This post was written by Economics Professor, Joshua Gans. He is currently a visiting researcher at Microsoft Research (New England).
Google has announced that users of its Chrome browser
will be able to download a plugin that allows you to opt out of ad tracking. What this means is that companies will not be able to track you for the purpose of feeding you personalized ads while you browse. The opt out is not universal. It only applies for companies that offer opt outs voluntarily. What is significant is that it remains permanent even after you do things like deleting your browser’s history or cookies. That makes it something likely to function well.
There is an interesting conundrum here. The Federal Trade Commission has advocated “do not track” as a public policy initiative. Usually, this is done because it is a socially desirable initiative that companies themselves would not ordinarily undertake. In this case, however, the industry seems to be ahead of the Government. That suggests that this is something they would like to see happen.
But a sceptic might ask: why? Isn’t ad tracking something that companies will desire? Specifically, isn’t it something that ad networks can use to improve the efficiency of their operations? After all, the main job of ad networks is to match web users with advertisers. That is done efficiently when users see ads that are relevant to them and they don’t see the same ad too often (well, at least more than advertisers would like). But we see inefficiency all of the time. We know many ads that appear on websites are things we will never care about. This is especially so if you are surfing a site in Australia but live in the US. If the ad network can recognise your location and slot a local ad in, that is better for all concerned.
Similarly, when you are online you are moving from site to site, many of which have ads. Absent any tracking of your behavior, how does the site you are moving to know that you have already seen a Starbucks ad earlier in your session? And if they don’t know that, there is a risk you’ll see that ad again. Indeed, this might even occur as you browse in-depth on just one site.
Of course, ad tracking that improves efficiency is not the same as ad tracking that improves profits. The response to matching inefficiency is for advertisers, especially ones who place a high value on consumer leads, to purchase many more impressions. It is not usually an unprofitable activity to seel more to your best customers. That may be something ad networks could gain from, although probably only in the short-term.
The alternative is to think about the sort of people who would opt-out of ad tracking. We know that with privacy concerns, different people react differently. Some are much more concerned than others. The concerned can be infuriated when you show an ad that indicates you know something about them. And what is more, if you are an advertiser, you would like to avoid showing ads to those people. For Google, that will make its Chrome browser more desirable for users and advertisers alike.
So by providing tools for opting out, ad networks may be able to sort out those opposed to tracking from those who are neutral or even prefer the consequences of it. Google warned, if you opt out, “[y]ou may see the same ads repeatedly on particular websites, or see ads that are less relevant to you.” The danger, however, is that, if insufficient numbers of companies are part of opt-out programs, this sorting will be diluted. In that world, the FTC may have to step in – this time with support from some ad networks.
Joshua Gans is an economics professor at Melbourne Business School and a visiting researcher at Microsoft Research (New England). The views expressed here are his own.