FTC complaint against Mobile marketing – An analysis

Update: Comment from Jeff Chester

Its nice to get this comment from Jeff Chester to the post below and its great that the blog is contributing to the discussion. I have been reading Jeff’s book as well and it certainly provides some fascinating insights Digital Destiny: New Media and the Future of Democracy (Hardcover). A seperate blog on that later. Comment below

I appreciate your comments and the discussion. Interactive marketing, as you know well, has a powerful and unique impact on individuals. We have already raised the role interactive marketing and behavioural targeting played with the online selling of mortgages and other financial products (which is linked to the current economic crisis, in our opinion). Our recent mobile complaint was focused on the U.S. market, where the targeting of Hispanics and African Americans by mobile providers and others raise a number of concerns, including lack of accountability and transparency (when individuals are unaware they have been labeled as a specific ethnic group or socio-economic class, for example). Children and adolescents are being targeted with a wide range of adverts linked to the obesity crisis. For more information, see our reports at www.digitalads.org As for meta-data, the entire process where consumers are analyzed and segmented must be explained to the user, who should have more control over its collection and use. The mobile industry needs to better inform the public about its business model, encourage a discussion and debate, and agree to reasonable safeguards designed to protect privacy and support consumer autonomy.

Background

In a complaint to federal regulators, two activists – The Center for Digital Democracy, along with the U.S. Public Interest Research Group; take on the mobile phone-based ad industry, allegeging deceptive practices throughout the sector. They ask the commission to launch an investigation into the privacy implications of marketing practices targeted at cellphone users

This affects us all .. and I wear two hats in discussing this issue.

Firstly, a ‘mobile’ hat and secondly a neutral policy hat for consumers.

Here, I analyse the document and present my own views at the end. The complaint is an extension of an original complaint against online advertising – which I also discuss below to put things into context.

The general impression appears to be: Let’s regulate the Mobile data industry before it gets big ..

In many ways, it is an indication of the maturity of the Mobile data industry.

Although many safeguards are already in place, the document addresses some additional concerns which I discuss below and I believe are not being adequately discussed under the noise from media, brands and marketing.

It specifically addresses targeted messages, engagement and newer forms of interactive marketing. Most of us will agree that the older(broadcast media) are going the way of the dinosaur and whichever way we look at it , interactive/targeted advertising(both web and mobile) is the way of the future. The good thing about interactive media is – we can switch it off(not so with interruptive marketing!). We need to accept that i.e. the market and the community are effective deterrents in an ecosystem where the customers are not mere consumers but are also creators.

What the original complaint(online) addressed

The original complaint relating to online media – Nov. 2006 – Consumer Groups Call for FTC Investigation of Online Advertising, Consumer Tracking and Targeting Practices talks of the following

(Bold and Italics are sections from the report)

What kind of society are we creating?

The role which online marketing and advertising plays in shaping our new media world, including at the global level, will help determine what kind of society we will create.

• Will online advertising evolve so that everyone’s privacy is truly protected?

• Will there be only a few gatekeepers determining what editorial content should be supported in order to better serve the interests of advertising, or will we see a vibrant commercial and non-commercial marketplace for news, information, and other content necessary for a civil society?

• Who will hold the online advertising industry accountable to the public, making its decisions transparent and part of the policy debate?

• Will the more harmful aspects of interactive marketing – such as threats to public health – be effectively addressed?

More than privacy

“The emergence of this on-line tracking and profiling system has snuck up on both consumers and policymakers and is much more than a privacy issue,” said U.S. PIRG Consumer Program Director Ed Mierzwinski. “Its effect has been to put enormous amounts of consumer information into the hands of sellers, leaving buyer-consumers at risk of unfair pricing schemes and with fewer choices than the Internet is touted to provide.”

Public interest matters

“Microsoft, like Google and Yahoo, is actively rewriting the rules that govern the online marketplace,” explained Chester. “It is the FTC’s job to make certain that these rules reflect more than corporate self-interest. The public interest matters, too, and it is the FTC’s responsibility to protect and promote that vital perspective, by issuing injunctions against the most egregious of the new invasive advertising practices, which are fully described in our complaint.”

