Fiona Scott Morton
Brian O’Kelley
Johnny Ryan
The inventor of real-time bidding (RTB) and other online ad tech has told a U.S. Senate committee that it’s time to give consumers a bill of rights to protect their personal data and make it portable.
“I think you can draft that user agreement,” Brian O’Kelley, founder and former CEO of AppNexus Inc., testified to the Senate Judiciary Committee during an April 21 hearing, “Understanding the Digital Advertising Ecosystem and the Impact of Data Privacy and Competition Policy.”
O’Kelley, said that RTB initially created a “virtuous cycle” for advertisers and publishers, who adopted programmatic advertising and fueled explosive growth of his company until 2016. Then, he said, behaviors by Google which he claimed were anticompetitive cost AppNexus business and prompted its 2018 sale to AT&T. As for Google and Facebook, O’Kelley testified: “Either break them up, or force them to act fairly,” commenting later in the hearing: “I had to sell my company. I couldn’t wait for that.” He said Google used its bundled services to “unfairly attack my startup and cripple our growth.”
RTB is now “a big industry – it needs investigating,” said another witness, Johnny Ryan, chief policy and industry relations officer for Brave, a web-browser maker which promotes an alternative to RTB. “We at Brave view the GDPR as essential. We believe that it can create the conditions that support young, innovative companies like ours.” But he said it is not yet being significantly enforced.
He called for “purpose-based” limitations on the collection of data and opts-in that “should be as easy to back away from as it was to give in the first place.” If enforced, he said, consent notices will become less annoying. “It will have to remind you again that you can back out.”
Unlike earlier congressional hearings, the questions from senators were generally thoughtful, revealing of some knowledge of how Internet advertising works, and were notably nonpartisan. Members from both parties spoke of recognizing digital privacy as an important issue for which they seek legislative action soon.
“I hope you will put a bill in front of this committee and start marking it up,” said Sen. John N. Kennedy, R-La. “I think it’s time we did something.” Archive video of the two-hour hearing, and written testimony, is posted at the Senate Judiciary Committee web page.
STATE OR FEDERAL REGULATION?
Sen. Lindsey O. Graham, R-S.C., committee chairman, declared that the issue of “federal pre-emption” – the notion that federal law should supercede state law on matters of consumer online privacy — is key. He asked the five witnesses – two academics, two industry experts and a lawyer – if they believed federal law should dominate. Three did not respond, indicating assent.
“Let me suggest an exception, Mr. Chairman,’ responded Ryan. “And that is if the California Consumer Privacy Act and the Vermont law and so on – if these things are floors, it’s fine, but if pre-emption is to undermine [them] then that’s a problem.”
“I would say as long as it gets the job done then that’s right,” responded witness Fiona M. Scott Morton, a Yale University professor and former chief economist for the antitrust division of the U.S. Justice Department. She added: “The states are going to want to regulate more if the federal law doesn’t protect consumers.”
Graham said he wanted to make sure “that we have a viable industry when all this is over with.” He said it would be impractical to have regulation by 50 states.
Morton entered into the record a May 15 draft 100-page competition study she chaired for the University of Chicago business school, which, among other things, calls for the creation of a federal “Digital Authority” to monitor online transactions and interactions and act to make markets more competitive (LINK to report). She said rules about privacy, data portability and open standards are needed.
BEHAVIORAL VS. CONTEXTUAL
At several points during the hearing, witnesses spoke about the difference between behavioral and contextual advertising. A key point raised: The current RTB system appears to require transmitting user data to many hundreds of points, with no accountability over how it may be further used, aggregated or shared.
“But there is no reason you can’t use behavioral profiles on someone, provided you don’t broadcast them to everyone in the world,” said Ryan. He observed that Brave’s business model is to encourage consumers to create their own profile within the web browser, then allow ad-targeting decisions to be made only inside the browser software.
“Can you imagine a competing model where behavioral advertising is disfavored and contextual advertising is compensated or rewarded?” asked Sen. Chris Coons, D-Del.
EFFECT ON SMALL COMPANIES
Small companies that lack first-party consumer data, compared with Facebook and Google, could be at risk from privacy regulation, warned another witness, University of Toronto business-school marketing professor Avi Goldfarb. “The biggest companies don’t typically sell their data, they typically sell predictions, he said. “Where small companies need to bring data together in order to make their own predictions and they often bring data from lots of places.” He said a solution would be to enforce data portability so that a consumer can remove data about them from one platform and share it with other companies.
“My theory was that we should not own data, that we would be a better ally to consumers, publishers and marketers if we didn’t,” said O’Kelley, the AppNexus founder. “We had a very hard time competing with the big first-party platforms that did own data and used it against us.”
A FACEBOOK YOU PAY FOR?
Sen. Graham opened a discussion by asking the question: Why has no one created a Facebook that you can pay for, particularly one with a transparent political bias (conservative or liberal)? Witnesses pondered the question, suggesting one answer may be that consumers don’t value their privacy enough to pay to secure it.
Sen. Chris Coons, D-Del., asked what it would take “to empower us as digital consumers and sources of data”? He asked: “Can you imagine a competing model where behavioral advertising is disfavored and contextual advertising is compensated or rewarded?” He then suggested: “Go tell the hotel company, the airline travel company, the credit-card company: “I’m going to take five trips this year and I’ll spend at least a thousand dollars and I prefer flights like this, hotels like this, cards like this and they’ll all compensate you for it.”
Goldfarb, the Toronto professor, said consumer data is viewed as valuable only when aggregated, not on a per-consumer basis. Coons, who represents a state with big banking and credit-card interests, said he knew that those businesses will pay “tens of dollars” for data that will allow them to land a new customer.
“I think it is the right instinct that if we establish such an ecosystem, competition would break forth and we would find out whether it is $8 or $18 or $85,” said Morton, the Yale economist. “It is the consumer’s dollar and I think they deserve to have a system set up to compensate them for whatever they are worth.”
“I think the ecosystem is set up to provide these types of products if they are desired,” testified witness Jan M. Rybnicek, an antitrust attorney who also teaches at George Mason University and formerly worked at the Federal Trade Commission. “If there is desire or demand out there for this data, it will come out.”