Even worse, the regulations varied from state to state. So he suggested one simple take-away “never, ever call anybody in Nebraska, you will certainly get nailed”. And that was just explaining the situation in America, this expert did not even attempt to explain the complexities of calling globally.

This was a bomb that landed on the consumer telemarketing industry. A similar bomb called Do Not Track may be about to land on the online advertising industry. This article in the New York Times describes an initiative in New York which follows a bill introduced in Connecticut. Europe is already a stickler for privacy and never misses a chance to slow the growth of the big US based global players.

Back in October I suggested that privacy was going to become a bigger issue and that some high profile event would “spook and offend enough people to set the Blogosphere on fire. Then MSM will pick up on the story and then politicians and regulators will jump on board.”

The high profile event was Facebook Beacon. The next “100 years of advertising” as proclaimed by Mark Zuckerberg looked a lot like an Amway scheme to ordinary folk. This was not just big companies abusing your privacy to sell you stuff, it was big companies enlisting your friends to abuse your privacy and sell you stuff.

There are a lot of mixed feelings about privacy in the Blogosphere. Most of us depend on advertising to pay the bills. We are totally public, blogging and twittering away about everything we think and do. To many of us, it is time to “get over it”, the toothpaste is out of the tube, privacy is dead. At another extreme are the purists, the idealists who don’t need ads to pay the bills (having tenure at a major college takes away that pressure for example). In the middle are a lot of people who know that something is badly broken in the online ad world and something new will come.

The problem is, nobody has the foggiest idea what new ad model will work. That is not for lack of trying. There are lots of incredibly smart people trying to figure this out.

The reason that Do Not Call was such a big deal was that Spam had already killed email marketing. If you want to do push marketing, junk mail is the only intrusive form left. Now that is sad. You really want to kill more trees to avoid getting calls or emails? No, I did not think so. Stop Junk Mail is now a business as well.

Push and pull marketing are the two sides of the direct response industry. With push marketing almost dead, Google re-invented pull marketing with search-driven CPC and the rest, as they say, is history.

SEM is phenomenally powerful in the right hands, but leaves a lot to be desired:

1. The auction model drives prices to a level that is eventually unsustainable for the advertiser.
2. It is not good for branding. So its not that good for the big consumer brand budgets. It works best for a product/service that is low enough to be in the impulse purchase price range but high enough to pay for Adwords. About $100 is ideal.
3. It is open to click fraud.
4. You need a high level of sophistication to use SEM effectively. You need a machine that converts clicks to dollars (ok, Euros would be better) with total consistency, so you can buy Adwords with precision. Together with 1, this makes it out of reach for most small businesses.

So, SEM is great for savvy start-ups with $100 products to sell, but not the mainstream of a) big consumer brands and b) small business? That leaves a lot of money looking for an alternative. The gap between ad $ spend and online usage is so wide, but rather than getting narrower it looks like it is getting wider. This means that the guys with the ad budgets are holding back because they don’t know where to spend.

All successful new ad models have two things in common:

1. Something new that is dramatically better than current alternatives. Advertisers are conservative, so a new model has to show enormous potential to pry open the budget.
2. Standardization. This has been true of anything from the 30 second slot to banner ad size. Advertisers have to know what they can buy and they have to justify their budget in traditional terms.

The big problem is that 1 and 2 conflict. Lets say you are a start-up with a revolutionary new service that attracts a great “audience”. You would be smart to be totally conservative with your ad model (standard CPM and/or CPC). You cannot change the ad industry on your own. On the other hand, if you are a big media company with long established relationships with the big advertisers and their agencies, you also have no motivation to change the CPM status quo.

Google really was in a unique situation. They had a better search engine but CPM was clearly utterly useless as a monetization strategy. And paid search with an auction model fitted perfectly - thanks a ton, Overture!

That combination is unusual. Most of the new web 2.0 services can use CPM to monetize. As Web 2.o ventures don’t pay much for content creation and can get viral adoption, that drives down CPM prices. That’s OK for low cost Web 2.0 ventures even if it leaves a lot of money on the table that could be collected with smarter models. It’s a disaster for traditional media with a higher cost base, but they don’t tend to be the drivers for innovation. So the motivation to innovate is less.

CPM feels like an old media model grafted onto the online world, like talking heads in the early days of TV. CPM is “faith based advertising” that does not move any further to answer Sam Wanamaker’s famous implied question “which 50% of my budget is wasted?”

CPM survived in an HTML page centric world that mimicked print. In a world with AJAX, rich applications, APIs, mashups, aggregators, mobile and social networks the question marks related to CPM just keep piling up.

Frogs don’t jump out of water that gradually comes to a boil. If you throw some boiling water in they jump out quickly. The politicians maybe about to throw in that boiling water. Do Not Track legislation matters because Behavioral Targeting is currently the best game in town for big budget consumer branding. It is mature, works and all the big Ad Networks have a variant. And Do Not Track will be about as much fun for Behavioral Targeting as Do Not Call is for telemarketing vendors.

Predicting politics is not my game, I find it utterly mysterious. However I think that some variant of Do Not Track legislation is inevitable for two reasons:

1. Ordinary people value privacy (they don’t Blog or Twitter) and nobody has articulated a big win for them to give up privacy. The telemarketing and email vendors tried “but they will miss all these great promotions that my clients are selling” and that did not wash.
2. The industry is not united. There are people such as Doc Searls and his Vendor Relationship Management saying that total re-invention of the ad model is well overdue. That is to be expected. This quote from the NY Times article was more surprising. “Mr. Brodsky ( Assemblyman Richard L. Brodsky, the sponsor of a New York bill to limit how companies collect data on computer users) says he has asked the Web companies point-blank if they would support legislation similar to what he has proposed. Microsoft gave him a firm “yes,”

The reason I keep coming back to Vendor Relationship Management (VRM), even though it is clearly very early stages in the thinking, no real deployable system or even prototype yet, is that it is the only genuinely radical approach that resonates with me as an ordinary user and as a business person. At its most fundamental, VRM echoes Oscar Wilde:

“Give a man a mask and he will tell you the truth”

In other words, if privacy is absolutely completely guaranteed, buyers will reveal all their intentions. You don’t have to infer their intentions from a search term or from the last 10 sites they visited. They will explicitely tell you, the seller, what they want. Sam Wanamaker could finally say “my ad $$$ are not wasted”.

The people working on VRM recently came up with the concept of the “reverse cookie”. It is perfectly timed for a Do Not Track world. No point in Googling “reverse cookie”, you will get something about Oreos! You the buyer set out what you want and your cookie tracks which sellers have what might fit. It sounds a bit like an agent.

VRM is radical. The more mainstream approaches seem to bifurcate into two:

1. The direct response world moves from CPC to CPA (Cost Per Action) to the logical end game of direct revenue share, transaction fees, Cost Per Revenue or whatever we end up calling it. That brings in mainstream small business by making the proposition totally simple - your product costs $100, we will take $25 on every sale, no sale = no fee” and obviously cuts out click fraud. This is a perfect “recession story“.
2. The brand advertising world moves to greater levels of creativity to get engagement when they can no longer rely on thrusting their message on a consumer. We are still way, way early in this game but I suspect it may make advertising, media and marketing the wild, fun place to be it was in the 1960s when TV went mainstream.

Image: Aim and shoot!