Focusing on five areas of concern:

• User Tracking/Web Analytics

• Behavioural Targeting

• Audience Segmentation

• Data Gathering/Mining

• Industry Consolidation

Collectively, these five areas represent the foundations of an entirely new online

environment, one in which engagement gives way to entrapment, in which

personalization impinges on privacy. It is an online environment, in short, that threatens to turn the traditional media equation on its head–a media that consumes us.

Beyond opt-in

The U.S. digital media system is at a crossroads. Over the next few years, as the

distinctions between online and “old” media blur still further, there will be a ubiquitous interactive environment. So, too, in this fluid, new environment, with all manner of data compiled and analyzed, will the distinction between anonymous and personally identifiable information disappear. For these reasons it is critical that the FTC act now to protect the interests of the public. The FTC must require notice of all information collected, and full disclosure of how that data will be used. The commission should ask Congress to pass federal legislation requiring affirmative consent for all data used–which must be regularly updated and re-approved by users. An all-embracing opt-in should be the minimum standard. All data collection and e-commerce marketing techniques must be unbundled, disclosed, and given affirmative consent by users.

Measuring engagement

The techniques and infrastructure we have described here are emblematic of only part of the data collection system being deployed throughout our digital media environment. The marketing industry is currently exploring expanded approaches to securing data collection as part of its new focus on the development of “engagement” as a measurable branding and ad delivery “metric.” For example, current efforts designed to better utilize “emotional responses to advertising” organized by the MI4 Initiative (Measure Initiative

for Advertising Agencies, Media, and Researchers) are exploring brain behaviours

involving both cognition and emotion.130

What the new complaint(mobile) addresses?

The new complaint which is an extension of online one above covers the following:

Targeting of children, adolescents, and multicultural communities

Many mobile marketers are eager to exploit what they correctly perceive as a

unique opportunity to target consumers by taking advantage of our highly personal relationships with these extremely pervasive devices to provoke an immediate consumer response. The FTC, thus far, has failed to address the unique threats to privacy and consumer welfare–including the targeting of children, adolescents, and multicultural communities–reflected in what the industry calls its “mobile marketing ecosystem.”4

More than double-opt-in

While the mobile industry points to its strict “opt-in” and even

“double opt-in” procedures before operators or advertisers are given access to any

Velti’s so-called loyalty campaigns are similarly designed as data collection devices ..

Measurement i.e. collection of data without telling the users

The FTC has not seriously analyzed the implications of the engagement

“metric” on consumer welfare, especially its relationship to what we believe are

fundamentally unfair and deceptive practices. As Sharma et al explain, “In the field of digital media, engagement definitions must take into account not only the quality of the visitor. It should take into account the time spent during the visit as well [as] actions and reactions…. Because every interaction can be measured in mobile, this media could become the driving force in overall engagement metrics and standardization.”11

The impulse shopper

Despite the enormity of these developments and the effect they will have on mobile consumers and mobile commerce, policies governing consumer privacy on the mobile Web have failed to keep pace with new marketing practices. Most critically, as the user’s location has become part of the data collection and targeting process, the “mobile marketing ecosystem” poses serious new

threats to the consumer.22 “While mobile might have an impact on retail store prices,” observes Laurie Sullivan of Online Media Daily, “the impulse shopper, the one who needs the television or the sweater at the moment they see it on the shelf, won’t go away.

These are the consumers marketers will target based on their location and demographics through cell tower and triangulation technologies built into browser like Google Chrome and the next versions of FireFox and Microsoft Windows 7.”23 and advertisers are increasingly offering consumers is merely the illusion

of free choice.

Existing disclosure inadequate

Current self-regulatory privacy and marketing policies in the mobile arena are inadequate, including those in the area of disclosure, which utterly fail to inform users what data are being collected and how they will be used. As history has shown, attempts by business interests at self-regulation have failed to protect consumers in the absence of adequate public policies. It is therefore incumbent upon the Federal Trade Commission to protect consumers from unfair and deceptive practices by using its authority under Section 5 of the FTC Act to address this issue on a variety of fronts:

launching an immediate investigation into the impact of interactive, targeted

advertising on the mobile marketplace;

• identifying specific mobile marketing practices that compromise user privacy

and threaten consumer welfare;

• examining opt-in procedures in the mobile marketing arena, ensuring that

consumers receive full disclosure of the nature and use of any data collected;

• conducting a special investigation into mobile marketing privacy threats and

inappropriate practices targeting children, adolescents, and multicultural

consumers;

• issuing the necessary policies and actions to halt current practices that abuse

consumer rights; and

• recommending federal legislation, and whatever new enforcement measures

deemed necessary by the commission, to prevent such abuses in the future.

