Controversial Ad System Keeps Its Eye on the Money

Just a few weeks before the deployment of its controversial ad-targeting system, the CEO of Phorm is making a case that the system will allow less popular Web sites to gain more advertising revenue and give ISPs a cut.

The argument is just one of many Kurt Ertugrul has for his company's Phorm system, which monitors a person's browsing in order to serve ads matched to their searches or Web pages visited.

BT, one of the major U.K. ISPs (Internet service providers), is due to trial the system this month, following fierce debate over whether Phorm represents the future of Web advertising or an erosion of people's right to privacy.

Privacy arguments aside, Ertugrul has been making a business case to ISPs, Web sites, social networks and advertising agencies to get them to sign on. Phorm's success will be dependent on participation from those entities and, most of all, users.

So far, Carphone Warehouse and Virgin Media, also major ISPs, have plans to deploy the system. Ertugrul said he has also been in discussions with a popular social-networking site but wouldn't say which one.

Ertugrul said Phorm targets weaknesses in how the Internet advertising business now runs. "Most of the revenue gets aggregated into very, very few hands," he said.

One of Phorm's aims is to allow smaller publishers to put targeted ads on their sites, which should net them more money, Ertugrul said. Generally, advertisers will pay more money if they know they are reaching their target audience. Phorm says it can do that regardless of the Web page's content, which is one way how sites appeal to advertisers.

Also, in a new twist, ISPs -- which traditionally have only been an Internet access provider -- will also get a share of the revenue from ads sold on those Web sites since Phorm's software goes on their network. It's generally believed the ISPs will present Phorm in a clear manner that will allows users to opt out of the system if they wish.

Phorm determines what a person is interested in by examining their Web traffic. The person is assigned a random number, which is associated with a "cookie," or piece of data stored by the browser.

According to their Web surfing, the person's random number is then associated with Phorm's "channels," or categories that advertisers are willing to put up money to find people interested in those topics.

No personally identifiable information is retained, the company says, although critics contend it would theoretically be possible with the right access to link the bits of data back to a single person.

Web sites using Phorm's system can serve targeted ads even if the content of their Web page doesn't match what the person may have been recently searching for. If the user visiting the page is interested in cameras, Phorm knows the person has searched for cameras, a camera ad can be served up even if the site is about social policy.

Ertugrul claims the technology especially appeals to newspapers, since it's hard to find an ad -- even for reasons of taste -- that would match a news story about a bombing in Baghdad. Instead, the ad is disassociated from the content on the page and aimed directly at a user.

"This is a game-changer for the press," said Ertugrul, who said U.K. newspapers are interested in Phorm.

So how does Phorm and the ISPs make money? They will split the difference between how much a Web site will sell an advertising slot for and how much that advertiser is willing to pay for that slot.

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