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SPEECH/10/452

Neelie Kroes

Vice-President of the European Commission responsible for the Digital Agenda

Towards more confidence and more value for European Digital Citizens

European Roundtable on the Benefits of Online Advertising for Consumers

Brussels, 17 September 2010

Ladies and Gentlemen,

I am very pleased to be here today with you. I always feel inspired when meeting with people at the digital coal face – and I highly appreciate those efforts. Without you, and thousands more like you, Europe’s digital future would look very different.

First I have to make clear that I speak to you here in my overall responsibility for the Digital Agenda, one of the Flagships of the EU2020 Strategy of the European Union. And in my specific responsibility for implementing and enforcing the electronic communications and privacy directive (Directive 2002/58/EC).

As you will know it is my colleague responsible for Justice, Fundamental Rights and Citizenship who is looking after the Data Protection Directive and who will conduct a review of its provisions. A very important and relevant perspective for the discussions we will have today.

From the view of the Digital Agenda, my first message to you is a simple one: I recognise the value of online advertising. As a growing market and one that delivers many benefits to European citizens, online advertising is very important, and targeted advertising is a particularly important part of this market.

The evidence on the importance of online advertising for the development of the World Wide Web is quite clear. The latest data from IAB Europe puts estimated advertising expenditure in Europe at €14.7bn in 2009 and €16.3bn in the US – this is an economic contribution that is impossible to ignore.

The beauty of Internet marketing is, in the first place, its accessibility. Anyone can be an advertiser online; whereas other forms of advertising can be impractical or impossible for small businesses trying to reach specific audiences or those in faraway places. The Internet bridges the gap between all audiences and levels the playing field for those interested in marketing their small business in an efficient way.

Moreover, online advertising can be very successful because it allows the kind of direct response that is beneficial to both the consumer and the seller. It is therefore clear that online advertising opens up a world of convenience that might not be possible otherwise.

Furthermore, many of the “free” services now used by billions on the Internet would not be possible without the income derived from the various forms of online advertising. Advertising revenues – or at least the prospect of such revenues – are the basis of a wave of innovative services that are transforming our economy and society. That goes for all types of ads be they display or banner ads, video, sponsored search results, and of course the latest buzz: targeted or “interest-based” advertising.

So it is clear in my mind that internet users can benefit from online advertising in a range of ways:

  • to get access to services free at the point of use, many of them not even thought of 5 or 10 years ago

  • to get advertising from a more diverse range of sources

  • the advertising experience is amongst the most sophisticated available in terms of convenience, relevance, depth of information and so on.

It sounds great, doesn’t it? So what is the catch here?

The catch is that personal preferences vary. What is efficient to one consumer can be irritating to another. What is helpful to one citizen is an invasion of privacy to another. And there must be an effective means for personal preferences to be respected.

Let me give you an example. Like anyone I can feel bored or annoyed when faced with endless ads or ads I am not interested in. Like the unaddressed leaflets in my post-box, the TV commercial selling jeans to young men, not to me or the 30 pages of ads at the start of a fashion magazine. So the idea of only seeing ads that are likely to interest me is an appealing one. But for that to happen, you need to know more about me: my likes and dislikes, what I buy in the online shop, what sort of gifts I give, perhaps even the things I write about in my emails.

But, how much information about myself would I want to disclose for that purpose?

This brings us to a key question for the near future: How to get the balance right between the protection of personal data and enabling innovation in advertising.

Privacy and data protection have a particular value for Europeans: we consider them our fundamental rights and have put in place laws and regulations to protect them. Of course, these rules apply not only to European companies, but to all businesses having an establishment or data processing operations in the EU. In addition, companies operating in Europe and elsewhere find that a high level of protection for their privacy and personal data is a necessary condition to establishing a trusted relationship with their customers. Recognising this, the ‘Digital Agenda for Europe’ - the EU’s action plan for enabling our digital future - aims to enhance individuals’ confidence in order to drive future growth in the digital economy.

At the same time, compliance with privacy and data protection rules is perceived by some as a burden and an additional cost on the way to higher growth and more jobs. So there is a lot of scope for tension between stakeholders – it makes the balance even harder to reach.

For instance, a lot has been said in recent months about a growing conflict between the interests of the industry – including your interests as digital advertisers – and the fundamental rights to privacy and data protection of European citizens. I do not believe that such a conflict is inevitable. In fact (and this seems to be confirmed by some of the results you are about to present today), many Internet users value both their privacy and the online services supported by advertising. In other words – consumers want both, and it is our job to deliver that. That is a responsibility for political bodies such as the Commission and the EU legislative institutions, to make policy that takes into account both sides of the equation and that does not throw out the baby with the bathwater. But it is also a responsibility of the business sectors involved, to develop business models that make the necessary trade-offs.

How can we best do that?

Many online advertising techniques – display, contextual, certain search-related ads, etc. - do not involve any tracking of users’ behaviour (and they do not require personal data to be processed). These techniques are not a subject of major concern.

But on the other hand, there are techniques that match advertisements very closely to what a user has previously done on the Internet. Users get uneasy when they get the feeling that all their movements on the web are observed, in particular if this is done without them knowing what is going on. We have heard consumers and even lawmakers calling this experience 'creepy'. By following clear rules on the tracking of user behaviour, we can minimise the chances of the conflict I just mentioned. And I firmly believe that it is essential to apply techniques involving user profiling in a manner that is respectful of user privacy.

