The National Advertising Initiative: Difficulties with the NAI
Part I: Summary
When people sit at their computers and browse for new car information or to learn about the latest treatment for diabetes, when people walk down the street reading stock quotes on their mobile phones, and when people text a response for more information based on a television commercial they saw, their actions speak louder than words. A new realm of consumer tracking has grown up to translate these activities into advertisements. This kind of advertising is behaviorally targeted advertising. Behaviorally targeted advertising is as controversial as it is lucrative.
Behavioral advertising is lucrative because advertising based on a person’s past actions has the potential to result in increased click-throughs and purchases. Behavioral advertising is controversial because in order to conduct behavioral-based advertising, advertisers may collect an extraordinary amount of personal information to figure out what makes a person tick. This information can range from demographic information like gender, race, ethnicity, and age to what kinds of web sites a person visited within the last month, how long they stayed on which pages, and what news articles they read. Often, this kind of tracking is completely invisible to consumers. 
Behavioral advertising was the subject of a Federal Trade Commission (FTC) workshop in 1999. It was the first time the FTC looked at the online aspects of behavioral advertising and consumer targeting. Subsequent to the workshop, the FTC worked with behavioral and other advertisers to craft a self-regulatory agreement that had as its goal to protect consumers from the negative aspects of behavioral advertising while still allowing companies to profit from the then-new Internet. That agreement was called the Network Advertising Initiative, or NAI. 
Does the NAI Self –Regulatory Agreement Work?
This report looks at the self-regulatory NAI agreement and the associated NAI industry organization and asks the question: does the NAI self-regulatory agreement and the related organization effectively achieve their stated goals of consumer protection in the behavioral advertising space? While few consumers have heard of the NAI and its relationship to behavioral advertising,  the NAI nevertheless remains highly-promoted by the industry.
This report analyses the NAI implementation over the seven years of its existence and finds that the NAI has failed to meet the basic goals for which it was created.
The report focuses on four specific aspects of the NAI self-regulatory program:
1) The NAI opt-out cookie;
2) consumer tracking and profiling technologies and techniques and how they relate to the NAI self-regulation, including emerging tracking techniques such as Flash cookies, MS UserData, browser cache cookies, and other tracking technologies;
3) the membership of the NAI self-regulatory program; and
4) the NAI self-regulatory third party enforcement program.
Difficulties with the NAI
The failure of the NAI is significant from both a technical and a policy perspective. Most consumers who browse online using computers, mobile phones and other technologies are exposed to behavioral targeting, tracking, and advertising whether they are aware of it or not. The NAI opt-out cookie – arguably the centerpiece of the NAI self-regulation in terms of consumer protection from tracking – has failed. Consumers do not widely know about or understand the opt-out, the opt-out does not work reliably, and the opt-out does not persist reliably.
The static nature of the July 2000 NAI agreement is a major deficiency. Although technologies and techniques in the behavioral advertising sector underwent rapid maturation, the NAI agreement remained unchanged. The NAI has made no attempt to extend its self-regulatory structure to reflect developments in the Internet sector or in business practices. Its conception of online profiling grew rapidly stale. For example, techniques exist today for tracking of consumers that do not rely on traditional cookies. As time passed, the NAI self-regulation’s effectiveness toward consumer protection became less effective or and less relevant.
Hidden tracking of consumers is something that the NAI was expressly supposed to prevent.  However, consumers affected by the new technologies do not typically have the right to choose whether their activities can be tracked by advertising companies. As a result, consumers have even less knowledge about or control over the detailed profiles about them, their lives, and their online and other digital activities and behaviors that result from the tracking.
Another promise of NAI self-regulation – that self-regulation would capture 90 percent of the industry – has not been accomplished. The membership record of the NAI is perhaps a model example of a failed self-regulatory effort. The independent, third party enforcement of the NAI self-regulatory body is of questionable independence, and has exhibited a troubling laxity and lack of transparency. These factors have contributed to an environment that values unfettered data collection more and implements consumers’ rights of informational self-determination and privacy less.
The reason for self-regulation was to protect consumers from the negative aspects of unregulated profiling. The Federal Trade Commission acknowledged public comments and concerns recognizing that consumers who are the subjects of behavioral profiling and targeting may experience price discrimination and may ultimately be exposed to fewer or different economic, social, employment, and other opportunities based on behavioral information that may not be accurate, complete, fair, or even about them.  The information collected may be used for purposes far removed from advertising, and secondary uses of the information could harm consumers in other spheres. The NAI was put in place to prevent such harms from occurring, but it has failed to achieve its consumer protection goals.
 For more information about the process of network advertising and consumer profiling, see FTC Online Profiling: A Report to Congress, June 2000. <http://www.ftc.gov/os/2000/06/onlineprofilingreportjune2000.pdf >.
 The NAI is a self-regulatory plan for the network advertising industry crafted by industry in conjunction with the FTC and recommended by the Federal Trade Commission. See <http://www.networkadvertising.org>. See also the discussion of the NAI in Part I of this report.
 Definition of behavioral advertising: Advertising served to a consumer based on behavioral tracking, that is, the practice of collecting and compiling a record of individual consumers’ activities, interests, preferences, and/or communications over time. See Consumer Rights and Protections in the Behavioral Advertising Sector. <http://www.worldprivacyforum.org/pdf/ConsumerProtections_FTC_ConsensusDoc_Final_s.pdf>.
 FTC Online Profiling: A Report to Congress, Part 2, Recommendations at pages 3-4. < http://www.ftc.gov/os/2000/07/onlineprofiling.pdf>
 Online Profiling: A Report to Congress, page 13. <http://www.ftc.gov/os/2000/06/onlineprofilingreportjune2000.pdf>.
Roadmap: The National Advertising Initiative – Failing at Consumer Protection and at Self-Regulation: Difficulties with the NAI