Posts Tagged ‘Google’

The Fate of the ISP-Based Advertising Industry

May 5, 2009

The premise:  Instead of building an advertising network to collect user behavior information, work with Internet Service Providers (ISP) to get access to subscriber data (behavioral, geographic, and demographic) and enable the serving of highly targeted online advertising based on a deeper understanding of the user.  While an ad network may have a footprint of tens or even hundreds of thousands of sites, the ISP has full visibility into all aspects of user activity, including all websites visited as well as all user queries across all types of search engines. It is analogous to standing over a user’s shoulder and watching his online activity all day, every day. Now add the fact that you know where the user lives down to his specific neighborhood. Overlay the PRIZM segmentation and/or US Census data and you have a pretty darn good idea of who a given user is and what he or she is interested in at any point in time.

Companies in this space include Phorm (UK-focused), NebuAd, Adzilla, Front Porch, Kindsight (formerly Project Rialto), and Feeva.  Each of these companies has (or had) a somewhat different approach, but fundamentally they are (or were) all trying to supercharge the ad ecosystem via ISP-derived user data. NebuAd has dropped the ISP-based model and Adzilla is no longer in business. Full disclosure: I was an employee of Adzilla for a large part of 2008 before the company ceased operations late in the year.

ISP-based advertising is supposed to be a win-win-win proposition for all involved, at least in principle:

  • The ISPs finally get a share of the elusive online advertising pie.
  • The ad networks get richer user data that they can use for improved ad targeting, providing superior performance to their customers (advertisers), and thus better monetizing their inventory.
  • The advertisers get to target their products and services to more relevant groups of potential customers.
  • The ISP-based ad technology vendors take their cut for enabling this new advertising model.
  • The users get to see more relevant advertising and thus have a better user experience.

Unfortunately, it turns out that users aren’t willing to go along with this scheme for four main reasons:

  1. “Better advertising” isn’t a real value proposition for the vast majority of users.
  2. Users feel that their online behavior data belongs to them, not to the ISPs.
  3. Users see ISPs as “dumb pipes” that simply provide access to the Internet – a service for which subscribers are paying monthly fees.
  4. Subscribers expect ISPs to respect their customers’ privacy.

In short, the value-exchange is shortchanging the users.

Thus, throughout 2008, the ISP-based advertising industry effectively fell apart in the US, led by the actions of NebuAd, which generated significant controversy and even led to Congressional inquiry (more details can be found here). NebuAd, which was really pushing the envelope of user privacy, has since exited the ISP-based ad model. Similarly, my former employer, Adzilla, shut down operations later in the year, after the double-whammy of the privacy issue and the economic downturn led its investors to not continue funding the operation.  In the United Kingdom, Phorm initially got off to a good start, but the company has recently been struggling with similar privacy issues, with the European Commission and Sir Tim Berners-Lee as two of their many opponents. It does not help that Phorm was a spyware company (121media) in its previous incarnation.

So where does the industry go from here?  It is clear that using the original “opt-out” model of tracking users by default and asking them to opt out is not going to fly in most markets (most notably the US and EU). There have been comparisons to Google, a company that has vast amount of information on its users.  The argument is made that if Google can track its users (via its search engine, AdSense and DoubleClick ad networks, Gmail, etc.), why can’t the Internet Service Providers?

The problem with this line of reasoning is that Google provides a massive amount of value to its users without charging them a penny. In return for its set of free services as well as a huge amount of user trust and loyalty built up over the past 10 years, users are willing to allow Google to use their non-personally identifiable information (non-PII) for monetization. The ISPs, on the other hand, already charge users for their service.  In addition, users tend to have acrimonious relationships with their service providers thanks to decades of largely bad customer service (think about your interaction with your phone or cable company here), and loyalty to ISPs tends to be nil.

There is too much money on the table for ISPs to just walk away from the ISP-based advertising industry. And they do not want the Web giants (Google, MSFT, Yahoo!, etc.) to be the sole owners of the advertising pie and of the user. Therefore, it is inevitable that the industry will push forward with an “opt-in” model. The challenge for the industry is to figure out what to give back to the user in order to get them to opt-in to these types of “intrusive” services.

So what can ISPs give back to the user? Here are some suggestions that are probably worth investigating:

  • Discounted ISP service – The economics need to make sense for this to be viable (i.e. ISP needs to make more from the ad world per subscriber than the revenue it is foregoing via the discount), implying a very high level of sophistication and performance in user targeting.
    • Taken to its extreme, this could become ad-sponsored free ISP access. This was the model that Juno/NetZero used back in the 1990s, making it work in a dial-up world. The big challenge here is to make this work in the higher-value broadband world, using less obtrusive and more relevant advertising.
  • Faster level of service – This could become less and less enticing as broadband service in general gets faster and faster.
  • Security – Can you go beyond desktop based security mechanisms and put security in the network? Anti-virus, anti-phishing, firewalls, etc.
  • Parental controls– Similarly, can you put parental control functionality in the network, so the subscriber won’t have to configure it on a device by device basis?
  • Real privacy – Take the current trend of browser based privacy functionality and put it in the network. A Privacy Mode could make the user truly anonymous and un-trackable as he surfs the Web.
  • Personalization – With the user opting in to have his non-PII data and behavior available to the ISP, provide technology to personalize not just the ISP’s Web properties but also websites and content across the Web. This would require that the ISP share user data with the Web ecosystem (with user consent), allowing any participating site to personalize its content to the user regardless of whether the user has an account on or logged into the site. The possibilities for innovation here are endless!
  • Single sign-on – Provide a single user identity that can be used at any Web destination. This could be done via password management tools or ideally, via a real identity management approach such as OpenID.

These are just some of the things that ISPs could provide to users to get opt-in into their ISP-based advertising platforms. Multi-platform ISPs have many other options, ranging from IPTV based solutions to mobile applications.

I’m looking forward to seeing how this will all play out. I invite you to share your thoughts in the comments.