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Summary:

Last year, advertisers spent $21.2 billion advertising online, according to data from eMarketer, which expects that figure to grow to $40.5 billion in 2011. But as consumers spend more of their time in front of computers and mobile devices, advertisers are trying to make those ads more effective by watching what you watch, where you surf and what you search for. Continue Reading

The Internet has given us plenty of something for nothing, and we’ve comfortably allowed advertising to support that free content. After all, its a model we’re familiar with from TV, magazines and newspapers. But on the Internet, the advertising-supported-content model is changing. You’re not just watching the ads — the advertisers are watching you back.

Last year, advertisers spent $21.2 billion advertising online, according to data from eMarketer, and the research firm expects that figure to grow to $40.5 billion in 2011. But as consumers spend more of their time in front of computers and mobile devices, advertisers are trying to make those ads more effective by watching what you watch, where you surf and what you search for. Call it the individualization of advertising.

But that individualization has privacy implications. Print advertising has long depended on reader surveys and statistics to direct ad dollars: Those ads in my copy of Vogue assume that I’m interested in fashion and probably a woman — but they’re not sure. Online, however, data accumulates as I consume media: Let’s say I’m visiting Vogue online and then I switch to a parenting site, check my RSS reader to see the tech news and search for information about postpartum depression. Add all that information together, along with my IP address, and I’m now a tech-savvy mom who lives in Austin, Texas, who may be feeling blue. Suddenly, I’ve become a lot less blurry in the minds of advertisers.

Aside from cookies used to track people on the Web, technologies such as deep packet inspection (DPI), which indicates where a person surfs by looking at the information contained in the data packets, allow for really detailed profiles. Redwood City, Calif.-based NebuAd has introduced technology that uses DPI to serve up “micro-targeted” ads by assigning web users an “anonymous” number that can be differentiated from other anonymous numbers. Search engines track my visits from their site to others and store my search data for 18 months, which also creates a comprehensive profile of my interests.

With the spread of interactivity to mobile phones and televisions, advertisers can tell even more about me. Google is currently in negotiations to get its search bar on the home screen of Verizon Wireless phones and keep search data generated for later use. Interactive television services now anticipate what I want to watch based on my viewing habits. Comcast, through the ownership of sites such as Fandango, Plaxo and Daily Candy, hopes to be able to offer better recommendations to customers. It may be warm and fuzzy to marvel at how well your cable box knows you, but it can become scary when you realize that its not just the box that knows you — it’s Comcast and an array of advertisers.

Individualized advertising is a big business play for content providers and advertisers. AOL spent $275 million buying Tacoda, a behavioral advertising shop, and Comcast has spent more than $500 million buying up sites. Google spent $3.1 billion to acquire DoubleClick and gain the ability to follow users around the web.

From a marketer’s perspective, such individual attention should be a welcome change for consumers, as it reduces the number of unwanted advertisements that don’t relate to their wants and needs. Steven Woods, co-founder and CTO of Eloqua, a marketing platform company, says consumers don’t seem to mind targeted advertising if they know their data is being collected.

“If a person has let you know what they are interested in, then generally consumers see that as being responsive to their needs,” Woods says. “If they are not expecting that you will end up with their data then that would be a problem for them.”

And transparency hasn’t been the standard so far. Online privacy issues have attracted politicians in Europe and North America, who are trying to figure out the best ways to regulate such practices. Earlier this month the House Committee on Energy and Commerce sent out letters to more than 30 companies, ranging from Google to bandwidth provider Level 3 Communications to multiple ISPs. The letters asked the businesses to detail what information they tracked about users of their services, what they did with that information and what they told the users they were up to. The results were eye-opening for the mainstream media.

What had begun in part as an effort to figure out how many ISPs were tracking surfing habits of users became proof that sites such as Google and Yahoo are violating your privacy too. AT&T stated in its letter, “Ad networks and other non-ISPs employ these methodologies at the individual browser or computer level and they are as effective as any technique that an ISP might employ at creating specific customer profiles and enabling highly target [sic] advertising.”

