August 14, 08

By Katja Riefler

The European Union is known to be very stringent concerning the privacy of its citizens. While no major legal actions have surfaced, there has been talk of EU regulators launching a formal scrutiny of behavioral-targeted advertising. Formal inquiries aside, consumers on a grassroots level have expressed fierce opposition to BT deployment by companies that have tried.

As far back as November, Reuters quoted Gabriele Loewnau, a senior legal advisor for the German Federal Commissioner for Data Protection, who at the time headed the EU’s advisory body on data-privacy matters: “This is a very hot topic that can be expected to be part of our work program next year.”

The EU committee, lead by Alexander Türk of France, has reportedly added that “Online Social Networks” as well as “Behavioural Profiling, Datamining (online or offline)” to its 2008-2009 docket, according to an agenda leaked to the press. There’s been no official comment from EU authorities. If a formal scrutiny is under way, it’s going on way under the radar.

But European consumers get angry and boisterous when companies come under suspicion of what consumers consider spying on their behaviors. It’s a big, ongoing story in mainstream news magazines, with Google – rightly or wrongly – getting a lot of the attention. When the popular German social network StudiVZ recently tried to introduce targeted ads, the company had to retreat from its plans to satisfy an angry public. But no governmental action has been spotted so far.

Behavioral-targeting companies are sprouting all over Europe, launching new products and announcing new partnerships. The Nielsen Company and Nugg.ad, a predictive-marketing technology firm, signed a pan-European agreement intended to boost online advertising campaigns across Europe. Beginning in September, the two companies will use Nielsen’s Homescan market-research data to create a new Nugg.ad product, which will initially be available in Germany and the U.K. Nugg.ad differentiates itself from other BT companies by statistically modeling consumer behavior – looking at lifestyle interests by demographics – rather than actually tracking consumer’s browsing habits. “No personal data are used,” the firm proclaims on its Web site. Nugg.ad hopes to make predictive targeting the new standard, rather than behavioral targeting.

In the U.K., behavioral-targeting companies are most advanced but are facing increased suspicion from citizens. Recently, 15,000 people signed a petition calling for the prime minister to investigate Phorm Inc., a U.K. behavioral-targeting company that worked with British Telecom and other broadband Internet providers to deliver targeted ads in trials earlier this year. The problem was, broadband subscribers were unaware they were being tracked, in violation of the U.K.’s digital-privacy laws. The petition aims at banning all broadband providers from using Phorm’s or similar technology, if it is found to breach U.K. or EU privacy laws.

And in a revelation this week, Phorm acknowledged that it had worked with at least one hotel Wi-Fi provider in the U.S. in a similar behavioral-targeting trial. The difference in this trial was that consumers were given an advance opportunity to opt out of the tracking. (An opt-in would have been better, but at least it wasn’t done in total secrecy, presuming at least one consumer read the member agreements.)

Phorm’s specific behavioral-advertising application tracks Web users’ activities via their ISPs, including search terms used on search engines, as well as URLs. This data is categorized to generate a profile and, although neither the user’s browsing history nor IP address is retained, a cookie is set on their browser. Several other companies are working along similar lines to offer advertisers and publishers novel ways to target consumers online. Their business models all depend on access to users' data. NebuAd and FrontPorch, for example, collect consumers’ online behavior from their broadband providers and pass the data to ad networks, which then send out targeted ads. But it has been Phorm, listed on the London Stock Exchange, that has borne the brunt of criticism. It had more than two-thirds of its value wiped out between February and June 2008. And deals with several major carriers have reportedly dried up.

According to IDG News Service the U.K’s Department for Business Enterprise and Regulatory Reform (BERR) has received a query from the European Commission on whether targeted-advertising platforms violate European Union data protection regulations. The text of the Commission's query, sent by the Information Society and Media Directorate-General, hasn’t been made public. The U.K government expects to respond next month, a spokesperson said.

As a client of Classified Intelligence, you have access to this special report.