The battle for internet advertising

The massive market for online advertising is one that affects every internet user. Many ISPs, search engines and websites depend on advertising revenue for funding, and in the absence of those funding sources would either have to pass on additional operating costs to users or cease trading altogether, writes Toby Stevens.

The massive market for online advertising is one that affects every internet user. Many ISPs, search engines and websites depend on advertising revenue for funding, and in the absence of those funding sources would either have to pass on additional operating costs to users or cease trading altogether, writes Toby Stevens.

The battle for control of internet advertising had, until recently, been confined to a small number of rapidly consolidating players, in particular Microsoft and Google. These well-established companies have built up their offerings over many years and believed they controlled the market, with little threat from new entrants.

But a new breed of online advertising company has appeared recently. The likes of NebuAd and Phorm are using behavioural profiling mechanisms at ISPs coupled with advertising space on participating websites to deliver targeted advertising to each user. They claim users will see advertisements that are more likely to be relevant to their browsing history, and the ISPs and websites will receive increased revenue. Sounds good? Not everyone thinks so.

Critics of Phorm allege that the service breaches the Regulation of Investigatory Powers Act and is against the spirit of the Data Protection Act. They are worried that, despite assurances to the contrary, the technologies will be able to gather personally identifiable information. They point out that unencrypted webmail services or discussion forums, where users might have a reasonable expectation of privacy, will be subject to automated profiling. Critics are angry that some of the participating ISPs intend to adopt an "opt out" approach to implementation. And they are even more displeased that one of the ISPs has trialled the technology without informing end-users that their browsing habits were subject to scrutiny.

Phorm's approach has shaken the existing providers, who recognise a threat to their market share and are not going to do anything to ease Phorm's entry into the market. And it's a big market - one estimate is £20bn a year - for which Phorm is fighting with a "nothing to lose" attitude that is much in the spirit of the original dotcoms.

If Phorm is going to succeed in its ambitions, it will obviously have to successfully argue the legality of its plans to prove they are legitimate. It will have to gather and maintain the support of its partners, who will, between them, need to win over the hearts and minds of their user base. The service launch must be flawless, fast and effective, and once in place, Phorm must dig in and establish its new approach as the status quo.

Parallels with the so-called war on terror are obvious and, like that war, only history can judge whether this is the dawn of a new age of freedom for the internet or a fatally flawed attack by capitalism on our shared online values.

This was last published in April 2008

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