Late last week the Internet search giant Yahoo! announced it would implement a ‘do not track’ tool across websites hosted on its networks.  Great!  What does that mean? Well, for the average user it means that he or she will now have the option of controlling what information websites like Yahoo can collect, and what those sites in turn do with that data.  This is one of Yahoo’s answers to the concern over consumer privacy, and addresses the growing fears that consumers have little to no control over personal information gathered by their movements on the web.

Consumer privacy protection has been the talk of the town lately in Washington.  Last week the Federal Trade Commission (FTC) issued a report to Congress on privacy in the digital age.  In the FTC report, the Commission expressed its frustration over privacy violations and took the further step of calling on Congress to pass comprehensive privacy legislation.  A main focus of the FTC report revolved around the suggestion that private data collectors develop a ‘do not track’ function to give consumers the ability to limit what information is collected and stored.  This is obviously big news for advertisers and may impact businesses that rely solely on advertising revenue to operate.

Companies like Google, Yahoo, and AOL rely on information gathered by tracking consumers Internet use in order to determine what type of advertisements consumers will be exposed to.  For example, consumers who regularly search for camping equipment may see more ads for REI, the outdoor recreational sporting goods store, than consumers who spend time on the Food Network website. Services provided by Google, Yahoo, and AOL are by and large, free to the consumer.  Services such as Gmail and Yahoo Finance are funded by ad sales that are based largely on information collected from tracking consumer use.  ‘Do not track’ features now being rolled out may alter how companies determine what ads are displayed to certain individuals; without the ability to track certain user movements, advertisers may find themselves struggling to identify their target audience in the digital world.

How did a concern for consumer privacy become such a hot button issue? For starters, consumers are often unaware of what happens to their information or how it is collected.  Typically, websites automatically deposit tiny cookies via an Internet browser on to a computer.  These cookies transmit information to other companies, colloquially known as data brokers. Data brokers may distill personal information or, as is more common, simply sell it to advertisers who are able to use that information in order to determine how to best target that user.  Selling personal information to third parties has become quite an issue of contention for consumers, and has only provoked the debate over what is an appropriate use of consumer information.  Consumers, by and large, are uncomfortable with being tracked online, and the fact that companies make a profit from tracking their movements does not help to settle their nerves.

One of the many suggestions raised by the FTC report calls for the creation of a centralized data location where consumers can view what information is collected and how it is used.  Data brokers and marketers oppose this idea because they believe that it would be prohibitively expensive to operate and maintain, and that regardless of its newfound transparency, this service would only marginally benefit consumers. Still, the FTC feels that the benefits of consumer privacy protection outweigh the burdens, and that measures like this are required to ensure proper consumer privacy protection.

In addition to formal legislative action, the FTC affirmed its continued support for self regulation in the industry, but stressed that the government itself needs to play a more active role overseeing companies whose stock in trade is the collection, use, and sale of consumer data.

For now though, companies like Yahoo (and Google, Apple, and Microsoft) are forging ahead by installing ‘do not track’ buttons across their networks and browsers.  Giving consumers the option to simply go “incognito” (as does Google’s Chrome browser) may provide the consumer with a greater sense of security and, at least for now, alleviates some of the pressure on the industry over consumer data collection and privacy.

FTC Press Release

WSJ Article