Stronger Online Privacy Regulation Comes with Tradeoffs

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As calls for comprehensive online privacy legislation get louder, Congress is looking to the experience of our cousins across the Atlantic where the European Union has had strict privacy regulations for over 15 years. What they’re finding is that privacy protections come with tradeoffs.

At a House hearing yesterday, M.I.T. Professor Catherine Tucker told lawmakers that her research shows that the E.U.’s privacy standards are associated with a 65% decrease in the effectiveness of online advertising. Why does this matter? Because advertising is how services like Facebook, Twitter, Gmail and the rest pay for themselves.

If privacy regulations diminish how well web services can track your interests, then it’s more difficult for them to pitch ads to you that match those interests. Advertisers are less willing to pay for ads that are less relevant to users. And that, of course, would mean less cash for the services.

(MORE: Facebook Adds New Google Plus-like Privacy Features)

For example, Twitter is right now trying to figure out how to target its “promoted tweets” to the tweet streams of users who will care (a paid tweet from Oprah’s Book Club probably isn’t relevant to a 20-year-old male football fanatic). In order to do that, it might have to keep track of who you are.

Some folks find such tracking creepy or risky, and would like to see it limited. What the EU experience shows us is what we might have to give up to have strict limitations on data collection.

Facebook, Google Search and even sites like Techland are not really free services. You don’t pay for them with money, but you do pay with a little bit of your privacy. If you limit the ability of users to pay with privacy, as the EU has done, then you might find that a service like Facebook will have to charge users something like $20 a month. More likely, it might never get built.

Looking at innovation in the social web, what you see is that almost all of it comes from the U.S. Facebook, Twitter, Tumblr, Foursquare, Google—they’re all American companies. Where are all the European social web startups offering awesome free web services? It’s likely that, at least in part, the less restrictive data collection rules in the U.S. explain this innovation gap.

No doubt we all want privacy and security for our personal information, but as we consider strong limitations on what web data services can collect, let’s not overlook the benefits we’d have to give up.

MORE: California Pushes for Tightened Social Network Privacy Controls

Jerry Brito is a contributor to TIME. Find him on Twitter at @jerrybrito. You can also continue the discussion on TIME’s Facebook page and on Twitter at @TIME.