NOVEMBER 15, 2006
News Analysis
By Catherine Holahan
Taking Aim at Targeted Advertising
Privacy advocates who say marketers overuse cookies and other technology that tracks users' online behavior are taking their case to Washington
Online advertisers have a sweet tooth for cookies. Not the kind you bake, but the digital kind—those tiny files that embed themselves on a PC and keep tabs on what Web sites are visited on which machines. They're useful because they help marketers tailor which ads are served to which users.
But cookies could have a bad aftertaste for consumers. Privacy advocates say the files are being force fed in large quantities to computer users, and they're demanding that the government put some advertisers on a diet.
Not-So-Full Disclosure On Nov. 17, representatives from the Center for Digital Democracy plan to meet with the Federal Trade Commission to discuss what they believe is the abuse of what are known as behaviorally targeted advertising techniques, says Jeff Chester, the CDD's executive director. The CDD and the U.S. Public Interest Research Group filed a complaint with the FTC on Nov. 1.
Specifically, the groups want the FTC to require advertisers to alert consumers when tracking cookies and other such files are present on sites, and then let consumers choose whether they are willing to be monitored. "Most consumers have no idea of the extensive system of online data collection and targeted marketing that has evolved," says Chester. "They need to know that data is being collected about their viewing, that data is being sent back to a computer based on their tastes…there needs to be an opt in." Some companies that specialize in behavioral advertising are already getting the message.
The complaint says Microsoft (MSFT) and TACODA, the largest behavioral targeting ad network, are among companies that use behavioral targeting without sufficiently alerting Web surfers. A Microsoft representative didn’t return a call seeking comment. TACODA says it plans to be more upfront about targeting practices.
Identifying Information As things now stand, most online behavior monitoring happens on an opt-out basis. Cookies or other small tracking files are automatically downloaded to a computer when its user visits a Web site using the devices. If the cookie is not actively deleted or blocked by the Web surfer, it remains active on the computer for what could amount to years. Every time a computer user visits a Web site that the cookie recognizes, information about the site is relayed back to a server. The advertiser that delivered the cookie can then use the information to customize the messages and content seen by the computer on which the cookie resides.
Say a computer user visits the Kelley Blue Book site. A cookie could recognize the site and relay that information back to a server, which in turn could be programmed to send car-related advertisements to Web sites visited on that computer. In most, if not all, cases the server is only given the cookie's identifying signature. It is not told the name or other identifying information about the computer owner. Still, Chester says cookies collect enough information that over time users' identities can become evident.
In August, Time Warner's (TWX) AOL released data on searches that were identified only by unique numbers. But Web sites and publications were able to use the information to pinpoint names and addresses of various individuals (see BusinessWeek.com, 8/23/06, "Fallout from AOL's Flub").
Sharper Focus The fear for some consumers is that such potentially identifying information—for instance, the health sites they visited, the banking sites they frequented, how much time they spent in chat rooms dedicated to particular subjects—could be requested by the government or become public, says Chester. Others may simply not want to be followed around the Web by SUV ads. However, in both cases, the computer user may not even realize that a tracking cookie is on their computer. As a result, the individual wouldn't know to delete or block it.
That's just what some advertisers and Web site owners are hoping. The more users leave cookies on computers, the more information advertisers will have about the owners of those machines. They can use that information to maximize their advertising dollars by delivering messages only to those consumers who seem interested in what they are selling. Web sites that carry the cookies can benefit in at least three ways: They can charge advertisers a premium for better targeting ads, they can collect more information about their audience to attract advertisers, and they can generate more revenue from so-called pay-per-click advertising, which sets fees based on the number of times users click on an ad.
The market for such targeted advertising online is significant and growing. Market research firm eMarketer estimates that $1.2 billion of the $15.9 billion spent on online advertising is going toward behaviorally targeted advertising. That number is expected to grow to $2.1 billion in 2008. Paid search ads, another form of targeted advertising that doesn't use cookies, is expected to reach $8.8 billion in 2008. David Hallerman, a senior analyst with eMarketer, says marketers crave behaviorally targeted advertising. "From the marketers' point of view, finding ways to make advertising more relevant is a real benefit because at best the consumer finds it useful and, at the least, the consumer will be less bothered by it," Hallerman says.
Sensitive Data In the future, Hallerman believes that more advertisers will turn to behaviorally targeted advertising, particularly online, where it's easier to collect data. Such ads may also become more expensive, and thus attractive, to Web site owners, causing more sites to adopt behavioral targeting methods. However, Hallerman also thinks the use of such advertising methods could become more transparent. Advertisers, after all, don't want their companies to be seen as big brother entities unfairly tracking their movements in order to hawk products.
Starting the week that begins Nov. 20, TACODA plans to serve ads on its member Web sites announcing its targeting practices. Consumers who do not want to be tracked will be able to click the ad and install a cookie that blocks TACODA from monitoring them, says Dave Morgan, TACODA's founder and chairman. TACODA, used by major publications including BusinessWeek.com, is also limiting cookie shelf life to one year. "I actually think it is going to help your business long term," says Morgan. "Privacy is a challenging area and consumers will want to go to safer alternatives."
Morgan says that TACODA already does not track search information or scan social network pages because it does not want to unintentionally uncover specifically identifying information such as names. It also does not track what Morgan calls "sensitive" sites and behaviors. For example, it would not deliver an ad for a cancer treatment facility to a computer user who has just visited a cancer support group. "If someone is suffering from cancer, giving them an ad when they are on a sports site would be very powerful," Morgan says. "But I think it is wrong, it is creepy, and it is absolutely crazy for companies to exploit that."
Cookie Comfort Compete Inc., a relatively new company that collects data about Web surfing habits and then sells its analysis to clients, takes the privacy a step further, says Compete CEO Donald McLagan. Instead of alerting consumers of their ability to opt out, it does not install a cookie unless users consciously opt in and agree to be tracked by installing a Compete toolbar.
Users who agree are given special incentives, such as the ability to win sweepstakes, a toolbar that alerts them to the safety of Web sites they are about to visit, and special offers provided by sites that they visit. Users who do not opt in can still use their search site for free but are not given some of the specials. "I don't think that people are naturally averse to ads as long as they are getting some information that has some value for them," says McLagan. "And I think the ability to have them targeted makes huge sense."
Other companies bundle similar tracking software with their toolbars. However, McLagan doesn't expect that more companies will willing adopt such an opt-in method—not when they have so much to gain from the data they are collecting and so much to lose from people refusing to install cookies. "Some companies got started in a not-good way and are kind of stuck," he says. "Do you go back to all those members and give them the choice, in which case they say, 'Who are you and where have you been all this time?' They have something to lose by doing that."
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