Three of Britain's top Internet Service Providers have joined forces to try making money by using customer  Web browsing and search engine query data to sell online advertising in a deal with a London-based company called Phorm Inc. BT Group, formerly British Telecommunications, Carphone Warehouse Group's TalkTalk broadband business, and Virgin Media, which together account for roughly 70 percent of the high-speed UK Internet access market, announced an exclusive agreement on February 14 that will see them giving advertising technology company Phorm access to customer browsing records and applying the firm's technology, a patent-pending advertising platform called the Open Internet Exchange (OIX), to track subscriber Internet movements and display related advertising on participating Web sites beginning in March, 2008. Phorm's Open Internet Exchange Phorm, which has been developing OIX for six years, said that it would allow any Web site to join its OIX advertising program and share proceeds with the three partnering ISPs. OIX doesn't rely solely on the hope that a customer will happen to browse to a Web page containing a certain targeted ad, but instead claims to be able to send such ads directly to selected customers whenever they visit a participating Web site. “Now, you can turn things around for the advertising industry, and say, ‘You define the audience you want to reach,’ " Phorm chairman and chief executive Kent Ertugrul recently told the New York Times. The Phorm OIX system will track the Web habits of anyone receiving Internet access through BT, TalkTalk and Virgin Mobile, and show them ads relating to their browsing and searching history, whether or not they are on a site related to such topics, as long as the site was a participant in the OIX program. A person who has used the Web to research caring for older parents, for example, could be surprised to find ads for assisted-living homes while at a baby clothes Web site, a scenario that could play out under the OIX system. Phorm said its system aims to go beyond traditional behavioral online targeting, which is seen by some analysts as offering only imprecise broad target audiences based on select search engine queries and visits to certain sites. About Phorm and OIX Phorm's OIX system works by having ISPs share customer browsing records with advertisers who provide revenue on participating Web sites which act as the 'real estate' for placing ads, Ertugrul told Thomson  Financial News in an interview, and will work on both the cost-per-click model in which revenue is created if a person clicks on an ad, or the cost-per-thousand impressions model that costs for simply showing an ad. After paying participating Web sites, ad revenue would be split among the ISPs and Phorm. Phorm is said to be in talks with all UK ISPs about possible implementation of its OIX system, a prospect Ertugrul is reported to be optimistic about. Phorm, which has been listed on the London Stock Exchange (AIM) since 2004, has been working on OIX audience targeting with such advertising agencies and partner Web sites as MySpace, Universal McCann, the Financial Times, the Guardian and Manning Gottlieb OMD. Growing Online Advertising Revenue ISPs are increasingly recognizing that the information they hold about their customer's Internet usage habits could potentially become a more valuable commodity than the subscriber fees that have been their core money maker since the days when offering Internet access replaced the old computer bulletin board systems. By 2009, OIX could generate $167 million in annual revenue just for BT alone, according to analysts at Investec Securities. Some analysts see Phorm being able to command significantly higher prices, possibly up to 100 times current going rates, for delivering more relevant online ads. By 2011, revenue from online advertising is expected to climb to $50.3 billion, twice the figure seen in 2007, according to a report from the Yankee Group. By 2010, online advertising could bring in 11.5 percent of all money spent on ads online and in traditional media, moving past magazine advertising and becoming the third-biggest medium behind only television and newspapers, according to a December 2007 report by media buying firm ZenithOptimedia. The report also predicted that during the next three years spending on Internet ads would grow by 69 percent. Ertugrul sees OIX as a way to monetize more of the Web. "Less than 10 percent of Internet pages are monetized from an advertising perspective. Showing ads based on who's looking at a page rather than the content will expand advertising to the long tail of pages beneath the home page," Ertugrul said in a recent Telegraph article. Questions of Betraying ISP Customer Trust The role of the ISP has traditionally been to do little more than offer transparent Internet service, much the same as telephone companies provide phone service. In a move that some now see as akin to a telephone  company sharing customer calling information with advertisers, Phorm has moved into new territory with accompanying privacy concerns. It has been said that no one knows more about a person's online activities than his or her ISP, however the ISPs historic role as being simply so-called "dumb pipes" appears to be changing. Phorm said that it has implemented a system that it claims can render the customer Web browsing and searching data it receives from