Lies, Damned Lies...

AdSense becomes a content delivery network

In a move that I predicted on this blog 18 months ago (ok, really I just called out that a colleague had predicted it, but I shall take my prognostication credits where I can), Google has announced that it's going to be using the AdSense network to distribute new episodes (I suppose you could use that terrible neologism, webisodes) of a web-only cartoon from Seth McFarlane (he of Family Guy fame), called "Seth McFarlane's Cavalcade of Cartoon Comedy".

The new program gives a different spin to the Google Content Network, the name that Google has used up until now to describe the AdSense ad network. Monetization will come from in-stream ads, but also from customized animated ads for brands themselves, presumably infused with MacFarlane's trademark dark/smutty humor.

The New York Times (a member of the Google Content Network) gushes about the new development, describing it as a "a bold step into the distribution business, one that, if successful, will surely send shock waves through the entertainment business". But it has a point - by turning AdSense units into real content (albeit content that is designed to generate clicks), Google is in one sense going into competition with its own AdSense content partners - the thousands of websites which host Google ads, and make money from clicks on those ads.

Any publisher who runs ads on their site has to navigate the fine line between making the site's content successful (which will draw users back in future, and keep them clicking around the site), and making the site's ads successful (which pay the bills, but carry users away from the site). This balance is challenging enough when the ads are obviously ads, but when the ad units start to carry compelling content from people like Seth MacFarlane, it could detract from the site's own content. The short-term payoff for the publisher might be elevated click revenue from these webisodes (perhaps we should call them "adisodes"?), but the long-term effect may be decreased engagement with the site's own content, and dissatisfaction from advertisers that the publisher is working with. Only time will tell.

[By the way, my favorite Family Guy character is Stewie, of course. Is there any other choice?]

Online Advertising Business 101, Part I - The Online Advertising Value Chain

When you spend as much time as I do examining the workings of the online ad industry, it's easy to forget that, to many people, it really is pretty opaque. Not only is it characterized by some of the most complex and scalable technology in the world, but it also has its own, pretty unique, economic model to boot.

I've lost track of the number of times I've been asked by people, even super-smart colleagues from within Microsoft, "so, how does the online ad industry actually work?" So I thought I would attempt to provide a bit of a primer through the medium of this blog. Who knows, maybe someone will read it and offer me a book deal ;-)

In this first installment, I'm going to take a look at what I call the online advertising value chain:

This is a simplistic view of the industry, but it does enable us to understand where the key players sit; on the demand side of the value chain, there are advertisers, and their agencies; and on the supply side, publishers, and ad networks (and/or ad exchanges).

 

What's the product?

Before I get onto the content of the boxes in the above diagram, though, we should be clear about what's in the arrows; that is, what's traded in this market? What's the actual product, here?

The answer is advertising inventory. There are no very good definitions of advertising inventory out their on the Internet (Dave Chaffey offers one of the better ones), so I offer my own definition:

Advertising inventory is the supply of opportunities to display advertising in a particular medium.

Most people would use the term "ad impression" instead of "opportunity to display" - the reason I haven't is because I don't like to offer a definition of a term which contains another term that you may need to go and look up. The most common definition of ad impression is this:

An ad impression is a single viewing of a single ad by a single individual.

(Another reason I didn't use it is because it fails to capture the increasing complexity in ad inventory as online advertising evolves. For example, if you're serving video ads, and the user watched half of your 30-second pre-roll ad, was that an ad impression?)

In our value chain above, it's the Publishers who are the creators of advertising inventory. By building websites or software apps or video games or e-mails which are seen by lots of people, and inserting ads into these environments, publishers create a constant stream of ad inventory which, of course, they are looking to sell to advertisers. Agencies and Networks merely help the process along.

Online ad inventory is a very interesting type of good (to use the economics term). It has an incredibly short shelf life (measured in milliseconds as a page loads), but its supply is only indirectly under the control of publishers; external factors (such as a very newsworthy event) can dramatically impact the amount of inventory that a publisher has to offer. As a result, inventory prediction is a major task for publishers; I'll be returning to this topic in a future installment.

Calculating ad inventory

Another useful way of understanding ad inventory is to look at a simple example of how it's calculated. Imagine a pretty straightforward website (this blog, for example), showing pretty simple ads, with no fancy auto-refresh stuff going on (i.e. once a page is loaded, the ads don't change, so for each page impression, you get one batch of ads). How much ad inventory is created?

The answer to this is dependent on two variables - the number of page impressions on the site, and the average number of ads per page. So, for example, if my blog generated a million page impressions per month (I wish), and had an average of 5 ads per page, then the total ad inventory (if you're just using a simple ad impression model) is 5 x 1m = 5m ad impressions per month.

