Why the FTC’s Worries About Data Brokers Are Overblown

The Federal Trade Commission is worried that online retailers
may know too much about you thanks to online “data brokers” that
collect, categorize, and sell information about potential
customers. Unsurprisingly, its top official wants Congress to pass
a law giving the agency power to regulate on your behalf.

The data broker industry “largely operates in the dark,” FTC
Chair Edith Ramirez
told reporters yesterday, according to Ars Technica.
“We want to shed the veil of secrecy that surrounds data broker
practices.”

“The Commission recommends that Congress consider enacting
legislation to make data broker practices more visible to consumers
and to give consumers greater control over the immense amounts of
personal information about them collected and shared by data
brokers,” said an agency
statement released yesterday.

The FTC is not worried that you are worried that
retailers may know too much. The agency’s presumption is that
consumers don’t know what’s going on, and that the agency should be
given the authority to take action as a result.

Along with the statement calling for legislation, the agency
also released a detailed
report examining the practices of data brokers. The report
focuses heavily on the industry’s practice of collecting personal
information from a variety of sources and then organizing that
information into potentially targetable silos for retailers.

“Data brokers infer consumer interests from the data that they
collect,” the report says. “They use those interests, along with
other information, to place consumers in categories.” Some are
based on income and ethnicity, others on life events such as
pregnancy or geographic features. This information is then combined
with offline data to market to online consumers.

To its credit, the report notes that there are benefits to this
sort of activity, including fraud prevention, better products, and
tailored advertisements. But it also warns about potential risks,
including security breaches, identity confusion, and the
possibility that “they may facilitate the sending of advertisements
about health, ethnicity, or financial products, which some
consumers may find troubling and which could undermine their trust
in the marketplace.”

That last bit strikes me as a potentially real problem, but not
one that FTC needs to be involved with. If consumers
turn on a company for sending ads that seem too creepy, then the
company has a pretty good incentive to reverse course, or at least
to moderate practices that consumers find creepy. In fact, we’ve
seen that happen already: Mega-retailer Target sparked a backlash
by too aggressively targeting pregnant women—in one case actually
figuring out that a teenage girl was pregnant before her father
did. Eventually, the store started dialing back its marketing,

including ads for yard equipment and other products along with
the material it was targeting to pregnant women. When they did,
they found that pregnant women were in fact happy to use the
coupons and specials sent directly to them.

I’m sure that still seems at least a little bit creepy to some
people once they find out about it. But it suggests a few things
about how this sort of targeting works. First, companies will
change their targeting behaviors in response to negative consumer
reactions. Second, that consumers are worried mostly about the
feeling that a company’s data collection efforts are
overly invasive; once that sensation is gone, people seem happy to
use the discounts and specials—the benefits—that come from such
targeting. It’s not that they don’t want companies to market to
their needs; it’s that they don’t want to feel like they’re being
spied on.

I’m fairly sympathetic to some of the privacy concerns that
marketing practices like these inevitable raise. Companies that
collect this sort of data shouldn’t be able to mislead people about
their practices, and in general, it ought to be possible to opt out
of many types of data collection, although that probably means
opting out of some services and benefits as well.

But the deep fears that this sort of marketing seems to stoke,
and the related calls for regulation, have also struck me as rather
overblown. These companies are just doing a more sophisticated
version of what sales representatives have done for years:
attempting to get a better handle on their customers so they can
better meet their wants and needs—and sell them more stuff in the
process. In the pre-digital era, salesman would watch for cues,
noticing a customer’s style of dress or speech or the car they
drove, and tailoring their pitch to suit. This is just a big-data,
digital-era version of the same basic practice. And the result is
that potential customers get products designed more to their
tastes, ads that they might actually be interested in, and,
hopefully, a happier experience as a result. 

The biggest worry here is not that companies will use this data
to nefariously try to sell you stuff you like, but that the
government will eventually get hold of it and use it for something
else. But somehow I doubt that will be a big part of any new FTC
regulations.