the three partnering ISPs completely anonymous, by using random numbers and frequently clearing the history information. Phorm hired accounting firm Ernst and Young LLP to perform an examination of its OIX service, and has published (.PDF file) the firm's report on its Web site, in an effort to show that its system will protect the identity of consumers. The privacy policy on Phorm's Web site described why it commissioned the report. "Our claims have been verified by independent auditor, Ernst and Young, to give consumers a level of comfort that this privacy policy statement is true and accurate," according to the privacy policy, which also noted that its service is "incapable of identifying any specific person or entity." In the past two years data put through similar processes to make it anonymous has ended up revealed and in public hands, the two most notable cases being Netflix and AOL. University of Texas at Austin students Arvind Narayanan and Vitaly Shmatikov revealed how they had recovered personally identifying information from 100 million movie reviews written by about 500,000 Netflix customers, which the company had made public for a contest, in what it believed to be an anonymous form. Free Webwise Anti-Fraud Software Add-On Phorm has said that its system of making ISP customer browsing and search engine history anonymous is a "revolution in the online privacy debate," according to Ertugrul in a recent Financial Times article. "We cannot know who you are or where you've been. This service will dramatically improve the effectiveness of advertising for online publishers and advertisers," Ertugrul added. Phorm said that OIX was designed to "avoid collection of any personally identifiable information of the user, namely information that can be directly associated with that specific person or entity, e.g. a name, a postal address, a phone number, or an email," according to its privacy policy. Phorm said that its system uses only what it calls "non-personally identifiable information," including "search terms, URLs and keywords," which it "does not store or retain." OIX will avoid collecting identifying ISP Internet Protocol (IP) addresses and data about visited secure Web pages protected with a Secure Socket Layer (SSL), information entered into online forms, numbers longer than three digits, and words or phrases using the "@" symbol, so as to not collect email addresses, according to Phorm's privacy policy. Customers of the three partnering ISPs will be able to decline participation in the OIX program after it launches, by visiting an opt-out Web page that uses the small browser files known as "cookies" to keep track of a customer's desire to not take part in the service. Phorm said it is introducing a free anti-fraud program called Webwise, that it hopes will help entice users of the three participating ISPs to let it track their data and share it with advertisers. Webwise, which will display warnings when customers attempt browsing to Web sites Phorm considers dangerous, also claims to cut down on irrelevant advertisements and protect users against malicious Web content. "Market research by these ISPs has found that consumers find two things really irritating online; the first is irrelevant advertising and the second is fraud," Ertugrul recently told the Guardian. Ertugrul sees targeting advertising as a valuable commodity, however. "The fact is that in fashion, car or computing magazines people seek out the advertising because it is relevant, and the value of targeted advertising is well established. People seek it out and enjoy it," he said. Some analysts fear that over time ISP-controlled online advertising could hurt Web content owners by taking away control of Web ads sales. Over the past year several ISPs in the United States have started examining possible behavioral targeting based on their subscriber usage data. UK ISPs Begin Using Customer Data To Sell Advertising Broker Investec sees new opportunities for ISPs by taking a cut of online advertising revenue. "Given the highly-targeted nature of the OIX platform the adverts would be very high value, enabling premium price levels," the broker told CNN Money recently. "For BT and TalkTalk, this announcement offers the exciting prospect of monetizing their subscriber bases. Currently, BT fails to capture any significant amount of online advertising revenue, while Carphone only monetizes some content revenues through its AOL acquisition," Investec analysts told the Telegraph. Phorm sees its OIX as bringing higher quality advertising to customers. "In a world where all websites rely on advertising for their existence, this offers the promise of better content for consumers," Ertugrul said in a recent Marketing Week article. As online advertising has become more prolific and grown in its ability to target so-called relevant ads, an increasing number of Internet users look to escape from the ad deluge, by installing browser anti-pop-up software or visiting more Web sites with few or no ads. "For advertisers, breaking into these walled gardens is the challenge," analyst Esther Dyson told the Times. Whether Phorm and its OIX service will result in a backlash from UK Internet subscribers concerned about having their browsing and search history shared with advertisers remains to be seen. Related Links:
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11:48 pm on Feb. 19, 2008 (utc 0)