 

The Players

Now that we understand what's being traded, let's take a brief look at the major players in the value chain, and then I'll let you get back to whatever it was you were doing before you started reading this post.

 

The Publisher

We've already covered this guy. He's the one with the site, or the game, or the mobile portal, who is creating ad inventory and wants to sell it to advertisers to provide income for his business. Publishers are interested in maximizing revenues, but also at minimizing risk - they hate to have unsold inventory (that is, ad space with no ads in it) so they employ a number of tactics to ensure that at least something gets shown in an ad unit that they can get a little money for.

Larger publishers have their own sales teams who maintain direct relationships with advertisers and their agencies, cutting deals for big blocks of advertising inventory over expensive lunches in chic Greenwich Village restaurants. But this model only works for big publishers selling to big advertisers. Small publishers can't afford to maintain their own sales force, and even if they did, they'd never get through the doors of Ford, or CapitalOne, because they don't have enough inventory to be of interest on their own account. So these guys sell their ad inventory through Ad Networks.

One other kind of publisher it's worth calling out here is the search engine - i.e. Google, Yahoo and Microsoft. These search engines are the creators of huge amounts of ad inventory that is sold directly to advertisers and agencies, as well as running significant ad networks (see below).

 

The Ad Network

Ad Networks are essentially outsourced sales houses for publisher inventory. An ad network strikes deals with lots of publishers for their inventory and then aggregates this inventory and sells it on to advertisers and agencies. There are over 300 ad networks in existence today - a breathtakingly large number which is sure to fall soon.

An ad network's value proposition to publishers is that it can sell inventory that the publisher can't sell itself - either because the publisher is small (and so doesn't have its own sales force), or, in the case of larger publishers, the inventory is of too low-value to merit direct selling. This kind of inventory is called remnant inventory.

The network's value to an advertiser is that the advertiser can appear on lots of sites across the Internet (potentially thousands) without having to establish direct relationships with those publishers individually.

At bottom, the Ad Network business model is to buy inventory cheaply and sell it on at a higher price. There are a variety of ways of doing this, some of which I've covered before. One of the most promising is to add value to the ad inventory by adding targeting data (so that the impression can be sold for a higher price). I'll cover this in a future installment.

Networks come in all shapes and sizes. There are 'premium' networks which work with remnant inventory for large publishers; there are vertical networks which focus on a particular industry or technology (such as video); and, at the bottom end, there are contextual networks which provide an auction-based marketplace for selling keyword-based ads on small sites. You may have heard of the #1 network in this space - it's called Google AdSense.

 

The Advertiser

Advertisers also come in all shapes and sizes, of course. The big name advertisers - the folk we've all heard of - will have significant internal marketing departments, and will also likely retain the services of an agency to help them manage their marketing. Their marketing objectives will likely be a mix of brand marketing (raising general awareness) and direct response marketing (getting someone to actually buy something online now).

Smaller online advertisers are almost always focused on direct-response - getting someone to click and buy, or possibly call up. By and large, these folk can't afford to retain an agency to do their marketing for them, so they tend to go straight to certain ad networks or publishers to buy their ads. Again, the #1 in this space is our friend Google, with AdWords (the advertiser-facing side of the AdSense network).

Advertisers are motivated by getting the best ROI on their ad investment; but amongst larger advertisers some other curious motivations creep in, like wanting to make sure that a committed ad budget for a quarter actually gets spent (so that budget isn't cut the following quarter). This drives the behavior of ad agencies, to an extent.

 

The Agency

Last but by no means least, the media agency is an essential intermediary in the advertising value chain. Ad agencies usually do one of two things (or both, such as is the case with our own Avenue A|Razorfish): they create ads (anything from designing an animated banner to filming a 30-second TV ad) - known as the creative business - and they buy the media (i.e. the ad inventory) to display the ads (known as the media business). Whilst the creative side is cooler, the part of ad agencies that is relevant here is the media business.

A media agency, then, is one that buys media on behalf of its advertiser client. The advertiser typically says "I have x million dollars this quarter for online, and this campaign I want to run. Buy me the best media to reach my target audience". It's then the media agency's job to plan a media buy that will deliver the best return for the advertiser.

At the small-business end of the spectrum, the 'media agency' morphs into small SEM (Search Engine Marketing) shops who are good at buying Google AdWords, and maybe have some SEO (Search Engine Optimization) skills to boot to boost a company's natural search rankings.

Media agencies' motivation is driven by getting as much media under their control as possible, since they're paid (particularly at the high-end) with a cut (usually something like 15%) of the advertiser's media budget. They also don't want to under-spend on the budget they've been given, as this can annoy their client (see above).

Media buying is a manual, labor-intensive process right now, and one I'll come back to. Improvements to technology will mean that agencies (especially larger ones) will have to do some pretty fancy footwork to continue to add value for their advertiser clients.

