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The Next Frontier Targeted Online Advertising and Privacy

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The Next Frontier Targeted Online Advertising and Privacy Mary Foster Tina West Avner Levin Ted Rogers School of Management Ryerson University September 2011 Acknowledgement This project is supported in part by the Office of the Privacy Commissioner. In addition, Ryerson University provided funds through its SIG program to support this research. We would also like to thank our Research Assistants, Colin Rogers and Roman Cezar, for their help in conducting the field work. ii This report investigates the emerging field of targeted online advertising from the experiences of two different sets of stakeholders: advertisers who want to reach consumers, and consumers who may or may not be receptive to receiving advertising messages; and through two lenses: those of the marketer who is trying to find more effective promotion mechanisms and those of the privacy advocate who is concerned about the potential harm of technologically- enabled targeting. This project employed both qualitative and quantitative methods to collect the information required to meet the project goals. The qualitative phase consisted of in-depth interviews with senior executives representing advertisers and publishers of targeted advertisements. In addition, we sought input from consumers through focus groups and town halls. Further, we collected information about consumers’ online behaviour and attitudes toward accessing content and advertisements through an online quantitative survey that yielded 1317 respondents. The consensus among our business respondents is that online capabilities have enhanced companies’ effectiveness in segmenting and targeting their markets. They are able to identify with more surety and clarity the consumers that will be most receptive to their promotional messages. Online advertising is categorized into types, such as targeted, behavioural, contextual, and social, but for business respondents the only feature that really matters is whether it is relevant. Digital promotion is not only more cost-effective because making changes in the content or format of the message is not as expensive, but also the return on marketing investment in terms of additional sales and revenues is much higher than with traditional advertisers. Marketers are not likely to give up this tool, and in the future it will be expanded to mobile devices that leverage GPS tracking. The only concerns voiced were those about how the performance data are used for decision-making because the samples may not be representative. In addition, online surveys are not as adept at collecting data on motivations and sentiments, the insights that marketers have traditionally highly valued for making brand decisions. A main purpose of this project has been to develop a taxonomy or framework for describing the relationship among those engaged in creating advertising content, buying advertising services, disseminating content to the appropriate audiences and measuring the performance of online advertising. What this project contributes to the discussion is the pivotal role of analysers. This group has a role in collecting information, analyzing the results and disseminating their interpretation, not only for decisions related to the goods and services being promoted, which is of interest to the purchasers of online advertising to better support their brand, but also to the creators of advertising content, and the publishers of advertising content who are interested in doing an effective job at targeting their market and focusing their message to better serve their clients. Privacy is not a major concern among our business respondents because they believe they are already compliant. Several view compliance as a competitive advantage because taking the time to discuss these considerations gives every program an extra vetting that may uncover problems that need to be addressed before launch. Our business respondents see no conflict iii between marketers and privacy officers over the issue of targeted advertising because it is in the interests of both to be compliant. Government regulation is not necessary or preferred in their opinion. Because technology is evolving and capabilities and applications are developing, the attitudes and behaviours of consumers with respect to online advertising do not necessarily present a coherent picture. Consumers purport to ignore and dislike all forms of advertisement, yet a proportion report clicking on online ads, and even more believe that ads are a fact of life and something they are willing to endure to get free content on the Internet. Although they find online ads distasteful, they are not willing to pay to avoid them. Free content trumps all. Another contradiction is seen in their views toward privacy. They firmly