Are you reading this online? If not, what did you last read on the internet? Perhaps you browsed a vintage wine list, planned a holiday or—more in keeping with the times—investigated which newly nationalised bank offers the best rates. Would you object to advertisements popping up for Chateau Latour, Caribbean resorts or Bradford & Bingley? Might you feel your privacy had been violated by new companies able to record your surfing habits and feed you adverts based on where you had been? Or would you welcome this as a useful service?
Six months ago I thought the biggest obstacle to "broadband Britain" was our inadequate infrastructure—limited bandwidth, copper wires into houses and slow speeds for the downloading of bulky data such as video. But there has been real progress since then. In September 2008 British Telecom announced a further investment of £1.5bn into broadband networks in return for concessions from its regulator Ofcom. Yet increasingly privacy, not pipes, is the real source of contention in the online world. Technology now exists to track everything we do online. This makes advertisers excited. There's an old industry adage: half of all advertising is wasted, but no one knows which half. Now we may be on the verge of finding out. Advertisers are willing to fund much of the information and entertainment we receive in the future—but in exchange for knowing precisely how and when we have received their promotional messages. Such intense scrutiny alarms some consumers and is leading to a state of war between commercial pioneers and privacy campaigners. At stake is a potentially huge expansion of the online economy.
At the end of 2007 the social networking site Facebook tried to introduce a new system called "Beacon." It allowed online retailers to send Facebook information about people's purchases. If you bought a pair of trainers online, for instance, the system would allow Facebook to tell all of your friends who use the site. Advertisers loved the idea, hoping it could create "buzz" among networks of young people. But this apparent breach of privacy caused outrage among Facebook users. The ensuing scandal was widely covered both online and in conventional media, while US pressure groups like MoveOn.org led calls for more privacy protection. Mark Zuckerberg, Facebook's 24-year-old founder, was forced to issue a public apology and make it much easier for users to opt out of the system. Many did.
Then, this summer, another furore blew up around a US company called NebuAd. It describes itself as "the leading provider of third generation consumer-centric behavioural targeting solutions that are based on web-wide behaviour." In other words, it had deals with several internet service providers (ISPs)—the companies like Tiscali and Virgin Media which connect consumers to the internet—to help them track their subscribers' online behaviour and send them targeted adverts. When this became known, NebuAd was accused of privacy violations. In July 2008 its (now ex) chief executive was hauled in front of a congressional committee. The politicians wanted to know how transparent surveillance should be. Should people be allowed to opt-in, the most transparent option, or only opt-out, which is less clear and open to abuse? Meanwhile, the scandal led NebuAd's ISP clients to flee, ending its experiment and destroying its business model.
Earlier this year, the new wave of privacy scandals reached Britain. It was revealed that BT, TalkTalk and Virgin Media had signed deals with Phorm, a small US company at the forefront of web tracking technology. It had even conducted clandestine trials with BT customers. This led to an unsuccessful campaign to get the company investigated by the police and condemned by the Information Commission.
Phorm's technology works like this. The company assigns ISP subscribers a random number to protect their identity. As they move around online, this number gathers "hats" recording their interest in cars, holidays, cameras and so on. This is "behavioural tracking." Phorm then sells this number to other websites, who can target adverts directly relevant to these interests. Previous generations of advertising technology provided adverts based on what you happen to be doing at any moment. But Phorm creates a picture of your specific interests over time. If widely adopted, it could mean whenever and wherever you are online, advertisements could be targeted precisely at you.
A range of groups—from the Anti-Spyware Coalition to Privacy International—have raised frequent complaints about Phorm and similar organisations. These groups worry that consumers' consent is not always requested and that, even if they were asked, many know too little about how these technologies work. Some claim it might even be illegal.
