05/28/2010 02:53 pm ET Updated May 25, 2011

Internet Privacy and Big Government

For online advertisers and publishers, and for the mind boggling array of companies that try to create value in between these two groups, the Internet privacy issue is very real and very scary.

It is just unfortunate that the real issues and the headline grabbers have nothing to do with each other.

There is a difference between privacy issues that get journalists, politicians and Federal bureaucrats into a tizzy and the way that consumers think about privacy as demonstrated by their behavior.

The credit card industry is an example of violations of privacy that would create big headlines and political speeches if it were not so obvious that the great majority of consumers will gladly sacrifice this level of privacy in exchange for the benefits of a credit card. As a newspaper headline, it's a non-starter. Also, this industry now has large enough lobbying initiatives in place that politicians are paid enough money to focus on other things.

Neither is true for the Internet.

The privacy sins of Facebook are well understood by Facebook's regular users but the trade-off is worth it. We know the trade-off is worth it because these users are both articulate about the challenge of managing their privacy on Facebook and daily users. This is not an earth-shaking crisis for the consumer but it is a great topic for journalists and politicians seeking to call attention to themselves.

Relevant advertising is welcomed by the consumer. If you are shopping for a minivan, a well designed ad for a minivan feels like content. If you are having a bad hair day, an ad for a shampoo might grab your attention and you have no problem with that. If it's raining this weekend and you want to see a movie, an ad that allows you to view the movie trailer can hold your attention voluntarily for two minutes or more -- so, please give me ads for movies that I might actually be interested in!

On the other hand, irrelevant advertising is ignored by the consumer -- especially today's digitally empowered consumer. The random delivery of advertising is wasteful for everybody (marketer, publisher and consumer) while targeting strategies that improve relevance are a win for everybody. Blue chip targeting solutions available on the web that leverage lots of aggregated data about what individual web users are doing in order to improve targeting is just good common sense.

Legitimate behavioral targeting is done by algorithms written by computer scientists. The best of these scientists will tell you that PI (real name, address, social security number, credit card data and so on) is actually far less valuable than anonymous data about what a consumer is searching, viewing, choosing and clicking. The best data is anonymous anyway. The best application of the data requires massive aggregation anyway. In other words, for the short list of blue chip behavioral targeting solutions available to the industry, real violations of privacy at the personal level are not just unethical; the data is of low value anyway.

Consumers prefer advertising over subscription fees for the most popular benefits of the Internet and consumers enjoy advertising that aligns with their interests and needs. They hate clutter and trickery and they ignore irrelevant messages. Massively scaled data confirms what you would think would be self-evident.

That said, the Internet is an easy place for egregious abuse. The cost of entry for a rogue company that wants to bury code in a pixel that travels across the web inside a dirt cheap ad unit so that they can place cookies and scarier things on computers is just too low. You can start this kind of company for less than $1 million and before the recession, you could raise $1 million in VC very quickly just by putting lipstick on the pig. Then, there are dozens of bottom feeder direct response advertisers who will test anything with $50,000 to see if it is worth adding to their portfolio of dirt cheap ad impressions. That is the real nightmare for all of us who believe in the higher values and opportunities offered by online advertising.

Federal bureaucrats and politicians attack the issue of Internet privacy through the media in ways that suggest that the government has no idea what the previous paragraph is about. Going after the truly abusive ad networks is hard work and I think most in the online ad industry would welcome the government's help with this problem. But, who am I kidding -- it is better to attack Facebook, Google and Yahoo! because that will generate the self-serving headlines that federal bureaucrats and politicians seek. Even better, these companies that have had huge successes when it comes to creating value online for both consumers and advertisers will have to form big lobbying groups in order to filter money into the hands of politicians if we put them on the defensive often enough.

Until the IAB starts to look a lot more like the NRA, you can expect big government to take on the challenges of Internet privacy by focusing on the wrong things.