What do you mean by online targeted advertising?
Our report is primarily concerned with online advertising targeted on the basis of web-browsing behaviour which can be used to identify the types of advert that a consumer is likely to be interested in. This is often referred to as online behavioural advertising.
Online behavioural advertising can happen in a number of ways. Some companies base the targeting only on users' behaviour on their own website. This is known as first party advertising. Other online firms use third party ad networks that track users and deliver adverts over a number of websites which they partner with. Both techniques are based on small 'cookie' files which are dropped onto a computer allowing that computer to be identified when a person visits the site that installed the cookie or a site that is a member of the same ad network. Behavioural advertising can also be undertaken at the level of an internet service provider. This uses deep packet inspection techniques which examine all traffic on a user's computer. This has been trialled in the UK but is not currently in use.
Online advertising can also be targeted by placing it by relevant content so, for example, adverts for cars are placed on web pages about cars. This is referred to as 'contextual advertising' and raises much fewer concerns, so is not a focus of our report.
What do you mean by online targeted pricing?
There are a number of ways that a retailer could potentially target online prices at consumers. For example, it may be possible to use past online behaviour to alter prices displayed on-screen or to restrict the product range displayed. Alternatively, prices could also be targeted based on the users' post code which could either be identified by the IP address or entered by the user themselves. Online behaviour could also be used to target discounts at consumers. At present, we have little information that online consumers are targeted with increased prices although they may receive discount offers that are based on their online behaviour, for example, through emailed vouchers relating to previous purchases.
How big is the market?
Online behavioural advertising is estimated to account for between £64m and £95m per year in the UK at the moment. It is a small but rapidly growing part of a wider online advertising industry that was worth £3.35bn in 2008.
At present, we have little information that consumers are targeted with increased prices although consumers may receive discount offers, for example, through emailed vouchers relating to previous purchases.
Why is the OFT concerned about this?
Online behavioural advertising has been the subject of much debate both in terms of the benefits it may bring to consumers and the concerns it gives rise to. Fears about the potential for practices which target online customers with increased prices to become widespread in the future have also been voiced. The OFT is concerned because these fears have the potential to undermine trust in the online market place and so hinder its development. This is of importance to us given our mission to make markets work well for consumers.
What are the key conclusions of the study?
We have considered the how these practices affect consumers. Online behavioural advertising has significant benefits. Our consumer research also suggests there are some concerns about it, for example relating to privacy and misuse of data, although it is not clear that these result in a significant reduction in the use of the internet at present. Consumers have much stronger objections to concealed online targeted pricing and this may undermine confidence in e-commerce if it were ever to become widespread.
We have considered how the market has responded to these concerns. Technological solutions to maintain privacy are available - for example browser controls allow you to delete cookies. Firms are also mindful of their reputations. This has led several ad networks to increase transparency and consumer control over their behavioural advertising practices. It may also be a key reason why price targeting is not yet widespread. Self-regulation has also emerged in response to the concerns surrounding online behavioural advertising, although this is barely a year old and is still developing. We have made a number of recommendations for further improvement.
We have also considered how regulations enforced by the Information Commissioner's Office (ICO) and the OFT could apply to these practices. This provides a useful fallback should industry action prove ineffective. The OFT and the ICO will agree a Memorandum of Understanding to establish in which circumstances each party would take enforcement action and so strengthen the effectiveness of regulation. In the event that the MoU covers areas where OFT and Ofcom have overlapping jurisdiction, the OFT and Ofcom would discuss, on a case by case basis, who would be best placed to act.
What are the next steps?
We will be holding a round table discussion with stakeholders on the 22 June. We intend to publish a full transcript of the discussion on our website shortly afterwards. We will also review our recommendations in light of these discussions and commit to revisiting the market as necessary. We will also develop and agree a memorandum of understanding with the ICO to establish in which circumstances each party would take enforcement action if need be. We will also liaise with Ofcom to consider areas where it may have responsibility.
Why would the OFT revisit these matters?
Online behavioural advertising is a rapidly evolving market with a global coverage - several important developments have taken place even during the time it took to complete this short study. Online targeted pricing does not occur to any significant degree at present, but may develop further in future. Given the pace of change, we do not think it appropriate to keep the market under review and update our thoughts and recommendations in line with market developments.
How do I get invited to the roundtable discussion?
We will be sending invitations to relevant stakeholders and people who have contributed to the study. This event is intended as a full and interactive discussion of the issues in our report. Places are therefore limited and are aimed at those with direct involvement in the industry. If you would like to attend, are directly involved in the industry, and have not received an invitation please contact Cristina Luna-Esteban at cristina.Luna-Esteban@oft.gsi.gov.uk with your details and in what capacity you would like to attend. We will be publishing a full transcript of discussions on our website.
How does consumer law apply to this area?
The OFT considers the Consumer Protection from Unfair Trading Regulations (CPRs) can be applied to online behavioural advertising. The CPRs may be breached if a consumer alters a transactional decision as a result of misinformation or lack of information. The OFT interprets transactional decision widely and believes it encompasses, for example, the decision to view a website. So not informing a consumer about the collection of information about their browsing behaviour could breach the CPRs if that knowledge would have altered their behaviour, perhaps by dissuading them from visiting that website.
At present, it is not clear that information on behavioural advertising will result in consumers changing their behaviour. Current practices may not, therefore, breach the CPRs, although each case would have to be assessed according to facts, particularly if practices develop further in future. The exception is behavioural advertising via deep packet inspection which is covered by more stringent regulation from the ICO.
The OFT considers that the CPRs could apply to concealed online price targeting. Consumer opposition to such practices is very strong, so it is highly likely that the knowledge of its occurrence would change choices. If so, failing to inform consumers about such targeted prices may breach the CPRs. We therefore believe that it may be breach the CPRs if consumers are not clearly informed about the practice. Notice in a privacy policy is unlikely to be sufficient.
How do the ICO's regulations apply in this area?
The Information Commissioner's Privacy Regulations require firms to inform consumers when a tracking system collects information about them and to give them the opportunity to refuse their continued use. The exact form that the information and consent takes varies according to the situation. In some cases, it is acceptable to put the information in a privacy policy and allow consumers to opt-out but in others, such as behavioural advertising based on deep packet inspection techniques, this is not sufficient. The Information Commissioner also enforces the Data Protection Act which provides for the regulation of the collection and use of personal data. In a recent consultation the ICO proposed that information about browsing behaviour should generally be treated as though it were personal data. This means that firms would have to inform consumers about such data collection, keep the data secure and must only use it in a way that is fair to consumers. For more information, see www.ico.gov.uk/about_us/consultations/our_consultations.aspx.
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