Digital Media Lesson II – Saying No to Free-riders


In the last post, Shooting One’s Foot, the perfect storm of looming regulation, technology change and  growing acceptance of tech-savvy freeloading in the US was considered. We also saw how kowtowing to mindless traffic growth has all too often warped common sense business management.

The focus of this post is on what leading digital media companies can do about it before it’s too late. Considering that browser cookies today are used for most measurement and targeting technologies, any drastic changes from the government could mean an effective collapse of today’s digital ad ecosystem as we now know it. For digital marketers, the cookiepocalypse would be the end of cookie-based ad targeting and site measurement as we know it today.


Regulatory Threat Looms Large

With 2012 elections rapidly approaching, new regulatory threats are appearing almost daily. It seems that
US Web site users are essentially preparing to make a Coasean entitlement bargain similar to what Professor Steven A. Hetcher described in Norm Proselytizers Create a Privacy Entitlement in Cyberspace. Published by UC-Berkeley in 2001, it is a seminal but prescient study that provides remarkable clarity on digital media’s current predicament.

In short, years of social entrepreneurs moralizing data collection have made self-regulation attempts by Chief Privacy Officers (although always good for PR) and industry trade groups (IAB, OPA, NAI, WAA) vulnerable against a paternalist federal administration, power-seeking bureaucrats and high-minded lawmakers in need of a quick win. Industry group strategies break down as follows:

1.   Education. Teach consumers about the benefits of more relevant advertising while explaining just how cookie-based ad targeting works; ultimately to empower consumers with tangible options to manage their online data trail.

Comment: Most people just don’t care all that much about it.

2.   Choice. Require advertisers (interestingly, not site publishers though) insert the cute ad icon via an overlay within their ad units. Clicking on it brings users to a Web page that then allows them to opt-out from any or all of dozens of participating ad networks. Another albeit special, opt-out cookie is being placed in the user’s browser; it instructs the associated network/ad server to not target advertising to that particular browser.

      Comment: Aside from being a complex technical concept, the critical assumption is that consumers won’t later deliberately or inadvertently delete the NAI opt-out cookie itself thus defeating the purpose. Also this does not effect users with multiple computing devices. Also, cluttering advertisers’ very limited on-screen real estate while publishers have no skin in the game is very telling.

3.   Politicking. Unfortunately but realistically, playing obeisant to politicians and bureaucrats probably has the best chance of action. For many industries, the ROI on lobbying is better than R&D.

      Comment: Hiring a squad of well-connected Washington lawyers to wine and dine politicians is not cheap. Worse, lobbying will have the usual perverse and unintended consequences due to the requisite back-room horse-trading/crony capitalism side-effects. Any deals will be near impossible to later undo as the government tends to have a heavy hand that ignores the signals from an ever-changing economy. As Hizzoner Richard J. Daley, was known to say, “to the victors, go the spoils.”

Altogether, the above strategies just might not be enough for privacy activists or digital advertisers. It’s too little, too late. Arguably, the biggest digital media industry fail is that the digital media industry trade groups have failed to properly frame the privacy battle. They have been mostly reactive and not proactive about this; nor have they put the honus on their digital media membership to change the way they do business in any meaningful way.

Clearly, the prevailing ostrich technique has not worked out for digital media although the usual suspects are doing well. While fear may have boosted trade group membership, it has not helped advertisers at all. Quite the contrary, it seems like Web site publishers are ducking yet again, clearly passing the buck to ad networks and advertisers, e.g. ad icon. Yet, targeted ads are delivered to their users by their ad servers because of the tags on their sites generating them ad revenue. Let’s not forget: people visits Web sites not ad networks

Although the time for digital media to take responsibility is long overdue, most digital media companies still appear to be hoping that somebody else fixes this mess for them. Pinning hopes on premium iPad content and/or labyrinthine pay walls are indirect solutions with limited potential. Unless something drastic changes, digital media are going to continue to be held-up by loud activists, populist politicians, opportunistic trial lawyers and government bureaucrats. 

Meanwhile, digital marketers and their agencies expect digital media partners to aggregate and deliver audiences as billed. It is painfully clear to advertisers that they are left to fend for themselves – caveat emptor applies.

