A few weeks ago, Jim Meskauskas wrote an article titled Embarrassment of Niches, which discussed ways the fragmentation of mass media has affected online marketers. Fragmentation makes it more difficult for advertisers to reach their target audience. One solution to this challenge, as outlined by Meskauskas, is for marketers to use multiple niche media (cable, Internet, video games, etc.) to reach significant numbers of their desired demographic.
Another solution, which is increasingly gaining popularity, is behavioral marketing. The premise behind behavioral marketing is that, rather than trying to find the coveted 18- to 34-year-old demographic, and using age as a proxy for say, interest in music, advertisers can target consumers who’ve shown an actual interest in music. Of course, behavioral marketing involves tracking consumer activities across a single site or multiple sites. And whenever online user movements are tracked, there are privacy concerns.
Most of us can still remember the controversy caused by DoubleClick’s plan to combine demographic and behavioral data a few years ago. Needless to say, that attempt was not well received by consumers. And given the increased sensitivity of consumers regarding issues of privacy -- as evidenced by some of the furor over Google’s Gmail -- behavioral marketing will undoubtedly receive even more scrutiny this time around.
I tend to view privacy as matters of transparency and positioning. Yes, companies need to be open with consumers regarding what they are doing with their data. But it is equally important to articulate why consumers should give up some of their privacy -- i.e. what's in it for them. In other words, it's not just about doing the right thing. It's about convincing consumers that the benefits they're receiving are extremely valuable, while allaying their privacy concerns.
I recognize that consumers are not the end customers for behavioral marketing companies. But the fact remains that if consumers get spooked by what they perceive these companies are doing, publishers will walk away just like they did in the late '90s.
So with that in mind, I wanted to take a look at some of the privacy issues surrounding behavioral marketing. I spoke with executives at the following companies: Revenue Science, Claria, 24/7 Real Media, and Tacoda. Bill Gossman from Revenue Science wrote his own thoughts on the topic last week in Changing the Privacy Paradigm. Here’s the Chapell View on those privacy issues.
Are they collecting personally identifiable information?
The first privacy issue concerns Personally Identifiable Information (PII). Back in the day, many thought that the combination of offline demographics with online surfing behavior represented either the Mecca or the Holy Grail of online marketing -- depending on which metaphor your VP of marketing espoused at the time. Conversely, as far as consumers were concerned, the combination of demographic and behavioral information more closely resembled an Oppenheimer device than something sent from heaven.
Many of the next generation of behavioral marketing firms have completely avoided the issue of PII. This stems in part from their recognition of the inherent risks in dealing with PII. But many of these firms don’t feel that adding PII would significantly upgrade their value proposition. For example, Revenue Science indicated that anonymous behavioral data is enough for marketers to reach their intended audience, and therefore see no need to collect PII. Similarly, Claria doesn’t collect any PII on its 40 million users. And in a way, that’s a shame. If I were an advertiser, I’d want to get a better understanding of who their 40 million users are.
Other behavioral marketing firms are dabbling in PII, although they leave it to individual publishers to collect, store and use their own PII as per each sites’ privacy policy. For example, one of Tacoda’s clients used its registration data in combination with behavioral data in order to further qualify an audience for a local event hosted by a retailer. Similarly, many of 24/7 Real Media’s 700 network sites collect PII, though none of that data is shared across sites.
While there are significant rewards to be reaped by adding PII into the marketing mix, there are equally significant risks. If any one of the sites using Tacoda’s Audience Match or 24/7 Real Media’s Insight Act were to experience a security leak, an error in judgment, or something else resembling an inappropriate use of PII, both Tacoda and 24/7 Real Media could take a significant PR hit -- even if they had nothing to do with the privacy gaffe. Remember, this is an issue of perception, so if one player in the chain screws up, everyone else could easily be tarred with the same brush.
Are any data being shared across multiple sites?
The second privacy issue concerns tracking behaviors and sharing data across multiple sites. The more sites that consumers are tracked on means a more complete picture of user behaviors, which is good for advertisers. However, tracking behavior across multiple sites creates potential complexities. And those complexities increase with the number of sites that belong to the network. For example, how does one track my movements across some 700 sites without revealing some PII to each of the sites?
Most of the behavioral marketing firms have figured out a solution to this challenge and have at least started to build networks. For example 24/7 Real Media has set up a series of behavioral categories that apply to all sites on its network. The behavioral categories, known as segments, are combined with anonymous cookie data in much the same way that ad servers determine which browser or operating system a particular computer is using. So, 24/7 Real Media can tell that an anonymous user visited the travel section of three different sites and send him an ad from Expedia in much the same way as its ad servers have traditionally optimized ads based upon frequency.
But do consumers understand what’s in it for them?
The most significant challenge facing these firms is creating a credible value proposition with consumers. Consumers must perceive that the value they receive from behavioral marketing outweighs the cost of the privacy they are being asked to give up. Companies like Claria and WhenU have the most clearly defined value proposition to consumers -- in exchange for allowing the companies to track their behaviors online and serve them ads, those consumers receive approximately $30 worth of software. Maybe some of you don’t think that’s an equal trade, but I’m certainly not going to argue with the 70 million or so who’ve reached a different conclusion.
The real question is whether they can maintain and increase their user bases. Both Claria and WhenU experience a high degree of turnover. So while consumers may understand the value proposition, it remains to be seen whether they’ll embrace it over the long term.
Many other behavioral marketing firms are in a challenging position as their value proposition to consumers begins and ends with relevancy. In other words, in exchange for allowing Revenue Science, Tacoda or 24/7 Real Media to anonymously track their movements, consumers receive ads that are more in line with their current interests and needs. Is that enough?
Probably not. What consumers really want are fewer ads. For example, Dynamic Logic's recent AdReaction Survey indicated that 70 percent of the respondents believe that they receive too many pop-up ads. Similarly, the recent Forrester report describes how consumers are overwhelmed by the sheer volume of ads they are exposed to on a daily basis.
Consumers are angry, and sometimes irrational. But if the behavioral marketing firms can be perceived as offering a solution to the problem of ad clutter, consumers might be more willing to trade on some of their privacy.
Alan Chapell is founder and president of Chapell & Associates, a privacy and data collection strategies consultancy. With 13 years of sales, marketing and legal experience in direct marketing and e-commerce environments, Chapell has worked with start-up companies and established international brands. Prior to founding Chapell & Associates, Chapell was with email marketing firms Yesmail, a division of infoUSA and Cheetahmail, now a division of Experian, and he helped create a product from DoubleClick’s research studies measuring the brand impact of online advertising.