 

That's it for now. in future installments, I shall be looking at the key players in a bit more detail, and looking at some of the interesting economics which underpin the industry. In the meantime, if you have a comment, or something you'd like me to cover, leave a comment.

[Update 6/3/08: A little more info on Ad Networks added]

Online Advertising Business 101 - Index of all posts

Advertising on the BBC

As anyone who has spent any time in the UK will know, the BBC is a safe haven from that most grubby of industries, advertising. It's enshrined in the BBC's charter. But the BBC's ban on advertising only applies to the UK (where anyone who owns a TV has to pay a $300 licence fee every year, which funds the BBC). Here in the US, the BBC is free to licence its programmes to commercial stations, and also runs BBC America, which carries ads.

But now, following a recent site redesign, some pretty substantial ads can be seen on the BBC homepage itself - at least, if you're outside the UK:

The BBC is within its rights to do this, of course, but it does raise some interesting questions. The content on the BBC website is created using licence fee payers' money, a distortion of the UK news website market which has been controversial for as long as the site's existed (the excellent BBC News site competes with the likes of the Guardian, Times, Independent and so on in the UK).

With the traditional newspaper publishers (and commercial TV stations, to a lesser extent) starting to really feel the pinch of the Internet (with advertising budgets fleeing to Google and other places), sites like The Guardian's are making efforts to expand overseas in an attempt to tap into the US advertising market. So the BBC's entry into these markets has not been greeted with much enthusiasm.

As a Brit, I have a huge soft spot for the BBC; the licence fee has subsidized some great TV that wouldn't have otherwise been made; but I wonder how long its its funding mechanism can continue, as TV and online increasingly merge together, and national boundaries for content consumption are blurred. At the very least, it seems hypocritical to me that I am subsidizing the BBC through being served ads on the one hand, yet unable to watch any of the video content delivered through the iPlayer (the BBC's catch-up service) on the other, because I'm outside the UK.

What will Google do next with Google Analytics?

So I'm a little late with my obligatory post-E-metrics blog post; my excuse is that I flew straight from San Francisco to Mexico for a vacation, and have just made it back.

A fixed presence at E-metrics summits these days is our good friend, Google - in fact, this year, both Google Analytics and Google Website Optimizer were sponsoring the show (possibly a somewhat inefficient use of marketing dollars, but there you go). In terms of sheer numbers of customers, Google Analytics is the 500 lb gorilla of web analytics, as anyone reading this blog will doubtless know. But where next for the two and a half-year-old wunderkind of web analytics?

One of my favorite things to do at E-metrics is to catch up with friends from the industry, and Google evangelist Avinash Kaushik and I had a very pleasant coffee where we discussed just this topic. Just to be clear, Avinash didn't reveal anything about Google's future plans for GA, but it became clear to me (from that discussion and others) that Google is scratching its head a little about how (or whether) to provide GA to enterprise clients (i.e. big companies). A lot of people are expecting it to, but for all GA's success, it remains a relatively simple analytics package, incapable of the detailed reports that you can pull with Omniture or even Webtrends. And it doesn't really seem to be in Google's DNA to provide a very feature-rich application stack like these other companies provide. In many ways they're the Microsoft Office to Google's Docs & Spreadsheets. So how to square the circle?

Whilst I was sunning myself in Mexico, I had a chance to reflect on how Google could address this challenge and here are my thoughts. As you know, I like to make predictions, just for the fun of sparking a bit of debate, so feel free to use the comments box to let me know precisely what banned substance it is that I'm smoking.

 

Prediction 1: Google will release a comprehensive mid-tier API for GA

I'm hardly going out on a limb with this prediction - it's been something that Google-watchers have been crying out for for some time (and some people have taken unilateral action to fix). But most talk about APIs has been to provide a programmatic way of pulling existing GA reports - i.e. a "front-end" API. What I'm talking about here (hence the use of the term "mid-tier") is an API into GA's data store that allows pretty much any data set to be extracted to a third-party system and then processed into a report.

Google would have to be very careful not to overwhelm their systems by providing such an API, of course; it would be all too easy to write a call which asked for all the data for a very busy site; but those eventualities could be predicted and prevented fairly easily. Note that I'm also not saying that Google will provide this API for free; there's no reason that it might not choose to charge for access to such a comprehensive data service.

You might be thinking, why would Google release an Analytics API at all? After all, isn't the point of GA to encourage people to use Google's tools to optimize their campaigns, and therefore spend more money with Google? Well, only partially. The main benefit to Google in the deployment of GA is the huge amount of data that it gives them access to. In an API scenario, Google would still control instrumentation of the site and collection of the data, and would therefore still accrue the same benefits from it as they do currently.

