Marketing Intelligence Report

IP Targets Customers without Invading Privacy

 

OVERVIEW

In today‘s exciting and rapidly growing online marketplace, consumer based businesses have been realizing ever increasing success at reaching potential customers. Indeed, according to a February 2011 Forrester report by analyst Sucharita Mulpuru, U.S. online retail sales grew 12.6% in 2010 to reach $176.2 billion. This increase is expected to continue at a compounded 10% annual growth rate for the next five years, reaching $278.9 billion in 2015. The report lists several key factors propelling this web channel growth: "ubiquitous web connectivity among consumers, increasing consumer familiarity with and preference for online shopping (and the subsequent cannibalization of store shopping), best-in-class shopping experiences, and new online shopping models such as flash sales, which have generated excitement and grown rapidly.

To serve this steadily expanding and dynamic web environment and help further its success is a multileveled digital marketing collective that includes myriad creative agencies, media placement agencies, data tracking agencies, data aggregators, data brokers, content publishers, web and software programmers, social networks, search engines, and browsers, among others. And during the last several months virtually every one of these entities is taking a look at the potential impact on their business of proposed new Federal "Do Not Track"/Privacy legislation aimed at protecting the privacy of web users, whose searching, surfing, socializing and buying habits are being tracked and recorded while they are online.

The “Do Not Track” and Data Privacy Initiatives

In early February, House Rep. Jackie Speier (D-CA) introduced the "Do Not Track" Internet privacy bill and Rep. Bobby L. Rush (D-IL) reintroduced a similar bill from an earlier congressional session. In essence, under Speier‘s Do Not Track bill the FTC would have 18 months to formulate regulations that would require advertisers to provide web users with an effective and easy way to "opt out" from having their online behavior tracked or recorded. Although no specifics of how the opting out process is to be implemented have yet been defined, many in the digital advertising industry fear the regulation‘s potential for serious negative impact, which, depending on a particular company‘s business model, could go well beyond the loss of revenue to shutting down their business entirely.

Expanding the Do Not Track focus on Internet alone, Senators John F. Kerry (D-MA) and John McCain (R-AZ) jointly introduced in April a bipartisan initiative called The Commercial Privacy Bill of Rights Act of 2011, which addresses data privacy both online and offline. This bill calls on the FTC to establish rules requiring companies that collect personally identifiable information to provide "clear, concise, and timely notice" of data collection, use and transfer. The data includes names, addresses, phone numbers and email addresses. And in alignment with Do Not Track, the legislation would also direct the FTC to develop rules requiring companies to offer consumers "a robust, clear, and conspicuous" opt-out mechanism from use of their personally-identifiable data by third parties "for behavioral advertising or marketing."

COOKIES, TRACKING AND THE ISSUE OF BEHAVIORAL TARGETING (BT)

Much has been written, debated, blogged and hypothesized on the Do Not Track initiative since it was introduced, although there has already been several years‘ ongoing discussion in both business and legislative circles on the issue of online privacy. In this instance the scrutiny is focused on the tracking mechanism itself – the seemingly ubiquitous third-party cookie and how web users can best be given the ability to essentially "turn the cookie off" so as not to be tracked.

As opposed to helpful first party cookies placed on sites where users want them to remember data like log-in information or items in a shopping cart or wish list, third-party cookies are the ones placed on a computer by an ad network or data-gathering company that are the key to how the behavioral tracking system works. Behavioral tracking involves building an anonymous profile of information about users based on the websites they visit, then using this information to display ads that are more narrowly targeted to their individual interest. (Cookies do not personally identify web users or any backend records.) Directing ads to consumers‘ specific interests derived from their tracking profile is known as behavioral targeting, or BT, and is a practice used by all major Internet advertising networks, as well as search engines Google, Yahoo and Bing. Now as a result of Do Not Track, along with the tracking cookie itself, behavioral targeting is also feeling the heat.

