Targeted Ads Raise Privacy ConcernsPressure Could Imperil Online Strategy Shared by Phone and Cable-TV Firms
Cable and phone companies say their growth increasingly depends on being able to deliver targeted advertising to their Internet and TV customers, but criticism from privacy advocates is threatening that strategy.
In the past few weeks, phone operator CenturyTel Inc. and cable provider Charter Communications Inc. shelved plans to use ad-targeting technology from Silicon Valley start-up NebuAd due to privacy concerns raised by their customers and lawmakers.
Last week, another cable company, Denver-based Wide Open West, pulled the plug on NebuAd's software, which it had used since March to track its customers on the Web and subdivide them by their browsing habits to attract online advertisers.
NebuAd is raising red flags among privacy advocates, lawmakers and others because, unlike other targeted-ad companies, which profile consumers based on their activity on a limited number of Web sites, Internet-service providers like cable and phone companies can use NebuAd technology to track consumers wherever they go on the Web. A similar company called Phorm is making inroads in the British market.
Both companies say the data they use is anonymous and can't be traced back to individuals. The technology categorizes consumers as they surf the Web. Marketers then buy ads to appear online before certain subgroups of consumers when the technology recognizes their encrypted identity.
Wednesday, the Senate Commerce, Science and Transportation Committee plans a hearing on the privacy issues raised by online advertising. Critics, meanwhile, are questioning whether the practices used by NebuAd and other ad-targeting companies violate wiretap laws, which prevent carriers from monitoring customer communications.
NebuAd says it believes its technology and approach is legal.
Fueling some critics' concerns, however, is that several senior employees of NebuAd previously worked for a leading maker of adware, or software that often tracked consumers and launched pop-up ads. Privacy advocates and lawmakers have assailed adware as deceptive, saying consumers often downloaded the snooping software unwittingly when they thought they were getting free games or music-sharing programs.
While CenturyTel, Charter and Wide Open West are smaller players, their decisions have big implications for the phone and cable industries, which are increasingly dependent on ad-related revenue and are eager to adopt some kind of ad-targeting technology whether for TV or the Web. Last month, the six big cable companies launched Canoe Ventures to figure out how the industry can boost ad revenue through TV targeting technology.
"Everybody in the industry is looking at the NebuAd trials, and the notion of [targeting] across all their platforms," says Craig Moffett, a telecom analyst at Sanford C. Bernstein. "This is likely to slow things down a bit."
NebuAd is scrambling to come up with ways to make its technology more palatable to consumers, lawmakers and privacy advocates, and is expected to announce Tuesday it is creating new privacy protections for consumers.
In an interview, NebuAd Chief Executive Bob Dykes said Internet-service providers using NebuAd will be able to periodically notify customers online that their Web surfing is being tracked. In addition, the providers also will be able to offer their customers new ways to opt out of NebuAd.
Analysts say that NebuAd and Phorm offer richer potential for ad targeting than their competitors. Internet-service providers can see not only if a customer is, for example, looking at auto Web sites, but that they are researching convertibles, says Emily Riley, an analyst with Jupiter Research.
With NebuAd's technology, the Web surfers are identified via encrypted computer Internet protocol addresses. The technology tracks their surfing and then lumps it into categories, such as automotive, for sale to advertisers. The data can be subdivided in great detail -- for example: consumers who have browsed for convertibles in the past 30 days.
Not all cable operators are retreating from NebuAd. Knology, based in West Point, Ga., is moving to test NebuAd's services.
But many online ad firms are distancing themselves from NebuAds and Phorm. Members of the Network Advertising Initiative, a trade group, have rebuffed both companies' efforts to join.
One reason, say analysts and ad executives: Several NebuAd executives once held jobs at Claria, formerly known as Gator; Claria and Gator were prominent adware makers. And last year, Phorm changed its name from 121 Media, which created a program called PeopleOnPage that security firms classified as spyware. Spyware tracks Web users' activity without their knowledtge.
The NAI declined to comment on any applications that "may or may not be pending."
NebuAd says that any connections to Claria are unfair. "NebuAd is not Claria," Mr. Dykes said. "If anything, our employees' Claria experience redoubles our dedication to complete privacy."
Phorm said it dropped its adware business in 2006.
By: Emily Steel and Vishesh Kumar
Wall Street Journal; July 8, 2008