Prediction 1a: Related Google products will use the Google Behavior Data API

I've decided to give the new API a name - the Google Behavior Data API - to distinguish it from Google Analytics itself.

If they don't already, Google's various behavior data-consuming products (principally, Analytics and Website Optimizer) will use the same API for data access. You probably won't see any visible change in the products as a result of this. This might already have happened behind the scenes.

Prediction 1b: The Google data collection .js tag will become a "universal" tag

If Google opens up the mid-tier of their system, they'll also (eventually) need to open up the data collection part, making it possible to collect any custom variable or event you want, and subsequently being able to access this through the API. This will require new functionality in the JavaScript tag to support customizable data collection. The importance of this ability will become clear in predictions 2 and 3, below.

 

Prediction 2: The Google Behavior Data API will create a new industry of "third-party" web analytics tools

I've railed before against new entrants to the web analytics business, asking what value they can possibly add at this stage in the game. But one of the reasons I've been so skeptical in the past is that most of these folks building these kinds of new tools just don't appreciate how much effort has to go into collecting and storing the data in a format that makes it easy to deliver reports, and easy to expand functionality in the future.

A mid-tier Data API would mean that such companies could rely on Google for all the basic data collection, primary processing and warehousing, and just focus on developing interesting new reports. As long as the underlying platform is flexible, this frees up these companies to innovate at the front-end without having to worry about the back-end.

The upshot of this is that you may see web analytics functionality popping up in all sorts of places that it might not otherwise, especially in the SMB market, such as CMS/blog tools, e-commerce systems, sales automation systems and the like. Some of these systems already provide integration with Google Checkout, for example, so using Google's Data API for reporting & analytics would be a logical next step.

 

Prediction 3: Eventually, even the big guys will use the Behavior Data API

This is the big one, of course, and the most contentious. Why would a company like Omniture or Webtrends, or CoreMetrics hand over data collection to Google? Omniture, for example, has put a lot of effort behind its Universal Tag architecture, and data is as useful to them (or will be, ultimately) as it is to Google.

One chief reason is switching costs. If an Enterprise web analytics vendor wants to convert a GA customer onto their platform, then offering a "no reinstrumentation" proposition is going to be attractive. It is true that the different beacon code provided by different vendors capture different (unique) things, but there would be value in being able to say to a customer "just give us your API key and we'll do the rest", even if it did mean offering a reduced set of reports (although a universal tag with custom variables would offset this issue).

Another reason, however, is cost. It costs web analytics vendors a lot of money to host the servers for data capture and initial processing, and is one of the things that contributes to the rose-tinged bottom line of these companies. It costs Google money too, of course, but Google can probably provision servers more cheaply than anyone else on the planet (except, perhaps, our good selves), and is able to leverage the benefit of having access to the data to offset the cost.

This eventuality also neatly solves the problem of "GA in the enterprise". With the API in place, Google is free to reach agreements with the bigger web analytics vendors that preserves those vendors' positions with their customers whilst allowing GA to get in and get access to the data. "Maverick" implementation of GA by outlying departments of big companies is an increasing problem faced by the major Enterprise vendors. Being able to consume this data in their own tools would decrease the vendors' need to charge for every last byte of data they're collecting, and would enable them to say "Sure! Instrument with GA, and you'll see the aggregate numbers in our tool, too".

 

So, those are my predictions. Feel free to add yours below.

Wow, that was quick: IndexTools is free already

Less than a week after announcing that Yahoo! is to buy his company, Dennis Mortensen has announced that Yahoo! will be making IndexTools free to all customers, so long as they sign a new Yahoo! agreement. Those guys aren't hanging around!

The chatter here at Microsoft is about about what's likely to be that agreement. As I've said before, you can only afford to provide web analytics for free if you have other ways of monetizing the service. Yahoo! will certainly be expecting IndexTools customers to spend more on advertising with Yahoo!, or (if publishers) make more of their inventory available for Yahoo! to sell through its network, but wouldn't need a new agreement in place to try to achieve those objectives (unless IndexTools' existing license agreements are very restrictive about permission to contact to market other services, which seems unlikely).

So the most likely changed content in the new agreement is a clause to allow Yahoo! to reuse the web analytics data, most likely to bolster the behavioral targeting data that Yahoo! already has a very good collection of. In his post, Dennis says:

"I think this is a fair tradeoff for an Enterprise class Web Analytics system?"

I agree that it is, but it remains to be seen whether IndexTools customers (some of whom may have specifically chosen IndexTools over GA because they wanted their data to remain 'independent') agree. What's most likely is that some customers will bail out, whilst IndexTools/Yahoo! will capture new customers at the free price point, who are less sensitive to the data issue.