How Consumers Feel about Tracking

In a February 6, 2011 Crain’s New York article, author Eileen Zimmerman believed consumers would likely welcome a Do Not Track measure. A USA Today/Gallup poll conducted December 10-12, 2010 indicated nearly 70% of those polled did not approve of their online behavior being tracked for purposes of target advertising. It seems that consumers really don‘t like not knowing who‘s tracking them and what information they have. Indeed, various articles discussing online privacy have noted that for some consumers it is more the issue of the surreptitious nature of tracking rather than the fact of the tracking alone. Consumers are worried about the security of their personal information and feel they have no control over who has access to it and how what is collected is being used. If the FTC were to require some sort of opt out mechanism on the consumer‘s browser so users could choose who they allow to track them, then that might address the issue.

However, in Ms. Zimmerman‘s article, David Apple, Chief Marketing Officer at Chelsea-based Augme Technologies, which designs and implements mobile marketing strategies, noted that the FTC isn‘t thinking like consumers who are targeted by ads, often willingly. "Most people getting coupons and advertising pushed to them have asked for it," he noted, "so how many would actually take advantage of this [opting out]? Consumers now expect to receive ads that are largely relevant to them.

How Important Is Behavioral Targeting to the Online Ad Industry?

In a March 2010 article, eMarketer reported on a study conducted by the Network Advertising Initiative (NAI), which looked at ads run on member networks during 2009 that showed among users who clicked on behaviorally targeted ads, 6.8% converted, compared to only 2.8% of users who clicked on run-of-network ads. And a New York Times article in December referenced a report of the Interactive Advertising Bureau‘s analysis of ad agency data, which indicated that 80% or more of digital advertising campaigns in 2009 incorporated behavioral targeting in some way.

In commenting on the above NAI study, its author Howard Beales, a George Washington University Business School Professor and former director of the Bureau of Consumer Protection at the FTC, noted that "the study [also] found that behaviorally targeted advertising is a critical component of ad network publisher and advertising success. Behaviorally targeted ads sell for twice the price and offer twice the effectiveness of normal run-of-network ads, significantly enhancing the advertising revenue engine driving the growth of the network. Supporting this, eMarketer research showed that behaviorally targeted ads earned 2.68 times more revenue than run of network ads and made up 4.8% of the overall $25.8 billion online advertising market in 2010.

Although behavioral ad targeting has clear benefits for publishers and advertisers, Jonathan Meyer, a researcher with Stanford‘s Center for Internet and Society, and a principal researcher on the issues related to Do Not Track, maintains that Do Not Track would not hobble the entire ad industry as some fear. As he points out, of the myriad modes of advertising online that exist, including contextual advertising, demographic advertising, behavioral advertising, search advertising, placement advertising and social network advertising, the only one Do Not Track would affect is third party behavioral advertising because it incorporates third party tracking. And with less than 5% of the total online ad expenditures in 2010, and some projections placing behavioral advertising growing to only 7% of the U.S. online ad market by 2014, Meyer believes the overall impact on the online ad industry as a whole will be quite small.

In contrast, in its April 12 press release on the Kerry/McCain privacy bill, the Direct Marketing Association stated it "remains concerned that legislative proposals regarding the Internet run the risk of undercutting the leading area of American dominance and job growth. The collection and use of data for marketing and advertising purposes, which fuels the Internet economy, benefits both businesses and consumers, and is, in fact, the cornerstone of what makes direct marketing ‗direct‘." "DMA is wary of any legislation that upsets the information economy without a showing of actual harm to consumers. "Information has been a driver of competition in our economy for over 100 years," said Linda Woolley, DMA‘s executive vice president, Washington Operations. "This bill would have wide-ranging effects —not just on the Internet, but on all of the economy, such as retailers, banks, hotels, and mailers."

GEO-TARGETED ADVERTISING: NO COOKIES NECESSARY

While consumers, legislators and privacy organizations see the Do Not Track initiative as a win, it‘s not surprising that online advertisers are concerned they will lose the ability to sell targeted ads the way they currently do and fear a substantial revenue loss. However, cookies and tracking devices are not the only way to analyze a web user‘s characteristics. IP geolocation data can tell the general location of a web visitor using an IP address, meaning targeted information can be obtained about a visitor based on the general location of a computer they are using. This is all possible without installing cookies or tracking a person‘s online behavior or in any way jeopardizing their online privacy.

