Complaint and Request for Inquiry and Injunctive Relief Concerning Unfair and Deceptive Mobile Marketing Practices

This complaint is also available in PDF format at the bottom of this page

13 January 2009

Complaint and Request
for Inquiry and Injunctive Relief
Concerning Unfair
and Deceptive
Mobile Marketing Practices

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Donald S. Clark
Secretary
Federal Trade Commission
Room H-135 (Annex N)
600 Pennsylvania Avenue NW
Washington, DC 20580

Dear Secretary Clark:

The Center for Digital Democracy and the U.S. Public Interest Research Group respectfully amend our November 2006 petition to the Federal Trade Commission requesting an investigation into and relief from tracking and targeting practices in online advertising.[1] We now ask that the FTC also act to protect consumers from a growing number of deceptive and unfair marketing practices and the resultant threats to consumer privacy that are a part of the rapidly growing U.S. mobile advertising landscape. The commission cannot continue to sit idly by and wait—as it has done with the concerns over privacy raised by online advertising in the past—until market practices are so well ingrained that it is all but impossible to address them.

This amended complaint grows out of our frustration with the commission’s Town Hall meeting, Beyond Voice: Mapping the Mobile Marketplace, which, as this document reflects, ignored the serious threats to consumer welfare and privacy from numerous mobile marketing practices.[2] Right before the commission’s eyes, many of the same consumer data collection, profiling, and behavioral targeting techniques that raise concern in the more “traditional” online world have been purposefully brought into the mobile marketplace. The mobile industry has already developed extensive plans and techniques to help determine what it calls the “user journey” through the “mobile Internet.”[3] Many mobile marketers are eager to exploit what they correctly perceive as a unique opportunity to target consumers by taking advantage of our highly personal relationships with these extremely pervasive devices to provoke an immediate consumer response. The FTC, thus far, has failed to address the unique threats to privacy and consumer welfare—including the targeting of children, adolescents, and multicultural communities—reflected in what the industry calls its “mobile marketing ecosystem.”[4]

Perhaps Google Mobile Product Manager Sumit Agarwal put it best when he called the mobile phone “the ultimate ad vehicle. It’s the first one ever in the history of the planet that people go to bed with. It’s ubiquitous across the world, across demographics, across age groups. People are giving these things to ever-younger children for safety and communication.” Nor is Google unaware of the privacy implications of this most personal of electronic gadgets: “We have to be very respectful of privacy and give users lots of control,” Agawaral observes, “but it can know where you’ve been, where you’ve lingered, what store you stopped in, what car dealership you visited. It goes beyond any traditional advertising….”[5]

While mobile marketers and operators may claim they have respect for privacy and user control, they are well aware of the tremendous advantage they enjoy in their dealings with their subscribers. As a recent Mobile Advertising Alliance (UK) white paper makes clear,

…Mobile Operators have some very unique assets including control over multiple communications channels and access to valuable real-time context, demographic and behavioural data. Through advanced subscriber profiling, Operators can offer more personalised advertising to their Advertiser partners. As ads become more individualised, the distinction diminishes between what is purely advertising and what is considered by the subscriber to be a valuable service…. The mobile phone presents some unique characteristics,most importantly the fact that it is a personal device, nearly always specific to one subscriber, but also that it provides access to real time context (e.g. location, presence, device capabilities) and that it combines multiple communication capabilities (voice, SMS, email, browsing) which can be effectively used to deliver a more interactive advertising campaign…. From a mobile advertising perspective, the Operator has a unique advantage in all three areas, and it is essential that a mobile advertising platform exploits these advantages…. The Operator has exclusive access to detailed information on subscriber behaviour and characteristics, including spending patterns, location, availability, interests (through browsing habits), social status (implied from device) as well as demographic data (at least for post-paid subscribers). This information is available across a range of disparate systems, but should be consolidated by an effective mobile advertising platform….[6]