Way to go, Dennis: Yahoo! acquires IndexTools

Well, it's turning out to be quite the week for Web Analytics industry news. First we had Coremetrics's $60m cash injection; now we have the news that Yahoo! has agreed to buy IndexTools. Let me start out by sending my congratulations to Dennis Mortensen and the team at IndexTools, who have come from nowhere to take a seat at the big boys' table. As I've previously blogged, I have a soft spot for IndexTools because their development mirrors that of my previous company, WebAbacus - except that IndexTools's payout has been somewhat higher :-)

As to the implications of this deal: Firstly, I believe this is another significant step along the path to the future that I mapped out in my recent post on The Future Of Web Analytics, Demystified - that web analytics will continue to be absorbed into other, broader businesses, eventually disappearing as a line of revenue in its own right. In his post today about the deal, Eric Peterson predicts that Yahoo! will continue to charge for IndexTools, at least for the time being; but there is a strong chance that Yahoo! will make at least a part of the portfolio (the E-business edition) free in due course - perhaps charting a similar path to the one that Google took.

My money is that IndexTools will eventually be, effectively, free, because that's essentially Yahoo!'s business model (and ours, in our Online Services business). Yahoo! does not have a history of providing Enterprise software, and I would bet my bottom dollar that Yahoo!'s valuation models for ClickTools were not based upon their current lines of revenue. Even if Yahoo! continues to charge for ClickTools, the majority of the upside for the company is in the impact that ClickTools usage will have on its sales of advertising inventory, especially search.

That means that in, say, 2 years' time, when the synergy effects are starting kick in, it will make little difference to Yahoo's numbers on this deal whether they charge for ClickTools or not. So why not make it free, or at least hold the price right down to hurt folks like Omniture and Coremetrics?

As for the potential impact of a potential Microsoft-Yahoo! union on this deal, well, of course, I can't make any comment about that. But that's not to say that my little head's not buzzing with thoughts about it...

Clifton leaves Google; Coremetrics gets $60m; Webtrends gets new CEO

Well, it's been a busy Web Analytics weekend. First I read an interview with the recently departed heard of Google Analytics in Europe, Brian Clifton, over on Mel Carson's blog. Brian is returning to his roots at Omega DM (the analytics/marketing consultancy he founded). Mel has captured Brian's thoughts well in his post, so I won't attempt to recreate them here. Good luck, Brian.

Next to cross my desk was the news on Friday that Coremetrics has secured a series E (I didn't know the letters went that high, to be honest) funding round of $60m, courtesy (principally) of 3i. Joe Davis (Coremetrics CEO) is tight-lipped about exactly what he's going to spend the money on, but takes the opportunity of the press release to assert how bullish he is about the outlook for the company. $60m is a decent chunk of money and does change the dynamics of the industry, allowing Coremetrics to potentially pursue an acquisition-led strategy to build out the breadth of offerings that it has. It still won't give it the deep pockets of Omniture, but it could help it compete more effectively with Webtrends.

Speaking of Webtrends, the final piece of news to hit today is that Webtrends has found itself a new CEO - Dan Stickel, former head of syndication at Google. I know next to nothing about Dan Stickel (I know that he has a beard, and that he used to run Macrovision and served a spell at AltaVista); I'm slightly wondering how his experience is going to be directly relevant to Webtrends's business, but it speaks well of the company that they can attract a senior Google exec. Good luck, Dan.

Just what the world needs: another web analytics tool

I'm amazed and kind of impressed that there are still people out there who want to get into the web analytics business. After all, it's not like there aren't plenty of tools to choose from. And the challenges of making money from web analytics are well documented (by me, anyway). So I applaud Elie El Khoury and his team at Fusion Media Labs for their chutzpha in launching Woopra (if that's not a naming decision driven by .com domain availability, I'll eat my hat) at this relatively late stage in the game.

Before I go on, yes, I know we're in the middle of launching our own, not-exactly-first-to-market web analytics service, but as I've explained elsewhere, if you want to be in the web analytics business today, you really need to be in some other related businesses as well to pay the bills, and to provide a compelling reason to use your app. So I shall be interested to see how Woopra is monetized (there's no mention of pricing on the site as yet).

Elie's background is in graphic design, which can be seen in the very shiny (and very Visual Sciences-esque) UI design. But what else is there to Woopra? The (hilarious) demo video (click the link before it's replaced with something sensible) doesn't give much away.

Well, Woopra seems mainly to be aimed at lower-volume (< 10,000 PIs/day) sites, principally blogs. And it focuses on providing very detailed, real-time data about on-site behavior. I have to say that I'm a bit of a skeptic about real-time data - it has the "wow" factor that helps to get people engaged with web analytics, but in all the years I've been in this industry I've only encountered one or two very specific cases where it could be genuinely useful, and even then, 20-minute old data would have been just as useful. Other features include real-time notifications and visitor tagging.

