Tag Archives: Data

The 6th Wave of Advertising Technology: Privacy

By Eric Picard, Originally published on AdExchanger – Wednesday, February 24th, 2021

There’s a revolution happening in digital media, primarily driven by a new focus on privacy. Major players at the core of the digital ecosystem have decided that privacy is a core value, and have made fundamental changes that block many standard practices. This change is going to upend the industry as we know it, and offers huge opportunities for anyone in the right position to take advantage of it.

Let’s work our way from where we’ve been to where we are, and then talk about where we’re going.

Wave 1: In the beginning (1996-1998)

The first wave of ad tech was about establishing scalable ways to operate the digital advertising business. Someone had to figure out how to sell ads in advance of the campaign running, how to implement and operate campaigns, how to track delivery and how to bill customers. We saw the rise of ad servers, the creation of sales and ad operations tools and workflows and the invention of buy-side ad serving. And we saw significant growth.

Wave 2: Formats, Targeting, Tracking, Attribution 1.0 (1999-2001)

After the basics got sorted, we saw innovative work in rich media ad formats (things like interactive ads, video, audio, visual effects, over-the-page, expanding ads, etc.). My first startup, Bluestreak, developed many of these formats. Across the industry we saw significant innovation in targeting of ads. (User behavior was tracked and turned into audience segments, which could be sold.) And a new attribution discipline emerged to measure what happened after a person saw or clicked on an ad.

Wave 3: Remnant Monetization, Multi-Touch Attribution, Yield Optimization (2002-2006)

When the “dot-com” bubble burst in 2001, the average CPM of display ad inventory dropped from about $25 to about $0.50 in the course of a year. All the peripheral ad tech companies that had been charging ad-on fees for rich media and targeting began to struggle – that is, until they eventually realized they could sell directly to publishers as a way to drive yield. In the hunt for revenue at any cost, and as vast numbers of smart sales people got laid off, someone figured out that secondary and even tertiary ad marketplaces could be used to monetize every single impression at some price. This model was in some ways a mistake, because it further devalued inventory, which was already under price pressure. It took a long time for this wave to end, and in some ways it still hasn’t ended.

On the buy side, advertisers began to realize that “last touch” attribution was obscuring the real drivers of conversions, falsely rewarding some channels, specifically paid search. Sadly, some advertisers still use last-touch models.

Wave 4: The rise of programmatic (2007-2014)

A few really smart people realized that remnant marketplaces were evolving similarly to commodities and securities marketplaces. And they began building auction-based exchanges that sold inventory in much the same way paid search was sold.

This wave was incredibly powerful and it supercharged the industry. As we saw with the evolution of electronic exchanges in securities, the market moved away from daisy-chained tag-based auctions to real-time bidding (RTB). This extensible infrastructure also led to opportunities for nefarious actors to make money by fraudulently selling fake ads, defrauding advertisers and publishers of billions of dollars over many years. And a massive investment in the data infrastructure has led in many ways to a “surveillance state” that allows almost any company to track people’s behavior across the entire internet and build targeting segments that can be used to buy them as advertising.

Wave 5: Privileged Programmatic and Fraud Cleanup (2015-2020)

As it matured, programmatic advertising continued to walk in the footsteps of the securities exchanges. The largest ad buyers and sellers began to recreate privileged relationships inside the new RTB infrastructure. Examples include PMPs, “first look” mechanisms like header bidding and Prebid. It is now possible (but will take a while) to completely recreate all the ways ads have been sold historically on top of RTB infrastructure, but the eventual result will be a much more scalable and automated way of doing business.

Similarly, the massive and hidden problem of fraud was uncovered, and measures were taken to root it out. Industry efforts like Ads.txt and Sellers.json, and whole new companies and technologies for fraud detection and prevention, has set the industry on a path to solving this crisis. The result: a massive maturation of the ecosystem.

Wave 6: Privacy – Centric Advertising, New Format Innovation and Supply-Chain Optimization

Meanwhile the “surveillance state” we’ve found ourselves in has led to a huge backlash against third-party tracking that is upending the ecosystem again.

Over the last few years we’ve seen major initiatives by the technology industry to establish and enforce new privacy controls across all media. This trend is accelerating and broadening, and many of the mechanisms we’ve taken for granted in online advertising have been ruled privacy-unsafe, and are being phased out. Many companies in the space have doubled down on a commitment to these older tracking approaches, and are trying to find a path through that perpetuates them. I will hazard a prediction that this is not going to work.

The time is coming to an end when companies with no relationship to the consumer can track those consumers’ behavior across the internet and then sell that data. This evolution will strengthen companies that do have a direct (i.e. “first party”) consumer relationship, such as advertisers and publishers. It also is helping the largest incumbents like Facebook and Google, who have immense amounts of first-party data.

Technology providers will need to find ways to evolve their offerings such that they support the direct consumer relationships held by the advertiser and/or the publisher. This will mean in many cases either a completely new approach, or a set of innovations in how technology is integrated with the first-party companies’ infrastructure. The great thing about disruption is that it leads to new innovations.

Because the third-party data and tracking infrastructure is becoming less valuable, new ways to increase the value of ad opportunities will come to the foreground. Format innovation is back in the mix as a way to increase the value of inventory without breaching privacy protections. And the next wave of supply cleanup, after the war over fraud, will ensure supply chains are clean and optimized, with low-value suppliers shuffled out of existence.

