The $8 Billion Do Not Track Prize

There's a great moment in All The President's Men, the film based on the 1970s Watergate investigation, in which the inside source known only as Deep Throat tells Washington Post reporter Bob Woodward to "follow the money."

Analyzing financial flows and motivation can unearth secrets, Woodward found. So let's take a look at the big money behind the Federal Trade Commission's Do Not Track proposal.

In December, the FTC shocked the advertising industry by announcing it would support a Do Not Track mandate giving consumers the right to avoid online tracking. At face value it's a great idea, similar to the telemarketing Do Not Call opt-out list—only now you could prevent marketers from putting on your computer tiny bits of code called "cookies," which track which websites you visit. Such data are used today not to identify individuals (no personally addressable information such as your name or address is collected), but to tailor ads based on your general perceived interests.

Online tracking is everywhere. Quantcast, for instance, might use billions of cookies to estimate whether men in their 50s or women in their 30s visit a certain website; the company publishes a free demographic data set for building online advertising plans. Firms such as 33Across and Media6Degrees use online data to target ads to the friends of people who buy products, based on the logic that buddies buy similar stuff. Specialists such as OwnerIQ can predict which online users own what failing products—say, putting them in the market for a new TV. And ad exchanges, which are stock exchange-like marketplaces in which publishers and advertisers bid on banner ad inventory, are based entirely on data about audiences. If Ford (F) wants to pitch its new Explorer to dudes in their 30s, the automaker's marketing department can pinpoint just which websites to buy ads on.

Ads Would Just Get Dumber

The FTC proposal would stop all that. Trouble is, while the commission may have consumers' best interests at heart (or be motivated by desire to toss a feel-good political football in a transition election year), the idea has two huge problems:

1. It won't stop online ads. While Do Not Call lists kept telemarketers at bay, you'll still see tons of banners and videos everywhere online. They'll simply be less relevant.

2. Do Not Track will send billions of dollars to the big online publishers, hurting the little sites you might find most interesting.

The second point is painful. It could really harm you, too, dear consumer, if you read things online other than The New York Times (NYT), Bloomberg, or Why? The "Long Tail" of niche content is going to get crushed. Let's follow the money. More than $25 billion was spent on U.S. online ads in 2010, according to eMarketer. About $1 billion of this went to behaviorally targeted ads tied closely to user data; nearly $8 billion overall is in some way related to online tracking.

That $8 billion has posed horrible problems for publishers of major websites, such as Bloomberg (this column's host, for which we don't work, so we'll be equally critical of it) or The New York Times. Before tracking came along, such publishers were the only means of reaching a known type of audience. Business people read while moms read O magazine online and Like the publications of the past century, a given website has always been a proxy for an audience target. Alas for the big publishers, good data on audiences has meant that smart marketers could leave big, expensive sites behind. So in perhaps the biggest revolution of Internet marketing, the more data you can collect about today's customers, the cheaper online advertising gets.

Imagine Where You Would Advertise

Let's play a mind game to understand this dynamic. Let's say you sell yachts while your friend runs a top business news website:

You, the marketer, want to show ads to people who can buy big boats. You know that finance websites such as your friend's location have affluent readers, but those sites charge $20 per thousand impressions. (Impressions, or the number of times an ad appears on a page, are how prices are set for many online ads.) That seems steep, so you research online targeting … and discover that you can use data-driven tricks to reach the same people on smaller websites for $3 per thousand impressions. That's an 85 percent savings, just for using data. You put your budget there.

Your friend, the big-site publisher, sees you at a holiday party. "Why aren't you buying my $20 ads anymore?" she asks. "Because I've found the same targeted ads for only $3," you say. She throws a drink in your face. Friendship over.

Big publishers are angry. They want their online advertisers back: Some $8 billion is in play next year. With online advertising dollars expected to balloon to $40.5 billion by 2014, the future holds even more at stake. If the FTC pushes Do Not Track through Congress, it will send billions to The Wall Street Journal (NWS),,, and even Bloomberg Businessweek because marketers will be forced to put ad dollars on those sites. In the absence of data, advertisers will have to make assumptions about who reads content. The top content will win.

Numerous Small Websites Might Fail

If Do Not Track moves forward, you'll still see banner ads everywhere. They'll be untargeted, with more off-kilter offers because no data about your preferences will be deployed to give you a golf ad, say, if you've been reading a lot of golfing articles. You'll feel better about your privacy, despite the fact that website marketers could never track you individually, but rather could make wild approximations of the type of person you are. Thousands of small websites may disappear as dollars flow to consolidated publishing centers.

Is this too extreme? Surely, hobbyists will continue to write blogs and build sites out of love. But with $8 billion or more moving to the ivory towers of mainstream content, you'll have fewer choices. There will be less innovation online. The Mashables and Huffington Posts of tomorrow may never get off the ground. Add video and soon the Web will be like turning on TV—perhaps with a few major networks, just like the 1960s.

Go ahead with Do Not Track if you must. It will stop marketers from serving up ads for products you may actually want. If you don't like what's left, you can always buy an online subscription.

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