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For advertisers, the smartphone is a dream come true. No other medium offers the same targeting capabilities — including the potential to track consumers as they move around the world with an accuracy of just 10 metres.
It is also a fast-growing sector. Advertisers are forecast to spend more than $60bn buying ad space on mobile devices this year, up from $40bn last year. Research group eMarketer reckons that spending on mobile adverts will surge to about $160bn by 2018, accounting for almost a quarter of all advertising spending.
But as the industry has grown, so have privacy concerns. Regulators worldwide are seeking to introduce rules to protect consumers and restrict the ways in which advertisers use mobile data. The industry itself is also working on technological solutions to give consumers greater control over their data.
In the EU, legislators plan to introduce data protection regulations by 2016, toughening up on and replacing the existing legal framework, which dates back to 1995.
While Yves Schwarzbart, who deals with regulation matters at the Internet Advertising Bureau (IAB), a UK trade body, agrees the rules need updating, he says the European Commission’s proposed rules are too “black and white”.
The Commission has proposed that mobile device identification numbers, IP addresses and most other data used to target advertising should be regulated as “personal information”. That would mean companies cannot collect the data unless they have obtained explicit consent from the consumer.
However, the IAB and other industry bodies argue such information should be classified as “pseudonymous data” and be subject to lighter regulation than data such as telephone numbers, email addresses or medical records.
Until now, the mobile advertising industry has largely escaped state intervention. The regulation of cookies — the technology used to target advertising on websites — has had relatively little effect on mobile, as smartphone users mostly use apps rather than browse the web.
The industry has, however, launched self-regulatory schemes to address privacy concerns, including several recent developments focused on mobile.
“It doesn’t matter what technology you use,” says the IAB’s Mr Schwarzbart. “From our perspective, you should be given transparency about what data are collected and why, and then have the choice over whether to allow that or not.”
Google, Microsoft and most other large advertising groups have for several years operated a scheme called AdChoices, which allows internet users to opt out of behavioural targeting on the web. The industry plans to extend this to mobile in the coming months.
Victor Malachard, chief executive of Byyd, a mobile advertising platform, says that, when done correctly, targeted advertising is good for consumers as it delivers ads that are more relevant.
One of Byyd’s biggest customers is Weve, a joint venture created in 2012 by the UK’s biggest mobile operators — Vodafone, EE and O2 — to mine their customers’ data for use in targeted advertising.
Weve holds a vast repository of data about more than 22m smartphone users, including demographic details such as age and sex, as well as highly accurate information about their movements.
“We’re able to look at consumers who have been near specific points of interest, such as a supermarket or a sports venue, and retarget them accordingly based on that information,” says Mr Malachard. “That’s quite powerful.”
To protect customer data, Weve assigns each mobile subscriber an anonymised identifier that is visible only to the company’s own services. These identifiers are never revealed to publishers, advertisers, or technology intermediaries.
Another innovative company seeking to take advantage of data without infringing privacy is AdTruth. The company, whose clients include King Digital Entertainment, says it has developed a tracking technology that includes “privacy by design”.
Rather than tracking a device’s unique identifier or using other techniques that provide 100 per cent accuracy for tracking purposes, AdTruth collects less sensitive information, such as a device’s screen size, operating system and timezone.
Using these variables, the company generates its own “probabilistic” identifier for each device. The idea is that, on average, the identifiers are highly accurate for targeting purposes, but that they are not permanent and cannot guarantee a one-to-one match.
James Collier, regional managing director for Emea at AdTruth, says: “Many of our clients don’t want us to be more than 85 per cent accurate, because they believe that the 15 per cent [error rate] gives them enough coverage in terms of legislation changes and in terms of honouring consumer privacy.”