The New York Times yesterday posted on article on real time bidding for online advertising that I found interesting. The article cited a petition filed with the Federal Trade Commission by the Center for Digital Democracy, where the CDD alleged that real time bidding, a process where advertising space on web sites is sold via an electronic trading platform, amounts to an unfair and deceptive practice.
Specifically, CDD alleged that electronic trading systems for advertising, where marketers can bid for consumers within milliseconds of a consumer visiting a web page, can unfairly stratify consumers, relegating some to inferior treatment while offering better pricing to others. According to CDD, not only does it resemble a cattle auction while reducing consumers to a “chattel” status, but these trading systems also threaten consumer privacy because advertisers are using consumer data obtained via data mining practices by third party aggregators. Consumers are not reaping the financial benefits of their very own data while advertisers, web sites, and third-party aggregators reap the profits.
Under section 45(n) of the Federal Trade Commission Act, the FTC applies a standard of proof and other public policy considerations when determining if an act is unfair and deceptive. There has to be, under the Act, a showing of substantial injury to a consumer from the party exhibiting bad behavior. The substantial injury must be a kind that is not reasonably avoidable by the consumer and not outweighed by countervailing benefits to the consumer and competition.
When reaching its conclusion on whether an action is unfair or deceptive, the FTC may consider, on a secondary basis, public policy.
I think the primary public policy consideration the FTC needs to take is whether a transaction has taken place where consumers are seeing degradation in their welfare. First of all, real time bidding does not directly involve the type of consumer that CDD is apparently concerned about. Consumers visiting web sites may not be interested in purchasing anything. Even if a consumer has a fetish for Gucci handbags and as a result of real time bidding finds her looking at ads for designer accessories, that’s not a deceptive act. It would be as if she walked into her favorite store and the attentive clerk who is aware of her penchant for these items lets her know that the store has some in stock. It’s simply information being shared.
Real time bidding gets information to a consumer faster because it leverages the history of the consumer’s tastes, desires, and ability to pay to get product in front of the consumer that she, based on these consumer characteristics, may be interested in. Back in my merchant days, we called this good marketing. The consumer’s welfare is also increased because she is receiving information that she can take into the market place and use when the time is right for her to make a purchase.
Also, the FTC needs to stay mindful that as households who have not yet adopted broadband continue to see other households take advantage of goods and services marketed directly to them based on their perceived tastes and desires, these unconnected households may choose to join the 21st century and get connected to e-commerce via broadband access. Following CDD’s lead and tainting cyberspace as a scary space to transact in will only delay the closing of a digital divide too many households are still facing today.