Mobile marketers in the U.S. are already deploying a dizzying array of targeted marketing applications, involving so-called rich media, mobile video, branded portals, integrated avatars that offer “viral marketing” opportunities, interactive and “personalized wallpapers,” “direct-response” micro-sites, and a variety of social media tracking and data analysis tools. Technologies have also matured to the point where they now permit “the targeted and device-optimized insertion of any type of advertising (images, videos, logos, watermarks) on any type of mobile media consumer application (mobile TV, web browsing, MMS).”[7] While the mobile industry points to its strict “opt-in” and even “double opt-in” procedures before operators or advertisers are given access to any personal data, SMS advertising company ChaCha’s more covert approach—“There’s no complicated opt-in process—users are part of ChaCha when they ask their first question, and your valuable message or offer is integrated naturally into the answers they receive”—is all too typical.[8] Nor is it likely that many users fully understand the privacy implications of every discount coupon, free download, or ringtone offer that comes their way. Velti, a mobile marketer, employs just these tactics, along with what we believe are manipulative “loyalty campaigns,” in its efforts to persuade users to click away their privacy rights. “One of the key benefits of mobile marketing is that it works at a very personal level,” the Velti website explains,

allowing brands to develop an on going dialogue with their customers to build brand loyalty. Velti’s mobile marketing campaigns are all opt-in activities, inviting users to actively participate in competitions, sweep stakes, alerts etc. Through campaign participation, Velti can help you build a very detailed profile of your customer base which can be used to develop further campaigns but more importantly to create mobile communities and loyalty clubs. Mobile communities allow brands to provide customers with additional benefits and privileges such as free music or game downloads, branded promotional gifts, mobile coupons that they can redeem in shops, m-ticketing via smart codes for shows and events and user alerts for new product information.[9]

 

Velti’s so-called loyalty campaigns are similarly designed as data collection devices:

Utilising our data insight and our Personalisation Engine we are able to understand your customer profile, in terms of their value, activity, demographics and historical behaviours. We can then use this to develop mobile loyalty campaigns that secure their loyalty, grow revenue and therefore increases the lifetime value of your customer base. Through our campaigns, managed by our Mobile Communities Manager, users are prompted to opt-in and provide profiling info for better targeting. Successful submission is rewarded with free content, ringtones, java games, coupons, discounts and gifts.[10]

Mobile, as Sharma, Herzog, and Melfi note, plays a powerful role in the emerging “engagement” paradigm that underlies much of contemporary digital marketing techniques. The FTC has not seriously analyzed the implications of the engagement “metric” on consumer welfare, especially its relationship to what we believe are fundamentally unfair and deceptive practices. As Sharma et al explain, “In the field of digital media, engagement definitions must take into account not only the quality of the visitor. It should take into account the time spent during the visit as well [as] actions and reactions…. Because every interaction can be measured in mobile, this media could become the driving force in overall engagement metrics and standardization.”[11] The authors also illustrate what we believe are fundamental flaws in the current concept of opt-in and permission-based marketing. Here too, the FTC must engage in a more serious analysis of how the so-called opt-in process is structured, including understanding how the various components that underlie the process—including rich media, free offers, personalization capabilities, and discounts—play a role in undermining the ability of consumers to make an informed decision. As Sharma et al note, “In mobile, permissions enable taking engagement to a new level. With permissions, the consumer is asking to get more information and to participate in the campaign. Subsequently, they will allow and enable marketing from various channels, including SMS, MMS, and WAP….”[12]

In light of this super-charged mobile environment—“Imagine the advertising potential to reach … consumers every day, virtually 24 hours a day via the mobile phone,” exclaims mobile marketer Cellfire—it will be a test of the commission’s commitment to consumer protection in the digital age to see how quickly and thoroughly it responds to the threats outlined in this amended complaint.[13]

