The U.S. Federal Trade Commission (FTC) has increasingly been taking a more active role in trying to make sure that online marketers aren’t harming consumers. That has meant, amongst other things, keeping a close eye on marketing taking place through social channels. You know, Kim Kardashian’s tweets.

Yesterday, the FTC issued a long-awaited staff report that “proposes a framework to balance the privacy interests of consumers with
innovation that relies on consumer information to develop beneficial new
products and services.

According to the report, industry players “have been too slow, and up to now have failed to provide adequate and meaningful
,” so, not surprisingly, the FTC wants to step in and make sure that consumers are protected. One of its proposals: a ‘Do Not Track‘ system for the web. The FTC’s press release explains:

One method of simplified choice the FTC staff recommends is a “Do Not Track” mechanism governing the collection of information about consumer’s Internet activity to deliver targeted advertisements and for other purposes. Consumers and industry both support increased transparency and choice for this largely invisible practice. The Commission recommends a simple, easy to use choice mechanism for consumers to opt out of the collection of information about their Internet behavior for targeted ads. The most practical method would probably involve the placement of a persistent setting, similar to a cookie, on the consumer’s browser signaling the consumer’s choices about being tracked and receiving targeted ads.

There’s a significant flaw with this, of course: many of the very same companies that the FTC says have been too slow in addressing consumer privacy concerns would be expected to respect this new “persistent setting.” As the setting alone stops nothing, consumers would have no obvious way of determining whether or not websites are respecting their setting.

Websites might very well ignore it, particularly if they’re operated and hosted by companies outside of the United States. To be sure, companies operating outside of the United States would have little incentive to abide by the FTC’s rules, just as American companies probably aren’t going to abide by, say, North Korea’s internet rules.

For many publishers and service providers, it may even be impossible to respect Do Not Track preferences. Since so many publishers and service providers rely on third party ad networks, many of which themselves work with other ad networks and exchanges to fill remnant inventory, it’s quite unclear how anyone working with an ad network could be 100% certain that his or her website was dutifully respecting the new browser setting.

At the end of the day, the FTC’s Do Not Track mechanism, as generally proposed, would almost certainly be of little practical use in protecting consumer privacy. So no big deal, right? Unfortunately, the FTC’s proposal could have harmful unintended consequences.

Adam Thierer at The Technology Liberation Front observes that “ironically, depending on how it’s implemented, a ‘Do Not Track’ mechanism could potentially require individuals to surrender more personal information about themselves to companies or the government for purposes of authentication and enforcement of the rule.” Case in point: user agent strings alone can go a long way towards identifying and tracking an individual user on the internet, so it seems quite possible that Do Not Track settings could actually provide additional data points which help unscrupulous operators identify and track users. Oops.

Perhaps more worryingly, Thierer points out that Do Not Track might “fundamentally upend the unwritten quid pro quo that governs online content and services.” Consumers have largely showed more interest in putting up with ads to view content and access services than they have shown in paying for content and services directly, so many publishers and service providers rely on ads to generate revenue. To get the most bang for their advertising buck, advertisers are increasingly using tools like retargeting, and are always interested in even more advanced ways to identify those who they’re reaching.

If the tracking capabilities advertisers have access to become more limited, online ad inventory decreases in value. After all, there are perceived relationships between targeting and CTRs, conversions and ROI. With targeting being cracked down on, many publishers and service providers will likely earn less from their ads, making it harder to offer content and services at no cost. In theory, this will affect the largest and most popular publishers and service providers most, as they’ll typically be the ones least willing to risk violating the FTC’s rules.

Although there are areas for genuine concern about consumer privacy online, one has to ask the question: if the FTC’s proposed Do Not Track mechanism won’t really boost consumer privacy, but it has the potential to harm the economics of many online businesses that exist to serve consumers in-demand content and services, where exactly does the consumer benefit part come in?