry has implemented some voluntary restrictions, like a do-not-track request that can be enabled in most browsers, but so far the initiative lacks teeth. In the end, consumers won't need to search their preferences for a privacy option; the race is on to provide it to them.

If browsers like Mozilla's take the lead, it would be to the detriment of third-party ad vendors and small websites that rely on external analytics to find out about their visitors. Only Google and Facebook – who have organic access to customer information – and websites large enough to do their own tracking would benefit from the shift. Since the ad industry has already indicated a willingness to subvert privacy restrictions, industry watchers believe regulatory action targeting the tech giants is more probable. The EU has expressed a desire to go after the big fish, and in the US as well, any legislation will likely be aimed at the use of personal data and not simply its generation.

In any event, an industry that lives and dies by intellectual property may soon be forced to grant some to its customers. One can only hope that consistency won't be the death of the Internet.
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Long Apple and Microsoft.
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