The New Mobile World Order

With an estimated $1 billion in advertising dollars being spent in North America in 2008—a figure that is expected to increase to $3 billion by 2011—companies are rushing headlong to develop new capabilities to target more effectively the growing number of mobile device users, an audience now numbering over 267 million in the U.S. alone (up from 251 million in Q4 of 2007).[14] According to a recent study, “[m]ore people in the United States (and indeed globally) have a mobile phone than an Internet-connected PC.Consumers are quickly emigrating away from pay-per-use mobile services and are heading toward free-to-end-user services that are supported by advertising....”[15] In the process, these consumers are becoming increasingly familiar with mobile advertising: “...In Q3 of 2008, 39% of mobilephone users (104 million)remembered advertising of someformat on their phone. This was thefirst time the number of Americansaware of mobile advertising hasexceeded 100 million in a 3-monthperiod.”[16]

The popularity of the iPhone and the recent introduction of mobile phones powered by Google’s Android system illustrate how rapidly the market for mobile communications is growing. Industry insiders understand how these and other recent developments are contributing to a critical moment for mobile marketing in the U.S. “Mobile can deliver spot relevance—the ability to deliver the right marketingcontent, to the right person, at the righttime, in the right location,” declares Acuity Mobile President Alan Sultan. “… User data includes inputting the identified interests (what they like) and activities (what they do) of the target group as obtained from prior market research activities.The location can be determined using technology such as GPS.Business data such as organizational goals and historical transactions are also important to include…. All of this information is entered into or captured by an intelligentpreference engine which uses sophisticated statistical techniques andpredictive algorithms to determine the optimal content or offer on an individualized basis.”[17]

While we support the growth of mobile communications and marketing in the U.S., and firmly believe in its critical role as a medium for democratic expression, we are also convinced that meaningful consumer safeguards are required at this crucial period. As this amended complaint will discuss, such safeguards should include appropriate protection for children, teens, minorities, and other groups specifically targeted by mobile marketers.

Gautam Sabharwal of the mobile marketer Tanla Mobile proclaimed that “2008 will see the emergence of the new mobile world-order, namely the influence of ‘traditional’ Internet brands as new and powerful entrants to the mobile sector. They will bring with them established models and approaches to marketing and advertising, amongst other things, that will change the landscape and consumer mobile experience for ever.”[18] It is time that the FTC, precisely as a new Administration takes office with a pending change of leadership at the commission, show that there will be a concomitant “new order” for privacy and online marketing consumer protection. There is still time for the FTC to act—with some 40 percent of mobile Web users logging in fewer than four times a week.[19] Nevertheless, as Brandweek recently concluded, the “Mobile Internet has reached a critical mass in the U.S. As of May 2008, there were 40 million active users of the mobile Internet in the U.S., with individual sites that attract millions of unique users. This provides scalable marketing potential with demographic breadth.”[20]

Unfortunately, while industry standards for the delivery of mobile advertising have emerged, they have been developed without the meaningful participation of either consumers or such mandated consumer protection agencies as the FTC.[21]

So, too, with the technological breakthroughs that are being introduced in the mobile marketplace, and which are being deployed without the understanding or even the awareness of consumers and regulators alike. Despite the enormity of these developments and the effect they will have on mobile consumers and mobile commerce, policies governing consumer privacy on the mobile Web have failed to keep pace with new marketing practices. Most critically, as the user’s location has become part of the data collection and targeting process, the “mobile marketing ecosystem” poses serious new threats to the consumer.[22] “While mobile might have an impact on retail store prices,” observes Laurie Sullivan of Online Media Daily, “the impulse shopper, the one who needs the television or the sweater at the moment they see it on the shelf, won't go away. These are the consumers marketers will target based on their location and demographics through cell tower and triangulation technologies built into browser like Google Chrome and the next versions of FireFox and Microsoft Windows 7.”[23] And as Greg Sterling, founder of Sterling Market Intelligence and contributing editor at Search Engine Land, points out, “When technology can tell where I live and shop online, advertisers will target me using location as a proxy for demographics because all the data about income and household demographics is available to the public…. It can be layered into the backend of search marketing platforms and people can start using select cities to target. It makes search into a different animal tied to location.”[24]