Despite this, there are positive things about the system. So far the government says Phorm's method is legal, while Richard Thomas, the information commissioner, has said "there doesn't appear to be any detriment to users." Phorm does not need to know your name or IP address, nor the website-specific details of your previous browsing history (it tracks your generic interests rather than the specific sites you've visited). As their publicity puts it, "we do not and cannot know who you are." This should come as a relief. Few people want their personal Google search history exposed. The reason is obvious for salacious searches, but many other web journeys, from surprise presents to vanity Googling about yourself, are best kept secret as well. Phorm actually compares favourably to other websites like Google or Yahoo. These drop cookies onto our personal computers when we first conduct a search. This is fundamental to their ability to provide good results. And if you switch on "personal search" with Google, the service becomes much more specific still. Enter the word "rosemary" and it is able to predict whether you want to find garden centres, recipe sites or the DVD of Rosemary's Baby. Other Google products also excite privacy concerns. Photographs of every British street will appear in their forthcoming StreetView service. Google's Desktop records almost everything stored on your computer. Most extraordinary of all is Gmail, the company's free email service. Here your correspondence is constantly analysed for keywords. You are then served up appropriate adverts based on everything in your inbox. I have even heard about one couple who conducted a fairly extreme email argument and quickly received adverts for marriage counselling services.
Many people seem to feel that targeted advertising based on Google use is acceptable, while unsolicited adverts from Phorm are beyond the pale. But in some ways it is the former that is more intrusive. And Google has indeed been a target of the privacy backlash. It used to store records of our search activities for up to two years. But in September, in the face of public pressure, it reduced this period down to nine months. After this the data is only kept anonymously.
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True believers say that companies like Phorm could revolutionise the media industry to the benefit of businesses and consumers alike. Consumers may not be clamouring for more targeted adverts, but someone has to fund the content they like to receive. As we consume more of our news and entertainment online and traditional models of advertising collapse, the information collected about us will be the key to how our content is funded.
Much of this content used to depend on the advertising revenues of ITV, Channel 4 and Five. But commercials on television are now a blunt instrument, easily avoided with the "30 times fast forward button" on Sky Plus. As this model collapses, how can we preserve free programming? Channel 4's Big Brother illustrates how big is our appetite for free entertainment. In 2005 the channel allowed fans to watch clips of the series online for a fee. About 25,000 people did this. The following year it was free; all you had to do was watch a short commercial beforehand. About 25m people took advantage. There are other ways to fund a free online service, including sponsorship. But separate advertising remains by far the most important. Without it, we may not continue to get Coronation Street and Channel 4 News for free in the future.
In television, just as online, new models are developing to solve this problem. Hulu, launched in 2007, is a service developed jointly in the US by NBC Universal and News Corporation. It allows you to download free television shows in return for watching a few commercial messages. It has been as successful as the BBC iPlayer in Britain, which allows users to watch programmes after they have been aired. Hulu is experimenting with collecting information from users to allow targeted advertisements before and during a programme. Other companies have even made it possible digitally to insert products into television shows, for instance a can of Coke on a table or a logo on a bus. British terrestrial networks are now planning a new service, codenamed "Kangaroo," along similar lines.
Hulu represents a new deal between a media company and its viewer: sell me your attention for a personalised 30-second commercial message and you will receive a free edition of Heroes. Young people in particular don't want to pay for content with money, but they will pay with their personal data. However, like the advertising elsewhere on the web, it has to be done in a way that is transparent and fair. If confidence in the system is destroyed then great damage could be done to the ecology of online advertising.
Is there another option? The music industry has tried and failed to make people pay for content. In the past, bands would run their tours at a loss in order to market their highly profitable CDs. Now, some are giving away CDs to promote their live performances (see Robert Sandall on the economics of pop music, Prospect, August 2007). The catalyst for this change has been peer-to-peer file sharing via technologies like BitTorrent, a popular but often illegal system that allows users to download music, movies and television shows. This has effectively destroyed the market for CDs and is making inroads into DVD sales.