Just Say No

Ironically, it is the digital media themselves that are actually in the best position to fix this issue for once and for all. Professor Hetcher explained this as the “filling the privacy norm gap” – a job that apparently nobody wants except the government. To heal this self-inflicted wound, digital media must first learn to just say no to traffic at all costs and the rampant user free-riding that it requires.

Such a strategy requires an analytical approach to audience measurement and ongoing inventory yield management. The fact is that users that block 3rd party ad server/targeting cookies or routinely delete their cookies effectively rob digital media companies. Content and services provided to the consumer by them are done so with the implicit expectation of a particular financial benefit (advertising revenue) to the digital media company.

A Simple Plan
While fair-minded consumers might not like being tracked, most will acknowledge that they personally and directly benefit from the vast free digital media that is subsidized by ad targeting. At the same time, digital media companies know full well that most users didn’t read their respective terms of service agreements that legally allow them to track for advertising purposes.

As such, there are some simple steps that digital media can take in a matter of days or weeks to take active control of their businesses and tenuous audience relationships, i.e. fill the Hetcherian privacy norm gap. It is based on the simple premise of re-establishing the intrinsic quid-pro-quo about user data-sharing in exchange for free media. Some though-starters:

  1. Block free-riders. Yes, that’s right. This means severely limiting or altogether blocking the ad targeting cookie rejectors, likely cookie-deleters and those using ad-blockers. While this may anger the fringe activists and total traffic may even suffer, the real question digital media need to ask themselves is so what?
  2. Require registration or paid access. Surprisingly, this is still an anomaly today. Instead of hoping people read the TOS, greet users pleasantly and offer them a clear choice, to either:
    1. Share anonymous information about their interests and/or behavior with advertisers and get free unfettered access; provide a plain English explanation of what is tracked and how (use a colorful diagram) with clear acceptance of the Terms of Service. Thank them for their continued support and find ways to make it worth their while
    2. OR, ask for them to pay a nominal subscription instead and receive no/un-targeted ads
  3. Monitor the results and adjust
Overall, this strategy has several major benefits to both digital media companies and consumers, including:

  • Digital Media Benefits
    • Yield management. In the emerging audience-driven media buying model, free-riders are worth less revenue than users that are known or at least better defined. While free-riders consume digital media content as artificially “new” users (from the ad server standpoint) either through 3rd party cookie blockers or regular cookie deletion they are enjoying the same resources. At the same time, their value is much less and possibly negative. In the aggregate, this obscured but often effectively undifferentiated audience represents zero or very low CPM ad inventory. Common sense yield management suggests optimizing away this audience and perhaps creating some scarcity in the process.
    • Subscription revenue for those that prefer no advertising/targeting and opt-out of ad targeting or advertising altogether. According to the McKinsey study, digital media can potentially generate incremental revenue from subscriptions. Again, removing this inventory has the effect of making total ad impressions more scarce likely raising average CPM yield. 
    • Competitive advantage. With so few digital media doing this now, early-movers may have the potential to make this into a competitive advantage with advertisers.
  • Consumer Benefits
    • Sustainable transparency. With the implicit value exchange made more explicit and easier to understand than ever, most users probably wouldn’t like all the tracking involved but most probably won’t really care enough to pay for the content either. Consumers better understanding that supporting free-riders is financially unsustainable might also gain digital media some much-needed respect. Without the strong arm of the government, a rising tide could lift all ships.
    • Better privacy. With more buy-in from users, most privacy policies will probably be improved along the way; consumers will take more responsibility for what they are actively agreeing to share with a digital media business. Again, this could become a competitive advantage.
    • More relevant advertising. That is the ultimate purpose of targeted advertising which,  provides consumers with a better site experience. Think how Amazon’s recommendations can be trained or how some sites already let the user select ad preferences.
Taking A Stand
The good news is that some of the above are already being done – in places. Pulling it all together will require getting multiple stakeholders aligned and executing: legal, ad sales, engineering, marketing, technology, finance and certainly ad ops. The stakes are high and there is no guarantee of success. However, the days of traffic at all cost are coming to an end. All traffic is not created equal.

Savvy marketers are watching closely and aren’t waiting around while Rome burns. Data-driven media buying trends and improvements in measurement technologies are arming astute digital marketers and media companies with more options than ever.

Yet, until they muster the intestinal fortitude to just say no to free-riders, the vocal and technical activist minority will continue frame the debate and eventually prod the government into regulation and with it the end to digital advertising as we know it today.

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