Action sports often appeal to a specific demographic. A teenage snowboarder is a target for the action sports marketer, but the retirement-age opera fan probably isn’t. Behavioral advertising, also known as behavioral targeting, is tailor-made for action sports because it allows a marketer to analyze and use consumer data in order to deliver ads tailored to an individual’s interests. The most obvious forms of behavioral targeting are online behavioral targeting (tracking a consumer’s online activities and then displaying a banner ad relating to those activities) and location-based marketing (delivering an ad to a mobile device based on a consumer’s location).

Behavioral targeting is great for advertising products and events that a consumer is interested in. For example, a consumer may visit an e-commerce site selling motocross products and accessories and later the consumer will see an ad for an upcoming motocross event or a new magazine devoted to the sport. Or a consumer may receive a message on a smartphone triggered by the consumer’s location; the message might contain a coupon for a snowboard store that is a few blocks from where the consumer is.

Although advertisers and marketers love behavioral targeting, it raises privacy concerns because it requires collecting and disclosing information.

Privacy advocates argue that behavioral targeting takes place largely out of sight and that consumers may not know who is collecting the data, what the data is used for, and who it is shared with. In addition, the information collected through behavioral targeting is usually anonymous, but it can be merged with personally identifiable data (often provided by a consumer when registering or making a purchase). Privacy advocates argue that the data is being kept for longer than necessary and the amount of data collected per consumer is increasing.

Right now there are very few laws that specifically regulate behavioral targeting, but that seems likely to change. Two Congressmen just released a draft version of a new privacy law that, if enacted, would for the first time specifically address behavioral targeting and would impose some limits and requirements on these practices. This bill would, among other things, require an advertiser to get prior consent from a smartphone user before using his or her precise geographical location to send an ad or coupon. Advertisers would also have to provide some information about how they collect information, what information is being collected and who it is shared with.

There are also multiple voluntary guidelines that many advertisers and marketers try to comply with. One set of guidelines was issued by the Federal Trade Commission and another set of guidelines was issued by the advertising industry . There are also guidelines for location-based marketing.

How does behavioral advertising work?

Online behavioral advertising involves the transmission of data to and from a publisher (the website where ads are displayed to consumers, which are typically free content sites such as news providers), the consumer, and the advertiser. Typically, a third party ad network acts as a middleman between the publisher and the advertiser, and uses technology called ad servers to store, transmit and analyze the data being transmitted among these entities.

When a consumer visits the publisher’s website, a cookie (a file containing data) is sent to the consumer’s computer. The cookie collects data over time, such as websites the consumer visits, time and date of these visits, and what ads have already been displayed to this consumer. A cookie may also contain information the consumer provides, such as when registering for a website or making a purchase. The data from the cookie is transmitted to the ad server where a log is created based on the IP protocol address attached to the consumer’s computer. The data from the consumer is compared with data provided by the advertiser about the target audience for the ad. As the consumer continues to navigate around the publisher’s website or other websites, the ad server displays ads based on the consumer’s online activity.

Perhaps the most contentious issue between advertisers and privacy advocates is whether online behavioral targeting should require an “opt-in” by the consumer. Privacy advocates insist that advertisers and third party ad networks should not be allowed to collect data from a consumer unless a consumer consents, or opts-in, to such use. The advertising industry, on the other hand, would prefer an “opt-out” approach that allows companies to engage in online behavioral targeting unless a consumer “opts-out” by indicating that he or she does not want to participate. With an opt-out framework, if a consumer takes no action, the advertiser can collect and use the information.

Although there are currently few laws specifically regulating online behavioral targeting, there are potential problems for companies that engage in this form of advertising. The Federal Trade Commission (FTC) is watching this area closely and has the authority to bring enforcement actions against companies that violate the FTC Act, which prohibits unfair or deceptive acts. The FTC has used this authority to charge companies that fail to comply with their own privacy policy, companies that changed their privacy policy and applied the new policy to data collected under the old policy without giving consumers notice and an opportunity to opt-out of the new uses of their data, and companies that failed to adequately disclose the use of tracking software. The FTC is also concerned with the security of consumer’s data and has charged companies that have failed to adequately protect consumer data.

Another risk is the public relations nightmare that ensues when the public learns data has been collected or disclosed without consumers’ knowledge or consent. Google and Facebook have both been the subject of criticism for launching programs (Google Buzz and Facebook Beacon) that collected and disclosed data without making it clear how consumers could opt-out of these programs.

Especially in the action sports world, behavioral targeting can be very effective in promoting new products to existing customers and advertising products and events to new customers. Companies eager to engage in behavioral targeting should consider the risks involved and consult the FTC’s and advertising industry’s guidelines, so that they do not end up as the target of an FTC enforcement action.