Boo!

The most interesting (and alarming) aspect of Woopra, though (which is linked to the real-time component) is the ability to launch a live chat session with someone visiting your site; so if you're watching someone blundering about the aisles of your virtual store, you can jump in and say "Hey! Looks like you're lost. Can I help?"

I can say in no uncertain terms that this would scare the bejesus out of me. It violates the (unwritten, unspoken) "pact" that exists between website users and owners; many users know at some level that their behavior is being tracked, but as long as that tracking doesn't get too "scary" (e.g. receiving an e-mail just after visiting a site that lists all the things you looked at), they're fairly comfortable. I predict that this feature will create significant discomfort for users; not to mention that it will be hard verging on impossible for a webmaster or site support person to monitor behavior accurately enough to actually justify jumping in and offering help. To be fair, the system does also allow the site user to initiate the chat, which is perfectly acceptable.

Reading this post back, I feel like a terrible old curmudgeon, criticizing this product - it has a kind of youthful enthusiasm to it that was once common in the industry but is now becoming less so as it matures (and now I can add condescending to my list of vices, too). I hope that Elie and his team can find a niche for it.

Phorm over function

There's been plenty of buzz (more of the angry hornet variety rather than the just-inhaled-a-lungful-of-dope variety) about Phorm of late, precipitated by a press release that the company put out on Feb 14 in the UK, announcing partnerships with three major UK ISPs to provide a system "...which ensures fewer irrelevant adverts and additional protection against malicious websites". Critics of the system  (led by noted UK cage-rattler, The Register) claim that the technology is little more than spyware by another name. The negative press around Phorm's announcement has caused at least one of their ISP partners to back away from the deal, and cause their stock to plummet by more than 30%. It looks like this could be the latest in an increasingly long line of bungled targeting announcements from the industry (Beacon, anyone?). But what went wrong?

What is Phorm?

Phorm as a company is the new name for 121Media, a UK AIM-listed company who started out producing a browser toolbar which tracked your page usage to provide a social media environment, connecting you with other people who were looking at the same page. Ad-funded, the toolbar quickly picked up a reputation for being spyware (even though I agree with Phorm's protestations that it was really adware, which is better, but still tarred with the same brush), so it was dropped and the company renamed Phorm.

The new service Phorm has launched is called Webwise (not to be confused with the BBC site of the same name). Essentially it is technology that ISPs install at their data centers which analyzes the URL and textual content of web pages being served and uses this information to place users into interest categories so that they can be served behaviorally-targeted ads. The technology does this by intercepting the page request and sending a copy of it to a "Profiling" server which extracts keywords and uses this information to assign users to interest groups:

 

 

The same technology has a function to alert the user to phishing web sites; since the URL and content is being examined, phishing sites can be spotted and blocked. This functionality forms a core part of Webwise's value proposition to users.

The other part of the alleged value to users is that this profiling process does not permit the ISP to associate a user's profile with their IP address; that means that the ISP (and any government agency who subpoenaed the ISP's records) could not re-associate the Phorm data with a customer record (ISPs can tell which IP address was assigned to which customer at a particular time). The Phorm system does also not store any of the page information or extracted keywords; once the interest "channel" has been arrived at, all the rest of the data is deleted.

So Phorm claims that its system is a real step forward for user privacy on the Internet, whilst at the same time enabling advertisers to reach their audience more effectively. But the industry (and the public) haven't really seen it like this.

 

Why all the fuss?

Phorm's announcement was always bound to generate a certain amount of controversy, because it's in the sensitive area of behavioral profiling & targeting.  But there has been a particularly virulent reaction in the UK, which, whilst started by sites like the Register, has now spread to the "mainstream" media.

Some of the reasons for the fuss are (comparatively) silly things - for example, the renaming of the company from 121Media, which has just made people nervous, especially given the previous company's adware history, or the fact that the company operates out of serviced offices in the UK and doesn't really have a physical address in the US.

A more serious blunder on Phorm's part is their failure to anticipate the scrutiny that this kind of system would be placed under. In this kind of environment, given the firm's history, absolute transparency is essential, and Phorm hasn't provided this. There are still unanswered technical questions about Phorm's system, such as how it manages the opt-out (does data still get collected, or not?), and there have been inconsistencies in the claims that Phorm has made about third-party privacy audits of their software.

Phorm has also made the mistake of launching prematurely, with many of their partnerships still only half-baked. At the moment there is no benefit to users being delivered, because none of the systems that Phorm has announced are actually live within ISPs, and so all the focus is on the downside. Phorm would have done much better to wait until the service was fully baked with at least one of their partners and they had some real users onboard who could testify to the increased relevance of ads and how comfortable they were with their privacy with Phorm, before making a big splash. The press release looks like the product of an over-zealous PR agency looking to ensure their monthly coverage targets were being hit. Well, they've certainly done that.

