Privacy, Data Ownership and the Digital Media Value Chain

Regular readers of this page know that I have written multiple posts on the general topic of privacy concerns with online ad targeting.  More recently, I have highlighted a lower-profile, but equally important facet of the privacy discussion:  data ownership.

2010 was a turning point in the data ownership/privacy discussion.  So as 2011 kicks off, I thought it would be worthwhile spending a moment to tie these threads together in the context of the digital advertising value chain.

The value chain begins with users, who move from publisher to publisher and page to page consuming content that interests them.  In most cases publishers provide this content free of charge in exchange for the opportunity to present ads to users who consume it.  Publishers then sell the ad inventory so created directly to media agencies (who buy on behalf of advertisers) or through some mix intermediaries including SSPs, exchanges, DSPs and Ad Networks.

Increasingly, agencies are choosing to buy (and thus publishers – sometimes reluctantly – are choosing to sell) through intermediaries.  Therefore, the value chain for a typical advertising transaction is as follows: user, publisher, ad network or DSP, agency, advertiser.

Sitting in the middle of this value chain are ad networks and DSPs.  As has been discussed, it’s often difficult to assign a given company cleanly to one bucket or the other, but this link in the chain generally aggregates publisher ad inventory and agency demand, providing agencies with targeting and optimization capabilities and increasing operational efficiency for both publishers and agencies.

Here’s a typical example:

A network or DSP runs a campaign for an eyeliner product from a large CPG advertiser on a group of womens’ content sites.  The network/DSP collects data on which users it encountered on which sites or site sections (e.g., beauty tips, product reviews), who clicked on and/or engaged with the eyeliner ad and on which publisher pages/sites they did so.  Depending on how the campaign is configured and measured, the network/DSP may even collect some activity data from the advertiser’s site.  The network/DSP then turns around and sells media based on that data – say by a) retargeting those users on other sites or b) offering those users or look-alike users to other advertisers or c) some combination of both.

The activities this example illustrates are commonplace, but the appropriate legal permissions for this type of data use are almost never explicitly granted today.  In fact, in many cases some or all of these activities are expressly prohibited.  Like users who are becoming increasingly concerned about the extent to which data about them and their behavior has been bought and sold without their knowledge, many advertisers and publishers would be surprised (shocked) at how their data is being used.

Which brings me back to the value chain.

Of all the entities in this value chain – user, publisher, network or DSP, agency, advertiser – intuitively, which entities have the strongest claims to ownership of the valuable data generated by an online ad campaign?  I would argue that the ends of the value chain – the user and the advertiser – have the strongest claim to ownership of this data, with other parties’ claims weakening dramatically from the ends to the middle.  Who has more rights in a user’s behavioral data than that user?  Who has more rights in an advertiser’s performance data than the advertiser who paid for the campaign?  It’s patently obvious.

Of course, these data owners may choose to license some of their inherent rights to others in exchange for something of value.  For example, a user may be OK with a publisher recording and using his browsing habits to deliver more targeted content or sell ads to subsidize free content.  Or an advertiser might be OK with their agency recording and using ad performance data to improve the return of their campaigns over time.

However, in full knowledge and understanding, would the average user really be OK with an ad network or DSP, with whom the user has no relationship, constructing a comprehensive view of her life (anonymous or not) and selling those details to the highest bidder?

The industry generally defends this practice by extolling the user value of relevant advertising.  This argument has been proven valid in Search advertising, but is a tenuous proposition at best in Display.  Regardless, each user should make the decision on the value of ad relevance vs. privacy, not the industry on behalf of all users.

Similarly, would the average advertiser be OK with an ad network or DSP using data about how its campaigns perform to improve performance of direct competitors’ campaigns?  I’m not sure what the industry’s “pro-data-owner” argument would even be in this case. Yet, again, this type of activity is routine in today’s digital ad market.

So I would argue that the privacy debate that rages today is fundamentally a reflection of the simple property rights issues these activities raise.  Users and advertisers at the ends of the value chain own the data, but that data is being used and monetized primarily by the players in the middle of the value chain.  The vast majority of this data use and monetization is unlicensed, representing a free ride on the gravy train for about half of the companies on LUMA Partners’ ubiquitous landscape chart.

The government appears to be leaning towards addressing this set of issues on behalf of users with a “do not track” list, but even without do not track – as many are skeptical of the speed of government to act – the private sector is rapidly innovating.  New versions of browsers from Microsoft and Mozilla will ship with privacy protections built-in.  For those who don’t want to upgrade, browser extensions are also providing private, user-controlled do not track capability.  Another new technology, from Bynamite, is taking a different approach by providing the user a way to control – and profit from – distribution of their data.