Conclusion of the Mobile marketing complaint

It will be essential, as mobile marketing evolves and becomes an established platform, that the commercial systems in place preserve the rights of consumers. It is especially critical that FTC act now to protect the interests of the public, while the mobile platform is still in development, and as an even more interactive Mobile 2.0 environment looms on the horizon.193 The Center for Digital Democracy and the U.S. Public Interest Research Group ask that the FTC also act to protect consumers from a growing number of deceptive and unfair

marketing practices and the resultant threats to consumer privacy that are a part of the rapidly growing U.S. mobile advertising landscape. We ask that the Federal Trade

Commission:

1. Require True Notice and Disclosure. The FTC must require notice of all

information collected on mobile devices and full disclosure of how that data will

be used. In particular, the commission needs to spell out how consumer consent is to be given, to ensure that it’s meaningful.

a. The FTC may need to ask Congress to pass federal legislation requiring

affirmative consent for all data used–permission that must be regularly

updated and re-affirmed by users.

b. All data collection and mobile marketing techniques must be unbundled,

disclosed, and given affirmative consent by users.

c. The commission must strive to have industry develop meaningful codes of

conduct related to marketing that go beyond these basic principles.

2. Redefine “Unfair and Deceptive.” In addition to refining and updating the

concept of “personally identifiable information,” the commission must help

consumers understand how tracking and targeting technologies can exploit their

geographic location and the Mobile Identification Number (MIN) of their phones.

a. The FTC will have to reframe what is “unfair and deceptive” in the mobile

arena.

b. The commission also needs to examine the relationships mobile marketers

have with carriers, to understand how and what data are being shared and

used by partners and affiliates.

3. Review Industry Self-Regulation. With industry self-regulation having proved

so ineffective, the FTC should examine the various mobile marketing standards

groups to determine how well consumer interests are represented, including

analyzing the various reports and self-regulatory proposals that have been

produced thus far.

a. The FTC should work with the FCC and state authorities to create a new

Mobile Marketing, Consumer Protection, and Privacy Task Force. The

Task Force should make annual reports to the public and, where

appropriate, recommend new legislation to Congress.

4. Protect Youth from Unfair or Deceptive Practices. The commission should

also open up a separate inquiry and propose rules to protect youth from unfair or

deceptive mobile marketing practices. As this complaint demonstrates, emerging

data collection and targeting mechanisms pose significant threats to the privacy of hundreds of millions of mobile users in the U.S. But those most susceptible to the risks and temptations of these practices are also those least able to guard against them–namely, children and teenagers. The commission must work to protect them.

My views

As I mentioned before, this FTC complaint demonstrates the maturity and potential of the Mobile data industry.

The question really is:

Do we need additional regulation over and above what we already have on the Web?

My initial response is: Yes.

The mobile is a personal device. Unlike a PC or a Web connection, it is not shared. Hence, we need regulation to protect individuals especially the more vulnerable – example Children.

However, there are many existing rules and regulations in almost all countries for protection of minors.

In addition, in the UK, we have the data protection act

The Data Protection Act (DPA) is a United Kingdom Act of Parliament. It defines a legal basis for handling in the United Kingdom of information relating to people living within. It is the main/only piece of legislation that governs protection of personal data in the UK. Although the Act does not mention privacy, in practice it provides a way in which individuals can enforce the control of information about themselves. Most of the Act does not apply to domestic use,[1] for example keeping a personal address book. Organisations in the UK are legally obliged to comply with this Act, subject to some exemptions.

