Yahoo! has not been idle on this front, and last week they put some meat on the bones by announcing Rich Ads in Search, which brings more art and interactivity into the search results picture, which will appeal to brands, and probably to some consumers as well. The only folks who will take exception are those for whom the utilitarian serenity of search results pages is sacrosanct. Anyway, this is one half of the convergence story: bringing display branding quality to the search environment.

Today (Thursday) at the IAB annual leadership meeting in Orlando, Yahoo! gave form to the other half when it announced “search retargeting,” which gives it the ability to allow advertisers to target display advertising based on a user’s search behavior. In Yahoo!’s words:

…for example, if you searched for “Toyota Prius” Yahoo! will be able to serve display ads for Toyota Prius to that user across the Yahoo! network

Actually, search retargeting is one of three new ad products announced, but to my mind, by far the boldest and most potentially controversial.

First, the upside: there’s little doubt that search retargeting could significantly raise the yields on a lot of long-tail display ads across Yahoo!’s network, where CPMs have been melting in the heat of a bad economy. At the same time, it could raise the quality and relevance of those ads as established brands take notice, making for a better consumer experience, and the brands themselves could get much better value out of targeting based on search-powered relevance. A win for everyone.

Now for the hard part. As of this writing, we’re probably hours away from a response from privacy advocates that’s unlikely to be warm.

The FTC recently seemed to hand marketers and portals a victory over privacy advocates by backing self-regulation for targeted online advertising, which has raised hackles and perhaps primed them for a fight. For its part, Yahoo! has taken great care in the past to burnish its privacy credentials and certainly needs to avoid a privacy flare-up at all costs, but privacy reassurances were surprisingly absent from this announcement, as were implementation details that might enable one to form one’s own conclusions. It must have been a difficult public relations decision whether to call out the issue or not.

So, if you’re searching for a divorce lawyer on Yahoo!, will your spouse get tipped off the next he uses the PC and notices his Yahoo pages are plastered with divorce lawyer ads? Not likely: Yahoo! is bound to be very selective of categories for this kind of targeting, and offer clear opt-out mechanisms if you don’t want your search to be targetable. But will this create a new cache of retained search data, prized by thieves and despots? No, I’m certain Yahoo! will correlate search terms with behavioral categories on they fly without retaining anything specific, just as Phorm does, and head off this objection from the start.

What’s more, Yahoo! is not the first display advertising network to offer search retargeting. AOL’s Advertising.com, WPP’s 24/7 Real Media, Microsoft’s DrivePM, AudienceScience, even Yahoo’s own BlueLithium network have all offered some variation on this for at least two years, although none with scope of Yahoo!’s new offering. Only Google, it seems, has for now avoided this form of search/display convergence. Perhaps they’ll wait to see how Yahoo!’s effort plays out first.

Nevertheless, I think this will be worth watching closely.

Behavioral targeting veteran Dave Morgan offers a nice summary on MediaPost of the background and arguments for industry self-regulation, and both the House and Senate have made it pretty clear that they would like to avoid any legislation that might damage the online advertising economy. Plus, some of them seem a bit distracted at the moment. But there’s a catch-phrase here that everyone appears to be lining up behind which makes me wince. It’s “advance affirmative informed consent” – or some variant – which begs to be acronymed: AAIC. 

Of course, AAIC sounds good: give consumers the information they need to make an informed decision about things like deep packet inspection and third-party tracking cookies and make them decide what they’re willing to tolerate. I imagine my ISP presenting some kind of long EULA-like consent form the next time I open my browser, probably two minutes before I have to get on the phone with a client, blocking my access until I click a radio button indicating whether I agree or not.

As it happens, there’s a much better way. I saw it demonstrated at Microsoft over a year ago, but I haven’t seen it since. It’s a small standard semi-transparent icon (call it a “disclosure bug”) that appears in the corner of any display ad. When rolled over, it opens an overlay that explains why you’re being shown this ad, which ad network or publisher is responsible, what your profile looks like to them and what method was used to obtain it, and gives you the opportunity to either immediately opt-out of the network (and wipe your profile), or adjust your interest categories if they’ve got it wrong. This puts the focus where it should be: on full transparency and granular control in the relevant context, rather than an AAIC that’s likely to seem more like annoyance than empowerment.

I discussed disclosure bugs with many leading ad network executives at OMMA last week, and for the most part they thought it was a great idea. There are several reasons why behavioral targeting networks should like this, not the least of which is that consumers will soon learn that targeted ads actually are more relevant to them than non-targeted ads, which tend toward the “you have just won $1,000,000!!” sensibility. It would also allow consumers to improve the accuracy of their profiles and manage privacy pro-actively, and provide law-makers and privacy advocates with evidence of tangible progress in self-regulation. Last but not least, it would expose the networks who believe full transparency is a bad idea.

Unfortunately the IAB, whose privacy principles are still at the level of generalities, is probably not up to the challenge of pursuing such aggressive standards. Congress, for its part, is even more unlikely to get involved at such a level of detail. ISPs are arguably in the best position to take the lead on the concept of active disclosure for targeted ads. Although few of them practice behavioral targeting today, and DPI in the U.S. seems for the moment to have followed NebuAd into hiding, their long-term interest in advertising is likely to grow along with their triple-play aspirations. But they also have the distinction, unlike online ad networks, of having to answer directly to consumers.