December 23rd, 2007

Ad plans for Web run into privacy issues

By Byron Acohido
USA Today

With more than $11 billion in acquisitions this year aimed at reshaping Internet advertising, Microsoft, Google and Yahoo are ready for the competition to pick up steam.

But a funny thing happened on the way to the brave new world of online ads: Web users rediscovered a sense of privacy.

Members of the social network Facebook howled this month after it launched Beacon, an advertising feature that tells your network of friends about your shopping habits at dozens of websites. Facebook was forced to let users turn off the service.

“Beacon fell victim to a poorly thought out plan of execution,” says Kevin Lee, founder of search consulting firm Didit.

Advertisers are hungry to reach consumers congregating at sites such as Facebook, MySpace and YouTube to socialize and access free content. Microsoft, Google and Yahoo all want to help advertisers track consumer behavior, then distribute product pitches dovetailing with an individual’s interests. If they are successful, consumers will see more websites posting compelling free content.

But pitfalls await tech giants as they attempt to engineer the great leap forward into “targeted advertising” — marketing pitches that key off what individuals say and do online.

Trouble spots include:

•Privacy fears. Google (GOOG) cleared an important regulatory hurdle when the Federal Trade Commission last week approved its $3.1 billion merger with ad placement giant DoubleClick. But congressional hearings on privacy are set for this spring, and consumer advocates are clamoring for limits on Google’s use of behavioral data. As part of its merger ruling, the FTC proposed a set of principles for self-regulation in behavioral marketing.

Meanwhile, European antitrust regulators have begun what could be a protracted look at whether the merger could stifle competition. “Google is so big and is moving so fast that they’ve became a natural target,” says tech consultant Rob Enderle of the Enderle Group.

•Lack of sizzle. Microsoft (MSFT) paid $6 billion for ad placement firm aQuantive and $240 million for a 1.6% stake in Facebook. It aims to use aQuantive’s technologies and user-preferences data from Facebook to place targeted ads anywhere Windows is in use.

But outside of Xbox, none of the software giant’s consumer plays have much sizzle. Microsoft will likely take more baby steps in 2008, akin to Windows Mobile recently beginning to run phone ads for Paramount Pictures (VIAB) and Jaguar autos. “Microsoft certainly has all of the pieces of the puzzle in place,” says analyst Matt Rosoff at Directions on Microsoft. “They have to start figuring out how to integrate them.”

•Too stealthy. Yahoo (YHOO) picked up ad exchange network Right Media for $680 million and ad targeting firm BlueLithium for $300 million. It has been quietly upgrading its ad delivery technologies — perhaps too quietly. “They’re focusing on getting the plumbing right and not talking about it much,” says Enderle.

Yahoo needs to “reinvigorate its technology groups” and start “executing with precision and speed” to keep pace, says Lee.

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