Typical of how the industry views the mobile marketing opportunity is Millennial Media’s message to potential advertising clients, promising that

sophisticated targeting technologies ensure your campaigns reach the audience you need. Targeting options include content channel, demographic, time-of-day, handset, carrier, geography and behavior. Choose from multiple predetermined content channels or let us know what you’re looking for and we’ll build a custom channel just for you. Advanced reporting tools measure the effectiveness of your campaigns—and the resulting insight allows us to make any necessary changes in order to maximize your return on investment.[25]

The characterization of mobile technology as a “liberating technology,” giving consumers new flexibility in their personal communications, personalized services, and the freedom both to compute and to communicate without the strictures of geography, has already become a cliché in the rhetoric of technology enthusiasts. These people would have mobile users believe that their handheld devices represent a certain independence, allowing them to explore and benefit from the mobile Web wherever and whenever it is convenient. But this freedom, in fact, happily peddled by the mobile marketing industry, is a false one. Despite the glowing words about customization and personalized service, what marketers and advertisers are increasingly offering consumers is merely the illusion of free choice. Mobile operators offer their various options and services, not on an individual basis, but preconfigured according to segmented demographic profiles. In other instances, as with Azuki’s ClickZoom technology, the personalization of content is rooted in the desire to stimulate response to targeted advertising. “At the heart of the platform,” Azuki explains, “the media mashup engine harnesses contextual user intelligence and content metadata to enable the dynamic creation of personalized content services (video, audio, photo, news/stories) with targeted advertising. Azuki’s innovative ClickZoom™ technology automatically ingests and deconstructs desktop media into smaller, more ‘snackable’ forms of content to ease discovery, navigation and user interactivity around the media.”[26] The cultural implications of such “snackable” media are unclear, but one thing is certain: while users nibble on small portions of customized content, marketers will be feasting on huge helpings of personal data unwittingly surrendered by consumers.

The emerging system for mobile advertising is clearly an extension of the current interactive targeting apparatus that has raised so many concerns over privacy and consumer protection. However, if the FTC can take a proactive and responsible position now, the commission can avoid repeating the mistake it made by failing to establish adequate safeguards for online marketing back in the 1990s.

Current self-regulatory privacy and marketing policies in the mobile arena are inadequate, including those in the area of disclosure, which utterly fail to inform users what data are being collected and how they will be used. As history has shown, attempts by business interests at self-regulation have failed to protect consumers in the absence of adequate public policies. It is therefore incumbent upon the Federal Trade Commission to protect consumers from unfair and deceptive practices by using its authority under Section 5 of the FTC Act to address this issue on a variety of fronts:

  • launching an immediate investigation into the impact of interactive, targeted advertising on the mobile marketplace;
  • identifying specific mobile marketing practices that compromise user privacy and threaten consumer welfare;
  • examining opt-in procedures in the mobile marketing arena, ensuring that consumers receive full disclosure of the nature and use of any data collected;
  • conducting a special investigation into mobile marketing privacy threats and inappropriate practices targeting children, adolescents, and multicultural consumers;
  • issuing the necessary policies and actions to halt current practices that abuse consumer rights; and
  • recommending federal legislation, and whatever new enforcement measures deemed necessary by the commission, to prevent such abuses in the future.

The Center for Digital Democracy and the U.S. Public Interest Research Group, two of the leading public-interest advocacy groups working on behalf of a more diverse, privacy-protected, consumer appropriate and competitive online environment, call on the FTC to expand its current inquiry into broadband-based interactive marketing. It must undertake an immediate, formal investigation of mobile online advertising practices, focusing on the following five areas of concern:

  • Behavioral Targeting
  • Location-based Targeting
  • User Tracking/Mobile Analytics
  • Audience Segmentation
  • Data Mining

[1] http://democraticmedia.org/news_room/press_release/FTC_online_adv2006; The original complaint, which focuses on invasive online advertising, was amended in November 2007 to highlight new developments in user tracking and behavioral targeting. A copy of the amended report can be found at http://democraticmedia.org/news_room/press_release/FTCSupplementalFiling (both viewed 5 Dec. 2008).

