If you're a small ecommerce business, you know that virtually anything that provides significant increases in conversion rates will get a lot of attention.

Behavioral ads promise just that -- higher conversion rates than conventional contextual ads -- so they've been getting a lot of attention lately.

If true, this could be a very good thing for ecommerce sites looking to boost revenues. But the buzz over behavioral ads has also raised the concerns of privacy advocates, and recently even the Federal Trade Commission (FTC) has weighed in -- and the FTC's interest could lead to congressional action.

Contextual Advertising; Behavioral Advertising

The first major contextual advertising program was Google AdSense. In simple terms, the goal of Google AdSense was to match the context of a website with relevant ads from the Google inventory of advertisers and to serve these ads to the site. Relevance was determined by the context of the site. So, for example a sports-related site would attract relevant ads for sporting goods.

Behavioral ads take relevancy a step or 2 deeper. Behavioral technology tracks a user's behavior on the Web, including sites visited, length of visits, content read, and searches made. All this data is then analyzed and a behavioral pattern is produced for a user which classifies that user by his or her online demographic. Behavioral ad networks then serve targeted ads that are relevant to that online demographic.

The FTC Weighs In

In November 2007, the FTC conducted a town hall discussion to discuss privacy issues raised by online behavioral advertising. Afterward, the FTC developed proposed principles based on comments received at the town hall discussions. These principles are discussed below.

1. Transparence and control. Sites collecting behavioral data for ads should provide a clear and prominent statement disclosing data being collected and providing a choice for consumers regarding such collection.

2. Reasonable security and limited data retention. Sites collecting behavioral data for ads should provide reasonable security for the data and retain the data only for so long as necessary to fulfill a legitimate business purpose or a law enforcement requirement.

3. Affirmative, Express Consent For Material Changes to Privacy Policies. Before a company may use data for purposes that are materially different from existing privacy policies, affirmative, express consent from affected consumers is required. So, if a privacy policy does not expressly disclose that data may by collected for behavioral ad purposes, it will have to be amended, and all consumers who were subject to the prior policy will have to provide consent.

4. Affirmative, Express Opt-In Consent For Sensitive Data. Sites may collect sensitive data -- medical information or children's online activities -- only if consumers specifically opt in.

Conclusion

The scope of the proposed principles is relatively broad, and some industry pundits are somewhat surprised at the proposals. The comment process that is always an indispensable part of new regulations is well under way. The final principles that are adopted will have a significant impact on any company that engages in Internet advertising or permits online ads to be served on its website.