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Data revolt: Several thousand people march in favor of more data privacy in Berlin, Germany, during a 2010 protest.

In the tradition of printed newspapers, most news websites reserve the prime real estate “above the fold” for their biggest headlines. Since late May, however, sites including the Financial Times and the Economist have instead been greeting visitors with a text box warning them that they are being tracked.

The notifications explain to readers that the publications have placed a cookie in their browsers—a bit of code that allows the sites to record what pages they visit. Cookies are hardly unusual: many websites (including Technology Review’s) place a half-dozen in visitors’ machines. What is unusual is that a website would bother to tell anyone.

But both these news sites are based in Europe, where legislators seeking to put individual rights ahead of advertisers’ interests have enacted a series of tough rules about protecting data online. The cookie warnings stem from a 2009 ruling by the European Parliament requiring that sites ask permission before placing a tracking cookie. That rule is only taking effect now, but even tougher ones are planned. In January, European legislators proposed a far-reaching data protection law that would allow people to demand copies of any information companies store about them and even give them a “right to be forgotten,” or to demand that such data be deleted.

At a time when stricter online privacy controls are being debated in the United States, Europe offers a laboratory for studying their economic impact. In the U.S., few rules control what data companies can collect online or how they can use Internet tracking technology. Recently, the U.S. Congress and agencies like the Federal Trade Commission have begun calling for mechanisms that would let consumers have more say over who tracks them.

Advertisers say such privacy controls would hobble investment and innovation, bolstering their argument by pointing to studies showing that Europe’s privacy rules have had negative effects on technology investment and on the eurozone’s €20.9 billion online advertising sector.

Economist Catherine Tucker of MIT, for instance, examined the effectiveness of online ads in 10 countries both before and after Europe began enforcing the 2002 e-Privacy Directive, an earlier rule that, among other controls, limited companies’ ability to target advertisements on the basis of a viewer’s past browsing history.

Tucker’s study, published in Management Science in 2010, found that in European countries that implemented the directive, the effectiveness of online ads (as measured by a survey of consumers’ interest in buying advertised items) dropped 65 percent. Among the sites most affected were news outlets, Tucker found, leading her to conclude that privacy regulation could have “sizable effects for the advertising-supported Internet.” Although Tucker didn’t measure the effect on publishers’ revenues, advertisers generally pay less for less effective forms of advertising.

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Credits: Tim Brakemeier/epa/Corbis, FT.com

Tagged: Business, Business Impact, business, privacy

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