Music companies are fighting back. Recently, they persuaded the French government to force ISPs to first warn and then cut off subscribers who persistently download illegally. The companies argue that, once warned, 70 per cent of freeloaders come into line and buy music from legitimate services like iTunes. They have also extracted concessions from British ISPs, who will now send out warning letters. But this effort to turn the tide is almost certainly doomed.
A study of Radiohead's latest album release reveals why. Will Page and Eric Garland, two industry experts, analysed the downloads of In Rainbows, which was made available for any price fans decided it was worth, including for free.
Thirty-eight per cent of people paid; the rest took it free. Yet even though you could get the album free legally, twice as many people got it from illegal sites (2.3m "torrents" over three weeks). On the first day about 400,000 people did this, making it the most trafficked piece of musical copyright on an illegal network since file sharing started. So much for the idea that most music fans will fall into line. But instead of accepting the inevitable, the industry is harassing a generation for whom free content is a way of life. Music companies, ISPs and governments may end up having to track internet users to their home addresses, raising new privacy concerns.
A different and better model is possible. If privacy concerns can be overcome, we can imagine a system in which owning a piece of content would also mean you have the right to have its use tracked and reported, thus yielding potential advertising revenues. If you are a music company, you could then earn money every time anyone "shared" a free song. Meanwhile you will be encouraging as many web surfers to copy it and pass it on as possible, because the more that happens the greater your revenues. You would be saying, "Yes, please steal me! Steal as much as you can!"
Getting this new world right offers other benefits too. Technology from companies like Phorm can help small websites and ISPs compete with Google for a slice of their rapidly growing advertising income. There are now many companies across the world that rely on Google for as much as half of their sales, via paid search and direct response advertising. Those worried by this domination of the paid search market should be supporting this new competition. Additional income for ISPs will also enable them to update their networks for better speed and capacity. The Internet Advertising Bureau and PricewaterhouseCoopers are already forecasting that internet advertising sales will outstrip those for British television by the end of 2009.
The balance between privacy and prosperity is a high stakes game. Tim Berners-Lee, the father of the internet, has said he would change his ISP if it tracked his web surfing habits. But a senior employee of one of Britain's largest media buyers told me: "Without tracking, the internet advertising model collapses." To prevent this happening, the industry needs to work harder to answer the genuine concerns of users and campaigners about protection of privacy.
There are some obvious possible reforms. In particular, consumers could be given more power over their information. Both Google and Phorm currently base their service on an opt-out model. The US congress is considering forcing companies to introduce an opt-in model. There are similar plans for Britain. The online and advertising industries oppose this; privacy campaigners are fighting hard for it.
US legislation is not imminent, but in the meantime the issue is in the hands of the Federal Trade Commission. It has laid out three principles to govern websites that collect information for behavioural advertising: they should provide a clear statement about why the data is being collected; ensure reasonable security and only keep it as long as is necessary; and ensure sensitive data is only collected with express consent. This is helpful, but silent on the opt-in/opt-out issue. It's a finely balanced argument, but a plausible compromise could be an opt-out regime with clear and regular opportunities to be a refusenik.
Meanwhile, privacy groups ought to maintain a sense of balance. Yes, they must pursue their legitimate lobby for privacy and the rights of individuals. They often help stop genuinely dangerous breaches of privacy. But they pay scant regard to how tracking improves our online experience, and more or less ignore how critical behavioural tracking will be to the future economy. Without it, advertising revenues will collapse and with it the media industry. Privacy matters. But privacy groups' current lack of flexibility is certainly not in the interests of consumers.
The answer is to respect some relatively simply principles. Our names, addresses and ISP addresses should be protected. Behavioural advertising must be transparent. Consumers need to be able to choose whether they participate. People must be able to opt-out, to become a sort of "digital vegetarian," giving up some benefits for the sake of their principles. But, for those who choose the rich meat of the digital world, targeted advertising promises rewarding online experiences. It could unleash extraordinary new growth in online commerce. This is an opportunity privacy absolutists should not be allowed to stall.
Click hereto read Becky Hogge's response to this article