 

What can we learn?

The main problem here is a poorly thought-out balance of benefits for 'costs' in this offer. Phorm have claimed that this system protects user privacy, but it doesn't really; it's just an ad targeting system with a better-than-average approach to protecting privacy. Users who are opted into Phorm will still receive cookies and targeted ads from other ad networks, and their behavior will still be tracked by those other networks.

Apart from the phishing protection (which is already baked into IE7 and Firefox anyway, and turned on by default), there's nothing in the Phorm system which provides users with protection of their personal data across the Internet. The only way that Phorm's entry into this market can elevate user privacy overall is if other providers of targeted ads who are storing more data decide to pack up and go home - which I doubt will happen.

The furore also highlights the challenges of partnering with ISPs for this kind of service. Because ISPs are the gatekeepers of the Internet (and because, for many people, switching ISPs is a pain in the a**), users are very sensitive to any perceived exploitation of this relationship by the ISPs. In the UK, ISPs are some of the best-known Internet brands, but also some of the least liked. Ironically the cause of this dislike (poor customer service) is a direct result of the price war that has precipitated ISPs' interest in this kind of service, as they are receiving a cut of the revenues, of course.

Ultimately the tale makes clear how careful any company has to be in launching a service like this - the balance of benefits has to be clearly stacked in favor of the user. As Chris Williams of The Register said during an interview with Phorm's CEO, Kent Ertegrul, said:

"a big difference I see between what you're doing and what Google does is that people feel that they're getting a service from Google. I don't think people feel they'll be getting a service from you"

It will be interesting to see how the Phorm saga plays out. Perhaps one day it'll find its way onto an online marketing MBA module syllabus.

News, news, news...

Sigh. Blog post topics seem to be like buses - you wait ages for one to come along, and then three come along all at once. Actually, I've got four things to post about, but I'm going to leave two until after the weekend. Here are the other two. Funnily enough, they're related - both are about benchmark data.

1. Compete.com cashes in

Online traffic benchmarking service Compete.com has been bought by UK-based market research firm TNS (Taylor Nelson Sofres). This is a good result for the folks at Compete, who have been waging a four-way battle with Quantcast, Alexa, and Comscore. Funnily enough the deal isn't stellar, despite the significant attention that Compete (and benchmarking services in general) has been getting recently - it's only a guaranteed $75m, with another $75m payable on achievement of revenue targets. Compete Inc has accepted about $43m in investment since it started in 2,000, so I guess the investors are pleased but not delighted.

The rest of TNS's business is pretty traditional market research stuff, so it'll be interesting to see how they integrate/expoit Compete's capabilities. Moving the footprint outside of the US seems like one obvious goal they may look to achieve in the not-too-distant future.

2. Google Analytics rolls out new data sharing feature

Logging onto Google Analytics this week, I was interested to see the new data sharing options that the product is making available:

So the key option in the above list is #2 - allowing GA to share your data with its "benchmarking service", where data from sites in a similar industry will be aggregated together for benchmark reports, like the sample below:

This is a smart thing for Google to do, as it provides an incentive for GA users to share their data by providing them with a solid benefit in return. It will be interesting to see how GA determines which industry a site is in; I guess they will mine the search index for those sites and use some behavioral targeting-type techniques to drop a site into a category based upon the words that appear on the site's pages. I have no idea how they'll categorize my site - they'll probably drop it into a "blogs" industry segment, since Google already knows that my site is a blog.

The other smart part of this move is to make it easy to turn off data sharing altogether. I presume that this means that no GA data will be used to inform decisions about, for example, keyword ranking in Adwords; though GA's terms of use are still a little vague on this point. As I was discussing with Brian Clifton a couple of weeks ago in London, our part of the web analytics industry (companies that offer services for free, and monetize the service indirectly) need to be super-clear about how the data is going to be used.

Trust me, I work for Microsoft

I am on the plane back from London after a fun few days with the folks there. It's always a pleasure to return to my home town, though it's a little strange returning there now that I don't live there any more, and rather eye-wateringly expensive now that I'm paid in dollars ($100 cab fare, anyone? How about an $8 tube ticket?).

Highlight of the trip was my panel session at SES London with Jim Sterne, Bryan Eisenberg, Brian Clifton of Google and Steve Jackson, discussing the future of web analytics in search. Our host, Kevin Ryan, quizzed us about the "rise" of the free tools and what tensions that would create with site owners (and their visitors) having to get used to sharing their data with companies like Google and Microsoft. Can we be trusted not to misuse the data entrusted to us for nefarious ends?