[3] As mobile marketer Amobee describes its various non-voice related applications and service offerings (including Web browsing, online games, and SMS and MMS messaging) to mobile operators, “Our unified solution allows the operator to manage user journeys across all these services in real time….” http://www.amobee.com/main/operators.htm (viewed 5 Dec. 2008).

[5] Quoted in Abbey Klassen, “Why Google Sees Cellphones as the 'Ultimate Ad Vehicle,’” AdvertisingAge, 8 Sept. 2008, http://adage.com/mobilemarketingguide08/article?article_id=130697 (viewed 8 Dec. 2008).

[6] Mobile Advertising Alliance, “Implementing Multi-Channel Mobile Advertising Platform,” Feb. 2008, http://www.mobileadvertisingalliance.com/downloads/MAA%20White%20Paper.pdf (viewed 8 Dec. 2008).

[7] See, for example, “Mobile Rich Media Campaigns—A Quick Guideline, http://www.itsmy.biz/social; “Vantrix Ad Booster,” http://www.vantrix.com/products/Vantrix-Ad-Booster/ (both viewed 15 Sept. 2008).

[8] ChaCha Media Kit, Nov. 2008, p. 1, http://akhost.chacha.com/siteimages/new_chacha/share/pdfs/ad_mediaKit.pdf (viewed 9 Dec. 2008).

[11] Chetan Sharma, Joe Herzog, and Victor Melfi, “A Five-Points Measurement Framework for Mobile Advertising,” International Journal of Mobile Advertising 3.1: 7, emphasis in the original.

[12] Sharma, et al, “A Five-Points Measurement Framework for Mobile Advertising,” 6.

[13] http://info.cellfire.com/node/6 (viewed 6 Dec. 2008).

[14] Action Engine Corporation, “The Emerging On-Device Portal Opportunity,” p. 5, http://www.actionengine.com/Docs/ODPBrief_ActionEngine.pdf; Courtney Acuff, “Mobile Marketers Should Show by Example,” ClickZ Network, 7 Feb. 2008, http://www.clickz.com/showPage.html?page=3628344; “U.S. Mobile User Numbers, Ad Recall Climbing Steadily,” MediaBuyerPlanner, 22 Aug. 2008, http://www.mediabuyerplanner.com/2008/08/22/us-mobile-user-numbers-ad-recall-climbing-steadily/; Mobile Marketing Association, “Mobile Advertising Report (US) 3rd Quarter 2008,” 19 Nov. 2008, http://www.mmaglobal.com/research/mobile-advertising-report-us-3rd-quarter-2008 (all viewed 9 Dec. 2008).

[15] Mobile Marketing Association, “Mobile Advertising Report (US) 3rd Quarter 2008.”

[16] Mobile Marketing Association, “Mobile Advertising Report (US) 3rd Quarter 2008.”

[17] Alan Sultan, “Mobile Commerce: Leveraging the Targeted Impulse Purchase Opportunity,” Mobile Marketer’s Classic Guide to Mobile Commerce, 25 Nov. 2008, p. 7, http://www.mobilemarketer.com/cms/lib/2585.pdf (viewed 12 Dec. 2008)

[18] Quoted in “Tanla Mobile Marketing and Advertising Guide,” 2008: 10, emphasis added.

[19] Third Screen Media data.

[20] “MMA Mobile Marketing Guide,” Brandweek special supplement,17 Nov. 2008.

[21] See, for example, MAG Mobile Advertising Task Force, dotMobi Advisory Group, “Mobile Advertising in a .mobi World,” Nov. 2007, http://www.advisorygroup.mobi/mobileadvertising/whitepaper.pdf (viewed 15 Sept. 2008).

[23] Laurie Sullivan, “Search is the Killer App,” Online Media Daily, 12 Dec. 2008, http://www.mediapost.com/publications/index.cfm?fa=Articles.showArticle&art_aid=96566 (viewed 12 Dec. 2008).

[24] Quoted in Sullivan, “Search is the Killer App.”

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