AT&T’s sniping can be read as sour grapes — the ISPs are chafing at delivering Google’s content and billions in revenue for pennies in service contracts — but there’s plenty of truth to the letter. We ask Google to provide us a service for free, but we can’t get something for nothing. And so far that’s been the rallying cry of advertising on the Web. It supports all this wonderful free content, but in order to do that it needs to be effective. It needs to speak directly to a person’s needs and wants. And what better way to do that than to register those needs and wants via online activity?

image courtesy of Comcast

  1. Good piece. There has been almost transparency around this issue, and that’s why a big backlash is developing. And its surprising to me how much marketers really think consumers want ads, no matter how targeted. Echo chamber, anyone?

    It’s also different when tracking is done at the ISP level. I can choose what applications I use online, but in many areas I cannot choose from competing broadband providers.

    I suggested a novel idea back in April — PAY people if you want to track them. Take a cut off the monthly access bill, and I’ll bet some would be OK with it.
    http://cparente.wordpress.com/2008/04/07/the-more-things-change

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  2. Not so much a novel idea Chris, just not economically viable right now to pay people what they feel they are worth. $15/mo? Think what you CPM rate would have to be to justify that while actually paying both ISP and ad network.
    If advertisers could link it all up with your PII: address, phone #, SSN, google ID etc. maybe it would add up for SOME people. But that’s a little Orwellian to really work. Its either anonymous OR paid.
    Its also amazing reading how some in the anti-DPI camps rail on about how eliminating online advertising needs to be the goal, not making it better or more targeted. Just how do they expect the online world to pay for itself?

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  3. It would be one thing if this tracking was being done for scientific purposes.. or social research, even some sort of altruism. But it’s being done for the sake of profit and illegal authoritarian spying.

    It would also be defensible if users had access to the data being collected on them – to be able to turn the tracking on and off, to delete data they don’t want or isn’t theirs. But it’s not being made that way – it’s being constructed to operate secretively, with no regard to our wishes or well being.

    It’s basically predatory. If it’s one thing we don’t need, it’s another way for people to prey upon each other.

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  4. “Just how do they expect the online world to pay for itself?”

    How about using some progressive corporate taxes (Exxon’s consecutive record profits anyone?) to subsidize websites instead of war? Plenty of untapped Billion$ there each quarter.

    Another funding source could be similar to how the TV cable companies were required to provide public access channels and fully equipped stations to towns that had no airwave TV access.

    If the web site or service can be deemed an asset to the public, it would be a viable choice for funding as a public service.

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  6. [...] Stacey Higginbotham, Thursday, September 4, 2008 at 12:09 PM PT Comments (1) As we reported on Tuesday, NebuAd has lost its CEO and, after facing Congressional scrutiny over privacy fears, the will to pursue ISP customers with its deep-packet inspection technology. But its UK rival, Phorm, apparently wants investors to believe it’s still in the game. While NebuAd told the Washington Post that it plans to get out of the business of selling its system to ISPs, Phorm is trying to make clear it’s not having any problems with its own plans to roll out advertising based on a consumer’s web surfing habits. A company spokeswoman says the company plans to branch out to track and offer ads on interactive television services as well — a type of offering we’d predicted. [...]

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  7. [...] new prudishness on privacy and whines that losing such detailed information so quickly could be bad for business (and innovation!): While we’re glad that this will bring some additional improvement in [...]

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  8. [...] “Data is the new creative,” Verklin said. He said Canoe thinks the key to that data is the set-top box that’s already hooked up to the televison. That box can tell advertisers exactly how many people are watching an ad. But Verlkin says they’ll keep personally identifiable information anonymous (just like Google.) “We can bring at last one of the interactive applications to 15 to 20 million households by this time next year,” Verklin says. He added that the cable guys are working on limited network addressiblity within the next 100 days. That’s our countdown to privacy loss. [...]

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  9. [...] the online experience becomes more interactive, the rules around of who’s watching us as we’re watching the web need to be defined. [...]

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  10. [...] the online experience becomes more interactive, the rules around of who’s watching us as we’re watching the web need to be defined. [...]

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