Brian was a little coy about this, insisting that for Google to misuse the data it gets from Google Analytics (for example, to manipulate bid pricing) would be tantamount to fraud, and so of course would be out of the question. I believe him, and believe the same of Microsoft too - it would be suicidal (not to mention morally reprehensible and howlingly naive) of Microsoft to take anything other than the greatest care with the data we collect from Gatineau. But - and let's not beat about the bush here - this data is of value to us, and the benefit we get from it subsidizes the development of free tools like GA and Gatineau. And we need to be open and honest about that.

Where Brian and I differed on the panel was that I can all too easily believe that the general public will not be totally reassured by any insistence we make that we will look after their data and only use it responsibly. Maybe this is because I work for a company that - how can I put it? - doesn't enjoy the highest levels of trust in the industry. For me, building trust in our stewardship of data is something that we have had to do day by day, brick by brick, but more importantly something that we will always need to continue to do - a garden that we will always need to tend, if you like.

It's certainly not enough simply to stay inside the law and expect to maintain user trust simply because nothing bad (like a data leak) has happened on our watch. Even if we feel we are doing everything right, if we stop trying to build trust, it will wither away.

The rest of the panel discussion passed without much incident, and afterwards I had a chance to have a good chat with Bryan (with a Y) about the plans that FutureNow are putting together to create a new class of offering in the site/campaign optimization/analytics space. I look forward to further announcements from Bryan on this soon.

The formalities (such as they were) of SES done, we retired to Spanish restaurant Moro (the name of which generated an impromptu "Who's on first base?" gag - "Where are we going?" "To Moro" "I thought we were going tonight" "We are, we're going to Moro" "We're going twice?" "No, just once - to Moro", "I thought you said we were going tonight", etc), where we were joined by my UK colleague and adCenter stalwart Mel Carson (whom you should sponsor), Rob Stevens of UK usability firm Bunnyfoot, and the inimitable Dennis Mortensen. A fine time was had by all, with Bryan E taking a number of deeply unflattering photos of us and uploading them via his mobile to Facebook.

And then, after dinner, for me, the highlight of the evening - finally meeting Dave Naylor (the man who leaked the screenshots of Gatineau back in August last year) in the flesh for the first time. And what a nice man he is.

Web Analytics is dead. Long live Web Analytics...

As if I don't have enough trouble keeping up a flow of posts on my own blog, I've now started to post on other peoples' blogs. Following my comment on Rene Dechamps Otamendi's post on Eric Peterson's new "The Future of Web Analytics, Demystified" blog, Eric invited me to write a post which further explained my thinking about the future of the Web Analytics industry - which is that "pureplay" Web Analytics vendors will disappear as Web Analytics is absorbed into allied services such as marketing automation, media planning/buying, and CRM. You can read the full post here. Don't agree with my thesis? Leave a comment.

Come to SES London, hear me roar

Well, maybe not roar, exactly. Answer questions in a polite but engaging fashion about the use of Web Analytics to help with search engine marketing would perhaps be more accurate. Tomorrow (the 19th) at 1.30pm I'll be joining a very distinguished panel at SES London (at the Business Design Centre) to do just this, featuring the peripatetic Jim Sterne, the avuncular Bryan Eisenberg, the cheeky Brian Clifton, and the enigmatic (at least to me, since I've not met him) Steve Jackson. If you can muster the courage to approach us afterwards (be sure to kow-tow as you do so), we may just autograph your programme. Think of the resale value!

Accenture buys Memetrics and Maxamine

More news from the big-dog-eat-small-dog world of online marketing & optimization: Accenture (specifically, its Online Marketing Sciences group) announced yesterday that it's to buy both Memetrics and Maxamine. The Memetrics deal has already closed; the Maxamine deal will likely close within 30 days.

I know the guys at Memetrics and Maxamine pretty well - they're both great little companies and this is a great result (coincidentally, both hail from Australia). Memetrics has been playing in the Enterprise MVT space for several years, with some significant successes at large clients like Amex, whilst Maxamine provides testing & validation services for sites, in particular, checking whether a site's instrumentation tags (e.g. for web analytics, or ad serving) are correctly deployed. Maxamine has been an Omniture partner for years - I wouldn't have been surprised to see them swallowed up by the Omnivore, in fact.

The acquisitions tell us that Accenture is serious about helping companies bridge the gap between their marketing management (media buying, campaign management) and their site management & optimization. Few agencies have the nous or client relationship depth to do this - media/creative agencies tend to focus on the media side, whilst web agencies stick with the site. As a result there are still millions and millions of dollars falling down the cracks between brilliantly executed campaigns and brilliantly executed (but totally unconnected) sites. It'll be interesting to see how Accenture fares.