We have opt-in and double opt-in

We have to ask ourselves:

a) Do we need anything beyond these measures?

b) Do we need measures specific to mobile?(as opposed to online)

These are the real issues being addressed here and I give my thoughts below

Mobile as a tool for psychosocial development:

The report places the needs of the consumer and the people above the needs of advertisers and commerce. This is a good thing ultimately. These issues are important from a social standpoint because mobile impacts the psychosocial development of youth. . By psychosocial development, we mean that the mobile device is more than a communicative medium but is also a means of shaping Identity for the youth as this MIT Press/Mc Arthur foundation paper discusses Mobile Identity: Youth, Identity, and Mobile Communication Media by Gitte Stald

The value of the mobile depends on contextual uses and experiences and this makes the mobile device a key social artefact in the minds of the Youth(See Enrique Ortiz’s white paper (pdf) on The Mobile Context and People Centric Computing) . In contrast, the industry has approached the idea of Mobile Youth in terms of brands, marketing, engagement etc and not really in terms of the impact of the phone on the creation of Identity and the social development of the Youth.

To me, this is the key issue which this report has raised – and one which is not being sufficiently addressed by existing initiatives which are commerce and brand led.

Since the mobile is the primary means of learning, social interaction, identity formation etc amongst young people – and it is an individual, personalised device – the question is – To what extent can we let brands and media influence the minds of people – especially the Young?

The paper Mobile Identity: Youth, Identity, and Mobile Communication Media concludes

In the context of this article, however, I have focused primarily on the social meanings of the mobile. As we have seen, the mobile supports and enhances the maintenance of social groups and the feeling of belonging to a group. Young people live in a period of time–historically as well as in terms of age–which is characterized by a collectively and personally perceived sense of fragmentation and uncertainty. Many social theorists have argued that traditional resources for identity formation are no longer so easily available,

and that the realization of personal expectations for “the good life” may seem increasingly difficult. Young people also have to deal with the sometimes conflicting expectations of parents, school, and friends. Social networks–the strong ties as well as the weak, ephemeral relations–offer possibilities for testing oneself in the light of shared values, norms and codes, for negotiating collective and personal identity, and for establishing a sense of belonging. The mobile is the glue that holds together various nodes in these social networks: it serves as the predominant personal tool for the coordination of everyday life, for updating oneself on social relations, and for the collective sharing of experiences. It is therefore the mediator

of meanings and emotions that may be extremely important in the ongoing formation of

young people’s identities.

The need to learn how to manage and to develop personal identity and the importance of social networks in this process are strongly facilitated by mobiles; and this makes it possible to talk about “mobile identity.” The constant negotiation of values and representations and the need to identify with others result in a fluidity of identity which goes beyond the ongoing process of identity formation, to encompass the constant negotiation of norms and values and the processes of reflection that are characteristic of contemporary social life. The

constant availability and presence associated with the mobile demonstrate how important it has become in all these arenas, even to those who use it only moderately. The mobile enforces an increasingly intense pace of communication and of intellectual and emotional experience. It, therefore, becomes both the cause and the potential solution to the frustrations of young people regarding the potential management of everyday life. The mobile is an important tool that allows one to be in control–which is an essential ability for adolescents in general–but simultaneously it is becoming more and more important to be able to control the mobile.

Full disclosure

The report calls for full disclosure i.e. an indication of how data will be used by companies. This should be a welcome step

Anonymity

I believe that data will be increasingly anonymised an issues I addressed in the blog Unharnessing collective intelligence: A business model for privacy on Mobile devices based on k-anonymity

Distinction between meta data and individualised data

The report makes no distinction between meta data and personalised data. Meta data relates to consumer segments and not to individuals. The analysis of meta data is an important part of marketing(and indeed is the foundation of Web 2.0).

VRM – Vendor relationship management

Vendor relationship management(VRM) is the opposite of CRM e.g. . Basically it means that end-user can also see, utilize and manage her/his own data.

VRM, or Vendor Relationship Management, is the reciprocal of CRM or Customer Relationship Management. It provides customers with tools for engaging with vendors in ways that work for both parties. CRM systems for the duration have borne the full burden of relating with customers. VRM will provide customers with the means to bear some of that weight, and to help make markets work for both vendors and customers — in ways that don’t require the former to “lock in” the latter.

The goal of VRM is to improve the relationship between Demand and Supply by providing new and better ways for the former to relate to the latter. In a larger sense, VRM immodestly intends to improve markets and their mechanisms by equipping customers to be independent leaders and not just captive followers in their relationships with vendors and other parties on the supply side of the marketplace.