believe that privacy is a right and they do not like the fact that companies collect information about them through their Internet habits. However, knowing that they are being tracked, most still would not change their online behaviour or avoid websites that do tracking. They don’t like their privacy invaded, but seem unwilling to change their behaviour to protect their privacy. One possible explanation for this contradiction is that participants do not really believe targeting to be effective, and therefore, do not really believe their privacy is invaded and personal information compromised. Another is that participants expect government to enforce their right to privacy, and conversely, that participants view advertising that is not challenged by government as legal and therefore not violating their privacy rights. As a result participants do not see a need or room for individual activism in this area. If further analysis supports this tentative conclusion then it is a clear call for action on behalf of the Office of the Privacy Commissioner. Participants expect OPC to protect their privacy, and carry perhaps an unrealistic understanding of the OPC’s enforcement powers. OPC should therefore engage in both enhancing public awareness – to ensure the public has a clear understanding of its privacy rights and the ability of OPC to enforce them – and in calling for legislative reform, to ensure that our privacy legislation includes the necessary tools to protect privacy online. iv Acknowledgement…………………………………………………………………………..ii Executive Summary……………………………………………………………………..…iii List of Charts, Figures and Tables…………………………………………………… ....vii Chapter 1: Overview……………………………………………………………………..…1 Chapter 2: Review of Literature…………………………………………………………...5 Consumers and the Internet……………………………………………………….….5 Business Perspective on Online Advertising………………………………………....8 Privacy Perspective on Online Advertising…………………………………………10 Chapter 3: Project Goals and Research Design………………………………………….12 Summary of Goals…………………………………………………………………...12 Methodological Approach…………………………………………………………...12 Qualitative Phase…………………………………………………………….12 In-depth Interviews…………………………………………………..12 Focus Groups………………………………………………………...12 Town Hall…………………………………………………………....13 Analytic Approach…………………………………………………...13 Quantitative Phase………………………………………………………..….13 Sample Collection……………………………………………………13 Analytic Approach…………………………………………………...14 Chapter 4: Results……………………………………………………………………….…15 Company Perspective……………………………………………………………..…15 Shift to Digital………………………………………………………….……15 Taxonomy for the Online Advertising Space………………………………..18 Types of Online Advertisements…………………………………………….22 Online Advertising and Privacy…………………………………………..…23 Consumer Perspective……………………………………………………………….24 Focus Groups and Town Hall……………………………………………….24 Student Online Behaviours………………………………………….25 The physical world meets the online world……………...….25 Options for connecting the physical and online worlds……..26 Blurred lines of functionality and use……………………….27 v Attitudes and Behaviour Related to e-commerce and Online Advertising………………………………………………………….28 Stage 1: Consideration…………………………………...….28 Stage 2: Evaluation………………………………………….28 Stage 3: Purchase……………………..……………………..31 Stage 4: Enjoyment, advocacy, bonding…………………….31 Online Quantitative Survey…………………………………………………32 Online Behaviour……………………………………………………32 Attitudes about Receiving and Accessing Online Content and Advertisements……………………………………………………...35 Chapter 5: Discussion and Conclusions…………………………………………………..41 Bibliography………………………………………………..………………………………44 Appendices…………………………………………………………………...……………..46 A: In-depth Interview Questions and Topics………………………………………..47 B: Focus Group and Town Hall Discussion Guide………………………………….49 C: Online Survey Questions…………………………………………………………51 D: Analysis of Social Media User Group Segments………………………………...61 vi CHARTS Chart 1: Respondent Age………………………………………………………………….……13 Chart 2: Respondents by Gender……………………………………………………………….14 FIGURES Figure 1: Relationship Between Various Online Advertising Businesses………………………9 Figure 2: The Crowded Display Ad Tech Landscape………………………………………….18 Figure 3: Relationships in the Digital Space…………………………………….…………….22 Figure 4: Today’s Reality: Physical and Online Communication on Demand…………..…….27 TABLES Table 1: Online Ad Spending as a % of Total Ad Spending in Canada, 2009-2014…………...1 Table 2: US Behaviorally Targeted Online Advertising Spending, 2008-2014……………..…2 Table 3: US Internet Users who are Concerned Websites are Collecting Too Much Personal Information About Them, December 2009…………………………….….….3 Table 4: US Internet Users’ Attitudes Toward Online Tracking for Ads by Age, Dec. 2010……………………………………………………………………………….3 Table 5: US Internet Users Who would Allow Advertising Networks to Target Ads to Them, by Age, Dec. 2010……………………………………………………………4
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