Battling Data Monsters at Yahoo!

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Yahoo Chief Data Officer Usama Fayyad

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Still mistakes happen, often with dire consequences. In November, Yahoo CEO Jerry Yang apologized to a Senate committee and settled a lawsuit concerning Yahoo's role in disclosing the identity of a Chinese journalist (BusinessWeek.com, 11/6/07) accused of revealing state secrets. Last year, Time Warner's (TWX) AOL was sued after posting Web search records on the Internet (BusinessWeek.com, 8/23/06). The executives believed the records to be anonymous, but they were actually traceable back to individuals.

A few years ago, Fayyad would never have imagined being embroiled in a fight between privacy advocates and data-hungry advertisers. His passion was academic research. "If you had talked to me at any time [before the Yahoo job], I would have said, 'Never, never would I work in the advertising space and at a media company,'" said Fayyad.

Sifting Data for Sense

Gradually, however, Fayyad's goals changed. Web companies were collecting digital warehouses full of data about customers' online actions. Yet few understood how to take that information and transform it into something that could improve their businesses, says Fayyad.

A car company, for example, would have countless records of vehicle specifications people researched online. But it couldn't parse that data to maximize sales by, say, stocking more white cars at dealerships located near those people who frequently searched for that paint color online. "The biggest challenge is how to make sense of all the data and find something useful there," says Gregory Piatetsky-Shapiro, president of KDnuggets, a research and consulting firm specializing in data mining. "It is like standing under the waterfall and trying to drink."

Fayyad knows how to drink, so to speak, says Piatetsky-Shapiro, who co-authored a book with him in 1996. "Usama is a really excellent researcher and he has grown from a researcher to a very capable manager," says Piatetsky-Shapiro. "I was sure that he would go into business because, although he is a very good researcher, he had that business sense."

Fayyad used that acumen to start a data-mining company that eventually split into two firms: a consulting firm called DMX Group, and a targeted-ad firm called Revenue Science. Yahoo became a DMX client in 2004. Later that year, then-CEO Terry Semel came calling.

Semel had good reasons to want Fayyad. Google (GOOG) had just completed the most successful initial public offering of stock in recent memory on the strength of its robust success in placing ads tied to the information users were seeking with its search engine. Yahoo's data held similar promise.

Delivering ads based on a user's surfing behavior also held the potential to address what was becoming a problem for Yahoo: the fragmentation of audiences across an ever-increasing array of Web sites. Many of them, such as e-mail services and social networks, don't feature specific content obviously related to certain products a company might want to advertise. The notion of displaying ads on such Web pages based on the type of sites a user had been visiting before arriving there promised to increase ad revenues.

Responsible Use of Information

Money, however, wasn't Yahoo's only concern. Semel also needed someone who would keep certain information off-limits, lest Yahoo anger its users. "Semel said, 'Hey, you are here to make sure that we use our data responsibly,'" says Fayyad.

That directive has perhaps never been more important than now. Much of the data Yahoo, AOL, and others encounter comes in the form of cookies, text tags that are downloaded to a user's computer that indicate which sites that machine has been used to visit. But increasingly, the data collected online includes the interests and activities people promote on their social network pages, the location information they enter in mapping services, the reviews they write about restaurants, and the things they buy on the Web. "We are going to see companies testing the limits," says Dave Morgan, the recently appointed executive vice-president for global advertising strategy at AOL. "The protection of consumer privacy is going to be one of the most important issues in the future of digital media."

Standards for appropriate use of online data are slowly emerging. Users have shown, most recently with the Facebook protests, that they want to choose whether to "opt in," or agree to having their data collected when they could potentially be identified by that data, says Morgan.

In the future, Fayyad says, more explicit agreements could be required. One possibility is offering users rewards, such as coupons for online purchases, if they agree to be tracked. "It is still early stages," says Fayyad. "We need to be careful, but there is no need for panic…we will achieve an equilibrium."

Holahan is a writer for BusinessWeek.com in New York .