In defense of corporate data owners, companies like Krux Digital are providing tools to help publishers keep from getting their virtual pockets picked.  I am not aware of any company providing similar data security audit solutions for advertisers, but this is an essential technology representing a huge opportunity.  I am sure a solution is on the way.

The landscape is evolving quickly and it’s still unclear as to how it all will end up, but one thing is certain.  The long term solutions to the “privacy” issue will give data owners at each end of the value chain dramatically increased visibility of, control over and stake in how their data is used by players in the middle.

And as these capabilities allow the data gravy train to begin charging for tickets, you’re going to see fewer riders.

The Internet is not Magic

Regular readers may remember my post a few months back commenting on an interesting DataXu article about high price volatility in the RTB-driven spot market for online advertising.  They put up another really interesting article Monday.

It seems their research has shown that (what I will call) “overtargeting” is bad for performance.

Regular readers will certainly remember my frequent commentary on this issue in the context of driving offline sales.  Many targeting techniques sound hyper-precise (great!), but don’t deliver the goods when impact on key attitudinal indicators like purchase intent, or more importantly impact on offline sales, is measured.  Better sales tools than success tools indeed.

Imagine my interest as I read this new research showing excessive targeting doesn’t even work for the DR metrics they studied.  If this stuff doesn’t work for branding or DR, what does it work for?  Does it serve any other purpose than as the shiny object that helps burgeoning hordes of venture-funded media sales people to convince increasingly overwhelmed media buyers to further fragment their media budgets?

Clients: Don’t take privacy risks or pay premiums for targeting that doesn’t deliver results.  Listen with a skeptical ear.  If a targeting tactic sounds too good to be true it almost certainly is.  The internet is a fantastic marketing channel, but it’s not magic.  Anyone that suggests otherwise is either a fool or takes you for one.

Data property rights moving to front burner?

Another example this past week of the co-equal, but less prominent facet of the privacy issue – data property rights  – coming to the fore.

Wired reported that Specific Media was sued in Federal court for violating users’ privacy by a) using flash cookies to reconstruct http cookies that had been deliberately deleted by users and b) having a deliberately misleading privacy policy.  If these claims prove to be true, they are a great example of the serious issues the industry faces with privacy.

Particularly interesting, though, was the perspective in a comment on Mediapost’s coverage here from an employee of FAN – Fox Audience Network.  The commenter made the point that while this was a privacy issue, it was also a data ownership issue.  He went on to state that there is a legitimate reason for a publisher to use flash cookies, (e.g., the Pandora  buffering example cited by Wired) and that publishers have legitimate claim to user data as part of the implicit deal struck by users in consuming free content.  A network like Specific Media seems to have no such legitimate reason or claim.  Flash cookies used by a network are there for one reason only:  not as many users know how to delete them.

I recently congratulated Krux digital on their plan to help address the lack of reporting and enforcement capabilities for property rights in data.  Based on this announcement last week it looks like Krux already has a new competitor.

I have written before that this second facet of the privacy debate is widely underestimated, but it looks like that’s changing and that’s a great thing for the industry.

Data Ownership is the Krux

Just read Tom Chavez’ AdExchanger post on his new company, Krux Digital.

Tom and I go way back.  Tom ran Rapt, an innovative yield management technology company.  As part of my role at Yahoo! in early 2003, I helped Rapt make the transition from the computer hardware market to the online display media market.  This transition ended well, as Rapt’s market leading online media capabilities resulted in an acquisition by Microsoft 5 years later for a figure rumored to be nearly $200M.

Tom’s a smart guy and seems like he’s onto another smart concept here.

As we have written, there are really two separate and distinct burners under the increasingly bubbly cauldron of online media data issues:  privacy and data ownership.  Starting on the data ownership side, as it appears Krux is doing, seems like the right answer.  Strikes me that it’s tough to have a market driven mechanism for managing privacy without any scalable way of enforcing property rights in the relevant data.  Most in the BT industry seem to really want the former, but don’t seem to want to talk about the latter.

Kudos to Tom and Krux for giving publishers the tools to keep the dialog honest.  I wish them luck!

Weaver chimes in

Just a quick note to direct any reader who hasn’t seen it to a great post by Doug Weaver of Upstream Group.  Doug’s a sharp guy with a wealth of experience and  consistently insightful commentary on the industry, this post being no exception.

