Advertising networks that gather unsold commercial space from popular online destinations and then resell them at a discount are part of a multibillion-dollar industry that is only in its infancy in Japan.

Although early adopters of the technology have a huge potential for profits, its growth comes with myriad privacy and security concerns.

The issue was addressed at last week’s Ad:Tech conference held at the Prince Park Tower in Tokyo’s Minato Ward.

Advertising-network companies present there voiced worries about the lack of technical expertise in Japan and gave their opinions on how to best address the security issues inherent in this type of business.

Online media companies such as The New York Times use ad-network technology to sell ad space that their internal sales teams are unable to sell. However, this business model contains risks for all players involved.

For the advertisers, the steeply discounted rates often mean they are prohibited from knowing in advance where the advertisement could pop up. One embarrassing case happened in Canada when Royal Canadian Mounted Police recruitment advertisements were displayed on websites affiliated with criminal gangs.

Shogo Yamamoto, CEO and founder of Japanese ad network Omnibus, explained at Ad:Tech that, “The concept of an ad network is not to just sell space. We try to serve high-performance advertisers. It’s kind of a black box, but the logic is in the optimization of ad displays. The concept is not common in the Japanese market but advertisers see positive results.”

Another major concern of the ad-network companies represented at the conference was how to handle privacy violations.

Advertising networks have the ability to track a computer user’s surfing habits across multiple websites within their network using Web cookies, a utility that tracks browsing patterns in a central database. This tracking allows the networks to build a demographic that they can then market to advertisers. The practice has generated a slew of privacy concerns in the United States.

Masanori Takashi, CEO of Advertising.com Japan, one of the country’s two largest ad-network firms, told The Japan Times, “Ad networks don’t handle user-identifiable data (such as names and addresses), just the cookie. So the question is really how to handle data associated with a cookie.”

While there have yet to be any significant privacy breaches, problems that have occurred overseas could be bubbling under the surface in Japan. The positive spin on this, though, is that Japanese firms should have precedents to help them deal with any issues that arise.

Complaints have been multiplying about advertising networks purchasing detailed user profiles that contained identifiable information from game developers on Facebook. This has yet to occur in Japan, but with social networking site Mixi’s recent embrace of third-party game developers on its site, the potential for concern is there.

Ad-network firms in Japan are closely following such privacy developments and are thinking about how best to head them off before they become an issue.

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