By that I mean that the users should feel they have the effective possibility to choose whether they want to be tracked and profiled or not. Irrespective of their legality, any such practices are damaging – they damage the already fragile confidence in the online digital economy. Today only 12% of Europeans fully trust online transactions, so this sort of behaviour is a case of the industry ‘shooting itself in the foot.’ It is first and foremost the industry’s responsibility to work to ensure that users have a genuine possibility to exercise personal choice. That is a matter of self-interest, in addition to the public interest it serves.

On the other hand, an overly cautious or restrictive approach to these issues could invalidate promising future business models and thus deprive users of clear benefits in terms of better services. I do not want to see that either.

So again I return to the point about getting the balance right between protection of personal data and enabling innovation in advertising.

I would like to pass a strong political message here: privacy regulation does not exist in a values vacuum. We have to consider the effects of such regulation on industry, we have to consider their practicality, and we have to consider the long-term health of digital environments.

Implementation of new legislation presents certain challenges

As I am sure you are aware, Member States are currently transposing into their national legislation the provisions of the privacy and electronic communications Directive (Directive 2002/58/EC) which were amended in 2009. Implementation will bring benefits such as notifications in cases of personal data breaches in the telecoms sector and more secure services. But I am sure what interests you the most is Article 5(3). This is the paragraph which sets out rules for the use of ‘HTTP cookies’ and similar devices on users’ computers and smart phones.

We will all want to make sure the Directive does not inhibit the development of the EU digital economy, especially the roll-out of a digital single market. We must ensure a level playing field for all economic operators across the European Union, which means avoiding divergences in national implementation. Harmonisation is the very purpose of EU single market legislation.

The Internet is global, and we also have to think of the global playing field. No region or country alone can set the rules for everybody, but we should not start a race to the bottom. Therefore, we will have to work not just with EU Member States, but also with third countries to ensure the most common approach possible. As we see that similar discussions on behavioural advertising are going on elsewhere, this seems to be a good time for dialogue.

In particular I wish to assure you that I am well aware of your concerns and how important the use of ‘cookies’ and similar techniques is for your business. Your views will be part of the efforts to properly implement and apply in practice the new rules at the national level. I am convinced that, if applied in a balanced manner, the new consent provision poses no threat to the advertising business itself.

How should we implement the new provision?

While today is not the time or place to go into too much technical detail, we should work towards a realistic solution which will enhance users’ trust. The solution must be a driver, and not an impediment, to the growth of the digital economy.

I believe that a self-regulatory solution is possible. But it will need to be one clearly based on the applicable EU legislation. Such a solution can go a long way towards facilitating compliance and avoiding divergence among the Member States.

To get to such a solution, the self-regulatory framework would – in my view - have to include at least the following four elements.

First and foremost, we need effective transparency. This means that users should be provided with clear notice about any targeting activity that is taking place.

Secondly, we need consent, i.e. an appropriate form of affirmation on the part of the user that he or she accepts to be subject to targeting.

Third, we need a user-friendly solution, possibly based on browser (or another application) settings. Obviously we want to avoid solutions which would have a negative impact on the user experience. On that basis it would be prudent to avoid options such as recurring pop-up windows. On the other hand, it will not be sufficient to bury the necessary information deep in a website’s privacy policies. We need to find a middle way.

On a related note, I would expect from you a clear condemnation of illegal practices which are unfortunately still taking place, such as ‘re-spawning’ of standard HTTP cookies against the explicit wishes of users.

Fourth and finally: effective enforcement. It is essential that any self-regulation system includes clear and simple complaint handling, reliable third-party compliance auditing and effective sanctioning mechanisms. If there is no way to detect breaches and enforce sanctions against those who break the rules, then self-regulation will not only be a fiction, it will be a failure. Besides, a system of reliable third party compliance auditing should be in place.

I realise this is setting the bar high. So we will need to work together to achieve these outcomes. These basic principles will also be reflected in the guidance we intend to give shortly to Member States to help them implement Article 5(3) by the deadline of May next year.

Within that, there is a tremendous role for your industry in shaping the appropriate instruments. The need to find efficient ways to respect user privacy can be seen as just another incentive for you to build on current business models and experiment with new ones.

The next step of course is hearing how you think the details of self-regulation could work.

On the basis of the exploratory contacts I have had with industry so far, I believe all of this is do-able. I would not ask it of you if I thought otherwise. I welcome the clear commitment from all the leading business organisations to work with us towards a self-regulatory regime compliant with the law.

Having said that, I also have to say that the ideas so far tabled fall short of meeting the principles I have set out. Given that time is very short to reach a self-regulatory solution, the industry needs to act quickly. The alternative is a more interventionist approach. If you don't want to see that, then you need to act quickly and responsibly. I have instructed my services to work hard towards developing with you an approach that puts the needs of regulators, consumers and the industry together and that can be applied at EU level in a uniform manner.

Conclusion

My overall goal is a balanced and realistic solution. I want to see a level playing field and legal certainty for the European online advertising industry for the years to come. With that you can continue to play a leading role in getting ‘Every European Digital.


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