For VRM to work, vendors must have reason to value it, and customers must have reasons to invest the necessary time, effort and attention to making it work. Providing those reasons to both sides is the primary challenge for VRM.

Privacy and Revocation are two sides of the same coin

I touched on this topic a while ago. The ability to revoke a provider is a powerful incentive for the customer(and the ability to further propagate that revocation along their social graph could act as a strong deterrent) Privacy and revocation: two sides of the same coin – a new privacy model for the social web

Patronising multi-cultural communities?

I don’t agree with the threat ‘targeting multicultural communities’. In England, as a person of Indian origin, I would be an ‘Ethnic minority’. However, I am not sure I want to see laws that ‘protect’ me .. In an age of Barack Obama – this would be a backward step in my view! Ha ha!

Protecting the Youth vs. patronising the Youth

We should protect the Youth but not patronise them .. Younger people will have a fundamentally different relationship with technology as my five year old demonstrates (Arrowes and why the educational system may need to be revamped ..

When I spoke at the European parliament in December on a similar issue

, MEP Edit Herczog remarked that we are regulating on behalf of people who actually know more than us! i.e. the Youth know a lot more about technology. Pity they cannot vote!

Trusting the Operators

Many people will not give their music preferences to their Telecom Operator but most people would trust the Operator to create a secure and a protected ecosystem – for minors and others. The report needs to factor this

Let us not stifle innovation

We all benefit from the innovation from Amazon, Google, Microsoft, Network Operators(HSDPA), devices, content manufacturers etc. Legislation needs to be progressive and acknowledge this and not stifle an industry as it arises!

Impulse shopping

I am uncertain if we should regulate against impulse shopping .. which seems to be one of the negative practises highlighted in the report.

Threat overblown

Finally, its been about ten years since I have been in this industry. I have seen both marketers drool over ‘targeted audiences’ and privacy advocates raise the spectre of doom. The reality is very different. It is not very cheap or easy to send targeted mass messages to people asking for ’10% off the cup of coffee’ when you are near a coffee shop. In other words, the all pervasive ‘spam’ model of mass targeted advertising is not economically viable and may not ever be.

Agree – Disagree

So, I agree with

Greater disclosure, anonymity, control to users(ex VRM) and the ability for users to revoke

I am not in favour of

patronising multi-cultural communities, patronising Youth, regulating impulse shopping, hampering innovation

Conclusion

I believe that the report raises some interesting issues and provides a perspective which we don’t see at the moment in an industry obsessed by brands and marketing. I believe that it will lead to more transparent procedures and ultimately to a greater empowerment of the consumer – which will benefit us all as an industry.

I hope that this blog provides an unbiased and a pragmatic view which balances the needs of all the elements of the ecosystem.

Comments

  1. Jeff Chester says:

    I appreciate your comments and the discussion. Interactive marketing, as you know well, has a powerful and unique impact on individuals. We have already raised the role interactive marketing and behavioural targeting played with the online selling of mortgages and other financial products (which is linked to the current economic crisis, in our opinion). Our recent mobile complaint was focused on the U.S. market, where the targeting of Hispanics and African Americans by mobile providers and others raise a number of concerns, including lack of accountability and transparency (when individuals are unaware they have been labeled as a specific ethnic group or socio-economic class, for example). Children and adolescents are being targeted with a wide range of adverts linked to the obesity crisis. For more information, see our reports at http://www.digitalads.org
    As for meta-data, the entire process where consumers are analyzed and segmented must be explained to the user, who should have more control over its collection and use. The mobile industry needs to better inform the public about its business model, encourage a discussion and debate, and agree to reasonable safeguards designed to protect privacy and support consumer autonomy.

  2. Ajit Jaokar says:

    Hello Jeff
    Firstly, its great to see your comment. Many thanks. Shall respond soon and also will update the comment in the main body of the blog(I do this since the comments sometimes have had a problem)
    I agree with your comments re both these areas. I wil have a look at the report you mention as well. I think the industry should definately do a good job of educating people since there is a lot at stake here since the moble is a personalised device.
    I have also been reading your book and it gives me more insights. Shall blog about it seperately. Keep up the good work and happy to contribute to the comnversation
    kind rgds
    Ajit