Indeed, more and more advertisers are requesting geo-targeting to optimize the performance of their campaigns. Publishers and ad networks can enable these marketers to reach specific geographic areas online just as they do with offline media, such as radio, television, and yellow page listings. And geo-targeting can ensure that each impression reaches its target audience and the impression is not wasted, increasing the value of ad inventories.

Integrating IP geolocation data into an ad platform also lets advertisers adapt their ads for different geographical regions, providing a unique online experience tailored to each user‘s location. By knowing the location of its web visitors, an advertiser could provide capabilities to select the state, city, DMA (Designated Marketing Area), zip code, or telephone area codes in which to run an online campaign, or define a radius in miles to target.

For example, major airlines can target visitors by their location. If a user logs-on to an airline site in San Francisco, the airline can choose to show specials on flights to Los Angeles or San Diego, rather than showing deals on flights from Chicago to Washington D.C. And guess what? It‘s those impulse buys – the getaway to San Diego while booking the business trip to Boston – that travel clients see as a big win, because their customers see it as a win. All of this is possible by simply using IP geolocation, no cookies or tracking needed.

Location Is One of the Most Valuable Kinds of Data for Marketing

Advertisers know that serving localized ads will increase response and they are willing to pay a premium price for these impressions. Publishers and ad networks can increase their inventory and rates by offering geo-targeted banner and box ads to their customers. Geo-targeted ads can even be customized for a particular time of day, or targeted for weather conditions in a specific geographic area. "Having accurate location data and accurate demographic data is essential for reaching people in local communities," says Mike Blacker, Director of West Coast Sales for IP geolocation data provider Neustar . "If the IP address is there, our geolocation data can identify a web user‘s location and the associated demographics and help advertisers serve a relevant ad that will utilize every impression every single time, not just when a cookie is there. This is what marketers are looking for. Geo-data targeting also gives advertisers a way to scale the information and not be reliant on a tiny piece of information that may be there or not when they‘re looking for it."

Going Beyond IP Geo with IP Intelligence

There‘s much more that marketers can target with IP geolocation data than simply using a location. For example, by combining one set of geodata with IP intelligence, marketers can analyze traffic, customize ads, and connect offline to online campaigns. IP Intelligence can tell if a person is coming to a site from a mobile gateway and what the carrier type is, then, based on that knowledge, help publishers serve the right content geared to a mobile device. Advertisers can also look at user type data to identify IP addresses with an .edu extension, for example, which shows the user is originating from a college campus and deliver a targeted campaign to college students.

Although it is often assumed that geodata targeting isn‘t effective for B2B marketers, in fact, an advertiser can use the data to analyze and identify specific domain names and run a campaign that targets business users coming from Dell, let‘s say, very differently than users coming from a healthcare company, or an insurance provider, or a home computer.

By overlaying IP geodata with demographic, technographic and or psychographic data, a marketer can customize creative that speaks to a specific type of person, one with specific types of interests and buying habits. With geodata intelligence an online creative campaign can have ad versions with different spokespeople, and/or highlight different product features and deliver the right ad to the right user segment as soon as they log on. Such a campaign doesn‘t rely on behavioral targeting and cookies to time WHEN a user is ready to buy, but focuses on influencing and persuading the user TO buy, at the same time building product awareness and loyalty that can generate purchases again and again.

SUMMARY

As the privacy battles continue, advertisers and marketers are going to have to find innovative methods for targeting their marketing messages at the right consumer audience. Retailers that are personalizing ads by behavior can also personalize ads by zip code, or even by weather. In an increasingly online world, everyone wants the web to feel like home, but online privacy advocates, advertisers and retailers should know there is a safer, less invasive way than the industry default "cookie" to know web visitors by knowing where they are.

Advertisers using geo-targeted data can implement a wide range of marketing strategies based on locations ranging from countries down to local neighborhoods. International marketers can customize their websites for country, language and currency specific visitors. Promotions and messaging can be targeted for regional and local demographics, access to store locations, area economies and politics, and even such characteristics as unique customs and events. The instantly recognizable location of a web visitor‘s IP address allows the right customized message or offer to appear the first time (and every time) a user visits a site – no cookies needed, no tracking done and no opt-out necessary.

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