Now ISPs Want to Serve You Ads, Too

Internet service providers such as Embarq that manage broadband networks may soon tap their data storehouses to serve up personalized ads

Just what we need: another way to get bombarded with personalized ads. Consumers are already spoon-fed ads based on the searches they conduct with tools like Google (GOOG) and Yahoo! (YHOO); wireless service providers can send coupons, using call logs to track subscriber tastes and navigation tools to determine their whereabouts; and cable companies tailor local marketing messages to a viewer's neighborhood or city.

Now Internet service providers want in on the act. The companies that manage those massive, coast-to-coast broadband networks which deliver a host of communications services may soon tap vast storehouses of data on our network use to—you guessed it—serve up personalized ads. Many providers of high-speed Internet access also sell TV and wireless services. By placing ads via broadband as well, they'd become "triple-play advertisers," says Aditya Kishore, senior analyst at consultancy Heavy Reading. "There's a lot of interest in that."

Carriers including Embarq (EQ), spun off in 2006 from Sprint Nextel (S), and BT (BT) are exploring ways to mine data they can collect about customers' online habits to deliver tailored ads. At stake is a slice of the $25.9 billion in online advertising projected by eMarketer this year. Already, phone companies use a technology known as deep-packet inspection (DPI) to weed out spam, catch viruses that could possibly harm a network, or determine what practices are hogging bandwidth.

Providers Seek Revenue Boost

It wouldn't be a stretch to also use DPI to figure out which ads to shoot to which users. Robert Dykes, CEO of advertising DPI vendor NebuAd, likens the technology to "an eyedropper, picking up select things" from the communications network. NebuAd's gear attaches to a communications network and collects data on Web site usage—although it ignores e-mails, Web calls, and activity on password-protected sites like those of financial institutions. NebuAd's tool works by keeping tabs on a visited site, then associating that site with an anonymous number—rather than, say, an IP address or a particular subscriber. In turn, the number is labeled with a relevant category of ads—say, travel in cases where a user has visited a travel site.

NebuAd and rival Phorm are mum on just how much their technology could generate for an ISP client, but even incremental revenue matters when networking expansion costs are rising and an economic slowdown is causing customers to disconnect extra lines and services (BusinessWeek, 7/17/08). Last year, network spending by major U.S. carriers rose 29%, to $37.7 billion, according to consultancy Parks Associates, while monthly service charges have remained flat.

A French outfit called Qosmos, which is expanding into the U.S. this year, says its data could be used to extrapolate a user's demographic profile: Extensive use of the Facebook social network and instant messaging applications could point to a younger person, for example, says Qosmos CEO Thibaut Bechetoille. Someone who frequently shops for women's shoes and reads Cosmopolitan online is likely to be a young woman. "I think it'll be an alternative source of data [to Google]," he says.

Congress Investigates Privacy Issue

Carriers' ability to make money off this technology will depend largely on what user data they'll be allowed to view. "If they get something as comprehensive as the view of the majority of traffic, they'd enjoy a substantial advantage," says Andrew Frank, research vice-president at consultancy Gartner (IT). But that's unlikely because of privacy concerns.

After a recent inquiry, the Federal Trade Commission decided against regulation of DPI technology. Congress may not be so forgiving. "I believe broadband providers deploying DPI technologies must adopt clear privacy policies," said Representative Edward Markey (D-Mass.), chairman of the House subcommittee on telecommunications & the Internet, at a July 17 hearing. The lawmaker sent a letter to Embarq seeking further information on the company's use of DPI technology. "We have received the letter…and are reviewing it for an appropriate response," Embarq said in an e-mailed statement.

Markey called for carriers to use the technique only with customers who opt into the advertising program—a requirement that, if imposed, could cripple such programs' scope. Charter Communications (CHTR) had been planning its own trial of NebuAd's technology, but put it on hold in light of the concerns raised by lawmakers. Charter declined to elaborate on its scrapped trial. Consumers, meantime, can rest assured they won't be getting ISP-delivered ads, at least not anytime soon.

Before it's here, it's on the Bloomberg Terminal.