Worth a read.

Privacy Issue Reheating?

Interesting articles in Ad Age and MediaWeek today calling attention to potential privacy & regulatory issues surrounding Behavioral Targeting (BT).

The specter of regulation has loomed since the NebuAd debacle, but has seemed somewhat less menacing as Washington has focused on a stream of crises beginning with the financial meltdown in late 2008.

That now seems to be changing.  In addition to these articles and others, privacy/regulation was recently both a major theme in IAB CEO Randall Rothenberg’s remarks to the IAB’s 2010 Leadership Meeting and the subject of the hilarious Onion article mentioned in the Ad Age piece.  Quite a range of coverage.

I think there is legitimate discussion to be had about both consumer privacy and the related issue of data rights/ownership in the value chain.  These are both critical issues and the industry has only just begun to scratch the surface on both.  So it will be interesting to see if the privacy angle in particular gains steam once again in Washington now that the Health Care battle seems nearly over and the dust has settled somewhat from the “Great Recession”.

Something tells me the embers of the NebuAd conflagration are still good and hot, just awaiting a little oxygen.

Is BT Just a Sales Tool? (Redux)

This post is a continuation of my article in last Monday’s AdExchanger about some serious challenges with BT for Brand marketers.  Interested readers should start there and then continue reading below, as I make some of my points here in the context of the example presented in that original article.

As I mentioned, BT does not outperform other approaches in driving offline sales.  Specifically, Brand.net’s studies with Nielsen have proven that our campaigns deliver impressive offline sales impact.  These results were achieved without BT;  instead Brand.net uses high-quality media with contextual, demographic and geographic targeting managed to high composition, with controlled frequency and cost.

The average ROI of 141% on these Brand.net campaigns is roughly comparable to the average ROI generated by Nielsen’s largest offline measurement partners over hundreds of studies using the purchase-based / look-alike targeting approach I described in my original article, refined over nearly a decade.  The Nielsen-powered BT those others use is state of the art; BT doesn’t get any better for branding.  If it fails to deliver substantial ROI upside to other approaches in driving offline sales – we as brand marketers really need to question the utility of BT in general.

In addition to this fundamental problem, BT poses a variety of other important problems that brand marketers should consider carefully.

First, there are no standard definitions within the industry for behavioral categories so there’s a huge degree of subjectivity in defining which users are a close-enough match to the core users to qualify as “look-alikes.”  This is a big deal because, as I outlined, 99.9% of the users in a typical BT campaign are based on look-alike modeling.   In the context of the specific example I used, how similar does a user need to be to an actual CPB Baker to qualify for inclusion the behavioral category?  What’s to keep the network doing the modeling from stretching that definition to create more inventory, particularly if there’s no direct measurement on the campaign?

Another related issue is lack of portability.  Since there’s no consistent definition for any behavioral target, if an advertiser does find something that works with a particular vendor, the advertiser is stuck with that vendor.  They can’t say, “CPB Bakers work great.  Let’s figure out the best way to buy them.” because the CPB Bakers from one source could be completely different from the CPB Bakers from another source due to different look-alike definitions.  Furthermore, if the vendor whose CPB Bakers “worked” changes look-alike definitions, loses access to data or goes out of business, the advertiser must start from scratch.  BT can’t be used as a basis for a scalable, repeatable, progressively improved strategy driven by the advertiser/agency unless the advertiser is the one building the profiles from scratch – something that is far beyond what most advertisers today are willing to do.

Due to cookie churn and simple inventory volatility, impression delivery is extremely hard to predict for any reasonably focused BT target (and forget about reach or pricing).  This makes forward delivery guarantees almost impossible – another barrier for scalable use by large brands that typically plan a significant portion of their spend in advance.

BT can also be used by networks or publishers as a way to mask inventory quality issues.  Would an advertiser/agency want the media included in a BT buy if they actually knew what they were purchasing?  Would they be willing to pay the same rate?  I doubt it, but the glossy BT story effectively launders this sketchy inventory into a desirable commodity.

Finally, there are obviously high-profile privacy issues swirling around BT, and it’s anyone’s guess where those will settle out.  I would hate to have a platform or media strategy built around BT if (when?) our friends in Washington decide that “opt-in” will become the law of the land.

Marketers considering significant or sustained investments in BT would be advised to think carefully about all of these issues and ask tough questions of their partners before proceeding.

<span>%d</span> bloggers like this: