Companies fear, consumer advocates praise 'do-not-track' proposals

If web companies heed Monday's recommendations by the Federal Trade Commission and allow consumers to opt out of online tracking, there's a good chance people will use the feature -- and that may be bad news for those companies' bottom line, a top tech market analyst said.

In a report released on Monday, the FTC called on companies to establish "do-not-track" options. The option would prevent websites from tracking users' online habits, which marketers use to create targeted ads, and companies use to offer personalized services.

Many people underestimate the impact of widespread do-not-track options on the companies that use the information, Washington Research Group's Paul Gallant said in an analysis on Monday.

"The key is consumers' uptake of 'do-not-track' over the next nine months - the more widespread it becomes, the greater the risk to display ad firms (ValueClick, Google, Yahoo, AOL) due to a smaller universe of Internet users reachable via behaviorally targeted display ads," he wrote. While many sites have offered do-not-track features, they have not been enforceable.

The Information Technology and Innovation Foundation echoed those concerns, calling the FTC's proposals "misguided."

"The new report shows the FTC still does not understand the fundamental economics of the Internet," ITIF analyst Daniel Castro said in a statement. "Consumers should have options to protect their privacy but there are important trade-offs and costs in creating those protections. The report does not strike the right balance."

The Direct Marketing Association also called for balance. There is no harm in companies providing their customers with marketing that is customized to their interests, DMA vice president Linda Woolley said in an e-mail.

"We don't believe that marketing data should be used for non-marketing purposes, such as determinations on insurance, employment, or credit, but there are laws already on the books preventing that from happening," she said. "We are very wary about taking the information out of the information economy."

Industry groups like the DMA have urged Congress and federal regulators to use voluntary, self-regulatory methods, rather than new laws.

Members of Congress and consumer advocates, however, praised the FTC's call for new legislation as an important step toward giving consumers more control over their information online.

"While the FTC makes good recommendations to businesses, it is important to remember they are not law," Rep. Joe Barton, R-Texas, co-chairman of the Congressional Privacy Caucus, said in a statement. "These recommendations are not enforceable, which is why I loudly echo the FTC's call for privacy legislation. It is not until a law is passed that all companies will truly abide by consumer protection policies."