BusinessWeek reports today on the implications of the Federal Trade Commission’s shifting of focus towards targeted web advertisements under the leadership of newly-appointed FTC Chairman Jon Leibowitz. Leibowitz, in the past, has fought spyware, adware, and general malware on the internet, as well as spam, and is also an advocate for net neutrality.

Leibowitz now has in his crosshairs malicious use of behavioral targeting, and is so concerned by the practice that he has allegedly made it a “top priority” of the FTC. BusinessWeek defines behavioral targeting as the “delivering ads to individuals based on the Web pages they visit and searches they carry out,” which is an on-target description of the method. Behavioral targeting is used to increase the focused audience of an advertising campaign, specifying parameters for which the advertising system follows based on the kind of websites that the user visits. From this data, the advertiser (as well as the advertising network) can gain a better idea of who exactly their target audience is, trackable using a cookie.

Why Behavioral Targeting Isn’t Malicious

Behavioral targeting is the use of data known about a user to better target advertisements to the user. The viewer of the advertisements can choose to look at, ignore, or even click advertisements. To the user, a better-targeted advertisement about something they are in fact interested in is certainly better than an advertisement hardly targeted to them at all.

Many sites thrive on their visitor volume that generates ad revenues. The largest internet properties by visitor volume are all based on one business model: advertising. In fact, 14 of the 15 top sites in the world (ranked by Alexa) rely on advertising: Google (GOOG) (search and AdSense advertising generates 99.5% of their revenues), Yahoo! (YHOO), Facebook, YouTube (GOOG), Windows Live/Bing (MSFT), MSN (MSFT), Blogger (GOOG), Baidu (BIDU), Yahoo! Japan (YHOO), MySpace (NWSA), Google India (GOOG), Google Denmark (GOOG), QQ, and Twitter are mostly, and almost completely supported by advertising.

With advertising being such a huge force in the economy, however, it must be allowed to have free reign within reason, lest regulations placed on advertising make it less and less targeted, disallowing these sites to thrive to their maximum potential. The question is: what’s the threshold of ‘within reason’?

Wrong

In one action that Leibowitz has taken against spyware and behavioral advertising, the wrong way to approach the method is shown.

In June retailer Sears (SHLD) settled an FTC complaint charging that Sears had failed to disclose the extent to which it was tracking the activities of certain shoppers, who had been paid $10 to download a piece of “research” software to their computers. The settlement forced Sears to end the practice and destroy all the data it had generated.

Right

Behavioral advertising done right is based on a few key points: anonymity, security, and protection of personal information. Behavioral advertising’s goal is to present more relevant information to a user. The goal is not to be able to know a user’s personal data. Websites one visits is a disposable, as well as random, set. These websites certainly can give a profile of a user; however, there need not be any connection. Security is obvious: secure the data. Don’t make it available on the client-side, and don’t make it possible for a single attack vector to be able to access said data. Protection of personal information is the last. Leibowitz is correct: information such as

Personal data such as location gets into gray area. Location isn’t a huge problem, since without any other kind of personally identifiable information it is itself useless to exploit, and only useful to the targeting of advertising if an advertiser so chooses to use this tool. Location, like a profile of a user based on what websites she visits, is a random and arbitrary set of information, in the cloud.

Legislation and Opt-In

With the assistance of Leibowitz, Congress is preparing legislation for a middle-ground of behavioral targeting: opt-in.

[Leibowitz] supports the controversial approach of making more of the targeted ads on the Internet “opt-in”—meaning they would require consent from Web users before collecting data—and is in talks with members of Congress intent on drafting legislation for online ads.

ValueClick (VCLK) GM has the right idea:

Bill Todd, general manager at online ad network ValueClick (VLCK), says an opt-in measure “would force our company and others to rethink how we do business today, and I think it would destroy much of the innovation that many people in our industry have developed.”

Consumers Don’t Understand Advertising

The problem with opt-in is that it puts the decision of whether to use behavioral data with the consumer, rather than with the advertising network. To the consumer, this has to be a conscious choice, much like opting-in to a online newsletter.

However, the anatomy of a choice is: it has to create value for the USER. Most consumers, however, do not understand the advertising process, and how it does trickle down to both the improvement of value for the consumer, as well as improvement of value for the service that the advertising supports.

Ads have a bad stigma attached to them, since the dawn of advertising. Especially on the web. There are few things that are more annoying than the loud smiley flash advertisements. (Which, I may add, is doing advertising wrong. With advertising, the big picture of the entire campaign and how your company is branded is extremely important. If you’re going to create something that sticks out, it’s going to create a bit of notoriety for being unique. Make sure that’s positive. Being a notorious advertisement campaign positively is possible. Dos Equis. Being a notorious advertisement campaign negatively is also possible. Smiley advertisements. Choose wisely.)

It boils down to: users don’t want advertisements. The process is not understood by the general public, and although it works out for everyone, you can’t change the fact that the consumer will certainly not opt into anything. Especially advertising.

Big Picture

Behavioral advertising done right increases the quality of advertisements, and thus, the quality of the sites that are supported by advertising. Advertising is but promotion of a product to interested parties. Advertising is sometimes a crapshoot. Why? Users decide whether they want to be told something, or whether they want to buy something. Behavioral advertising does not prey on creepy details about a user. Tools such as behavioral targeting help the crapshoot of advertising become easier and more effective.

When a user is subject to advertising, they are given a choice how to react. There is no obligation to react in any one way or another. It doesn’t force them to take out their wallet and enter their credit card.

Advertising puts the product in front of the user. If they are interested, they will accept that the product is more important to them, and gives more value to them, than the currency it costs. That’s the essence of a monetary transaction. Something is worth more than what you’re giving for it. A product and money, respectively.

When targeted advertising is shown, it improves the chance that there will be more interested viewers. These interested viewers have one thing on their mind: is this product worth more than the money I paid for it? If the answer is yes, not only is the advertisement a success, so is the targeting. And so is the fact that the product adds value to the consumer.

Disclaimer: I personally have knowledge in behavioral advertising because of previous and current experience in the advertising sector, which does include behavioral advertising (Adaptance). There are right ways and wrong ways to approach behavioral advertising. Every behavioral advertising network must follow responsible methods of data acquisition, mining, and retention, and mine is not an exception.