By Nic Peters, Managing Director, Improve Digital

Behavioural targeting — in theory - is a valuable tool for advertisers and publishers because it enables relevant ads to be served to a pre-defined target audience, which increases the value of inventory. As a result, it should also enhance the online experience for consumers, who see adverts that relate to their interests.

But all these benefits depend on cookies being stored on users' computers. And therein lies the problem. A forthcoming amendment to a European Union privacy directive could require users to opt-in to authorise advertisers to use cookies. This is likely to have huge implications on the effectiveness of online advertising, not least because it would be an ongoing logistical nightmare to administer.

The lasting effects of the Phorm furore

But even without this legal constriction, consumers have an inherent mis-trust of anything they perceive to be an invasion of their privacy. General opinion (albeit predominantly outside the digital marketing industry) is that cookies are 'bad'. This unease was fuelled by the negative story about Phorm and BT (currently rearing its head again as new reports suggest that a criminal offence may in fact have been committed) being the first that many people knew about behavioural targeting.

Personal data: offline vs online

This adverse opinion is in stark contrast to the popularity enjoyed by offline store loyalty cards which, widely adopted, allow consumers to enjoy huge benefits. These also rely on companies collecting, storing and harvesting customers' personal data to provide offers that are relevant to them. However, this activity is rarely perceived as an 'intrusion' of privacy precisely because it is offset by a tangible value to the customer. For example, owners of a Boots loyalty card get four points for every £1 spent to allow them discount on further products

In addition to retail loyalty cards, a wealth of information about everyone — address, date of birth, medical history, educational records, financial transactions, marital status, etc — is stored 'offline'. Much of this detail is highly personal but few people regard the organisations that gather it as intrusive.

A further anomaly about what data consumers perceive to be private appears with the rapid adoption of social networking. Many people willingly divulge highly personal information that, once posted on a site, is potentially available to an extensive audience — despite various widely-publicised security breaches and questions about privacy settings.

Cookies, which generate data that is 'non-identifiable' (meaning it is linked to a specific computer, rather than a person) are no more intrusive — and potentially less so - than high street store cards. Not only that, but they offer huge benefits. For example, they are the driving force behind the personalisation of much-loved online retailers such as Amazon and eBay. They also remove the need for users to remember — or write down, with the obvious security implications that implies — the countless passwords required for today's ubiquitously digital lifestyle.

Transparency and tangible benefits

However, cookies have not yet earned the relatively threat-free reputation enjoyed by offline data-collection methods. And for the online advertising sector to convince a sceptical audience, there are various activities that need to happen on a universal basis:

The industry as a whole (advertisers, publishers, ad networks and exchanges, technology providers, etc) must take responsibility for ensuring that easily-understood information is widely available to everyone.

Organisations using behavioural targeting must be rigorous about being transparent in how they collect, store and use consumer data. (The issue with the Phorm trial was less that it used customers' browser history, but that it did so without asking their consent — hence the complaints from broadband customers and privacy campaigners).

Having collected data, organisations must ensure that they treat it as a valuable asset, using it to deliver real, tangible benefits back to consumers

More action required

There are already some very positive signs that the industry is taking the issue seriously, before widespread legal control is seen as necessary. Several major companies, including Google, Microsoft and Yahoo, have signed up to the IAB's online behavioural advertising principles. However, despite this self-regulation, a market study released by the Office of Fair Trading at the end of May said that more needs to be done to address consumer concerns over behavioural targeting

Additional organisations therefore need to add their weight to this campaign in order that people are comfortable with how their data is used. This would appear to be made more imperative with the publication of 'Privacy Regulation and Online Advertising'. The recent study, conducted by two marketing professors at the University of Toronto and the Massachusetts Institute of Technology, concludes that even moderate privacy regulation, such as Europe's data protection laws, reduces the effectiveness of online advertising.

Behavioural targeting clearly has some serious hurdles to overcome to prevent it being culled in its infancy. But the industry is certainly showing a high level of commitment to demonstrating to everyone that cookies can be good for us. And if it continues to do so, the practice has huge potential to drive the online advertising sector forward, offering benefits to publishers, advertisers and consumers alike.