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Encryption Wave Poses Big Questions for Advertising

In the year and a half since Edward Snowden disclosed mass surveillance programs at the National Security Agency, Silicon Valley firms have raced to prove that handing them data isn’t one small step removed from handing it over to the U.S. government.

Anxious to rebuild trust with customers, Silicon Valley companies from Apple to Facebook are widening efforts at encryption, the digital scrambling of user data that can only be unlocked with the proper key.

But in doing so, those Internet companies that make money through advertising have to walk a fine line. The encryption methods being touted by Silicon Valley protect users from surreptitious snooping but can’t protect them from formal government requests via warrant, subpoena or court orders. The only way to block that kind of prying would be for companies to give up access to encrypted user data themselves, which would threaten hugely lucrative advertising sales. That is something the companies, for the most part, are not considering.

Still, the industry feels it has little choice but to move toward stronger encryption, with companies like Google and Yahoo saying they are willing to forgo access to data, such as the contents of some emails.

“Something has to give,” said Ted Schlein, a security-focused partner with Kleiner Perkins. Encrypting emails, for instance, means “logically, you’re going to get less pertinent ads, in which case you’re not going to be able to charge as much for those ads. The business model has to change.”

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Many of the highest-traffic sites on the Internet, such as Yahoo Sports, aren’t yet encrypted. But Google has taken a lead by making its DoubleClick for Publishers platform compliant, and big sites like the New York Times have publicly committed to making the switch.