MoneyWatch Tech

Websites vs. Advertisers: the War for User Data Is On [Update]

By Erik Sherman

Updated on: November 10, 2010 / 8:59 AM EST / MoneyWatch

Yesterday I wrote about the way social networking sites battled to keep consumer data to themselves. Today we see another facet: consumer web sites that restrict what software ad networks can install on consumer machines, according to the WSJ. The reason? Control over customer data.

Surprise, surprise. In the struggle to make a buck off consumers, virtually everyone in the online marketing industry will find themselves at each other's throats. Ad networks will increasingly want content sites, and content sites will want to spawn ad networks.

The Journal reports that the websites seem taken aback by the amount of consumer tracking that occurs through them:

A few sites have dropped companies that install tracking tools, due to practices they consider intrusive. Other Internet publishers want to sell more ads themselves, relying less on online ad networks that install tracking software.
Many Web publishers are finding that tracking software is operating on their sites without their knowledge. Some worry they are missing out on an opportunity, since others are profiting by selling data about the sites' users for ad-targeting purposes.

Although the article doesn't make the mechanism completely clear (nor really establish that there's an overall trend in the industry), advertising networks and individual advertisers are the ones doing the tracking. The more advertisers know of what consumers do, the better in theory they can most appropriately target people and either the more effective their marketing or the more they can charge clients.

In the cases that the Journal mentions, the result is a clash. Publishers -- whose backs are to the financial wall -- decide that retaining control over customer information might be wise. Such conflict is a given because there's limited room for companies to expand, at least under conventional strategies. Even if the audience might grow in some emerging economy or other, chances are that corporations are already there. They face a moment where there are no new physical frontiers.

This is also a time of atomization, in which artificial bundles of products and services are no longer necessary. People can get one article rather than a whole magazine, or one song instead of an album. Even when people are willing to pay, it's often a much smaller amount for exactly what they want, not an enforced bundle price for a package that will contain the article or music or video of interest.

So that means jostling for new revenue opportunities, which generally results in snatching money from someone else. For the publishers, there's an additional potential backlash in public attention for apparently participating in prying into people's private lives -- not only embarrassing, but the publishers don't even get the full benefit. In fact, some of these data collection companies package the data and sell it. Well, duh -- of course they do.

For all the similarity the publishers have to the computer business, there are some clear differences. The two sides in this fight stand on unequal ground. Advertisers and ad networks will have a much more difficult time putting together a series of content sites than publishers of content sites have of creating an ad network. Look at Google (GOOG), Yahoo (YHOO), or AOL (AOL). They established content first. So as the competition heats up, we can expect a lot of consolidation on the pure ad network front as well as revenue drops. Why would publishers continue to split ad revenue money with someone else if they don't have to?

[Update: Advertising Age has an article about how the Weather Channel creates a private ad exchange, a great example of the changes we'll see more of.]

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