And MSN Makes Three: On Search and Privacy

Depending on how you look at things, this is either a very good time or very bad time to be in the privacy industry. If you like controversy, or if you sell privacy protection software, it has been a great year. From Google serving ads on Gmail to the rebirth of adware — sorry, “behavioral marketing” — as legitimate advertising, the past year has been rife with privacy scandals. If you think that all your data and actions online should remain invisible, then it’s not so good.

And now it’s set to explode again. MSN recently showed off its new adCenter, which offers advertisers unprecedented capabilities to target search customers by demographics obtained by other Microsoft and MSN properties. You can set different bids, creative and landing pages based on age, gender, lifestyle category and wealth or income. You can already hear bloggers sharpening their, um, keyboards on this one. It seems like a huge privacy violation for MSN to pass on such personal data about its user to advertisers, just like it seemed a huge privacy violation for Google to scrape the text of e-mail to serve ads in Gmail, as it began doing a year ago.

On the one-year anniversary of Gmail, it seems that privacy advocates have either lost, given up or finally grasped the new frontier of privacy and advertising. Recent data indicate that 54 percent of Gmail users switched from Hotmail and 33 percent from Yahoo Mail, both of which show only generic ads.

The outcome of the Gmail controversy reveals an important principle when it comes to online advertising. Ads on the Internet aren’t going away, just as commercials will stay on TV and print ads in newspapers. Advertising lets you watch TV shows for free, buy newspapers for less than the cost of the paper it’s printed on, and to search and e-mail online for free. The only question posed to consumers is whether they would prefer targeted text ads or flashing, CPM banners.

With Gmail and search engines, consumers have opted for the former. Advertisers have as well. Consumers like targeted ads because they are actually offered something they might be interested in. Advertisers like them because they get higher click-through and conversion rates. Ads on search engines, which appear only when consumers are searching for a specific topic, do especially well and are even welcomed by consumers.

Dynamic contextual ads based on the content of Web pages also do well for this reason. While some privacy is “given up” — the advertiser knows what word or phrase the consumer searched for and the consumer is generally tracked until he or she converts — a tacit agreement is reached by consumer and advertiser: The consumer wants free content and doesn’t mind (or welcomes) suggestions by the advertiser.

At Microsoft’s sixth annual MSN Strategic Account Summit, where the new adCenter was introduced, Microsoft CEO Steve Ballmer spoke about privacy in his opening address. Ballmer said consumer attitudes about “privacy and intrusion coming from advertisers” were changing. Consumers are now “willing to accept the logical nature of advertisement involved” in MSN’s services and other free online services.

SEM and Gmail have certainly proved Ballmer correct about privacy attitudes, but “intrusion” is a different matter. The privacy concerns leveled at Gmail and SEM abated because the privacy at stake was never an intrusion. Gmail didn’t keep or read people’s e-mails; a bot scanned the text looking for keywords and served ads. Searches conducted on Yahoo, MSN or Google aren’t stored to build a picture of the searcher; they simply trigger certain, appropriate search ads.

As with MSN. Advertisers will know how ads perform with certain demographics and will be able to tune ads to those demographics, based on data already collected by MSN. That data will be used to serve more targeted ads — ads based on your keywords and styled to your demographic. Your data won’t go anywhere that it doesn’t already, and no new data will be collected. Like Gmail, the data are internal to the company and used only to trigger automatic advertising programs. At the most granular level, data are collected to an IP address or a tracking cookie. You may have to give up some of your privacy, but there is no intrusion by an advertiser, just shared data from Microsoft.

The other side of the coin is spyware, adware and its barely differentiable synonyms. Adware is by its very nature intrusive. It tracks all your Internet activity, building a general picture of the kind of the person you are and what products would appeal to you. Though the ads are generally very targeted, most users consider them intrusive and rebel against them.

Anti-spyware programs separate out real adware threats, like browser helper objects and add-ons, from tracking cookies — and recently, so do users. Users are ready to give up some privacy for good products and targeted ads, but not their space. On the anniversary of Gmail and the eve of adCenter, that’s good news for everyone.

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