Supply-chain optimization has been emerging as a focus area since around 2014, but now is becoming mainstream. The first round of supply-chain optimization was ‘brute force’ and ugly, but we’re now seeing intelligent and powerful supply-chain optimization enter the market, as well as industry initiatives like Sellers.json. These new technologies, initiatives and approaches are driving advertiser value and publisher yield significantly.

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The Ethical Issues with 3rd Party Behavioral Tracking

(Originally published on AdExchanger, October 2011) by Eric Picard

Companies that track consumers’ behavior across the web without their consent, and without providing them any recognizable value, should stop. I’ll argue that virtually no company that tracks consumer behavior across multiple sites actually provides consumers with recognizable value.

And the real issue here is that consumers never opt-into being tracked this way – if we required this, then the ethical issues would go away. But we don’t require an opt-in because in reality, consumers don’t want this, don’t benefit from it, and as an industry we’re acting in unethical ways. I realize that for this audience, my position makes me as unpopular as a New York City steam bath in August, but I challenge the industry to really stand up and do the right thing here.

For clarity – Publishers that track what their visitors do on that one publisher’s site face completely different issues. Consumers who visit a publisher’s site are engaging in a direct relationship with that publisher. As long as the publisher is collecting data to be used only on its own website, this is defensible – the consumer has elected to visit their site, and gets the value of content that the publisher provides. And if the publisher asks the consumer to opt-into being tracked across multiple websites, then there is no ethical issue at stake. But cross-publisher behavioral tracking should definitely require an opt-in.

As long as a publisher has a clear privacy policy, data collection for their site without an opt-in is ethical. The consumer gets value from personalization of content as well as enabling the publisher to sell behaviorally targeted advertising. And the publisher has the right to collect this data to optimize their business, especially given that most publishers make the most of their revenue from advertising – this data is generally used to better sell ads to advertisers.

While a consumer is visiting a publisher’s site, the publisher certainly has the right to track his or her behavior. And having a user specifically ‘opt-out’ of being tracked on that publisher is the ‘right’ option to provide in terms of creating consumer good will.

There are three arguments commonly used by advertising industry professionals that make a case for behavioral targeting today:

1. Behavioral targeting makes advertising more relevant, a consumer benefit.

Targeting doesn’t make advertising more relevant – it makes a small percentage of the ads people see more relevant. In order to really increase relevance of advertising via targeting, the number of advertisers would need to vastly increase. There are more than 5 trillion ad impressions per month in online display. And more than 90% of US display ad spend is driven by less than 6,000 advertisers.

Frequently the argument is used that with Paid Search, consumers feel that contextual targeting makes the ads more relevant. But contextual targeting doesn’t require consumer behavior data. And further, the basis is completely wrong: Paid Search has roughly 250 billion impressions a month, and 400,000 active advertisers (verses 5 trillion ad impressions and 6,000 – 8,000 for display ads.)

The math is pretty simple – there is very little opportunity to target display advertising against niche segments today in order to increase overall relevancy of the ads. The reason people aren’t seeing relevant ads is not because targeting is not good enough, or we’re not collecting enough behavioral data, it’s because there are too few ad creatives to apply against the vast number of ad impressions.

This could change over time as more advertisers start moving into display – especially if we ever find a way to make display advertising efficient and effective for local advertisers, at which point there’d be lots more creatives. But even in these cases – cross-publisher tracking wouldn’t be necessary. As long as we had geographic targeting available (which doesn’t require any browsing history) and basic data that the publisher could track themselves, the ads could be much more relevant and valuable. But, until we grow the number of advertisers, and more importantly, the number of creatives to more closely match paid search – this is a moot point.

2. There is no harm in the third-party tracking technologies, the tracking is anonymous.

So-called anonymous tracking is not very secure – the anonymity is fairly easily broken. Cracking open that anonymous shell and merging it with personally identifiable information from other sources is a fairly easy engineering feat. Search for, “netflix prize privacy” in any search engine for one example. (Keeping in mind that this example is from 2007). There’s been a lot more examples since then.

Beyond this, many of the players in the behavioral targeting space are small startups, without a huge amount of investment in security infrastructure. Even major corporations have leaked millions of people’s data into the public domain. Searching for “AOL Data Leak”, “Sony PlayStation Data Leak”, “Skype Android Data Leak”, “Epsilon Data Leak” should prove interesting. More of these happen all the time. If these major corporations can’t keep your personal data secure, the idea that a small startup is a safe place for this data simply doesn’t ring true. And I say this with all respect to my friends working at these companies – at the same time, I’m worried about it.

There are lots of very ethical people in this industry who would never do anything intentional or nefarious with the behavioral data that is collected. But that doesn’t mean that bad actors don’t exist. And even if good people are at the helm in some of these companies today – over time, mergers and acquisitions, or bankruptcies can cause changes in ownership over this potentially sensitive data.

I think I’ve shown above that the potential for damage is both real and proven, and could be quite harmful.

3. We’re not as ‘bad’ as the offline marketers.

I probably shouldn’t have to even engage in this kind of argument. But just because I hear this a lot – I’ll address it.

Yes, the offline direct marketers do use a lot of targeting data – much of it using personally identifiable information – in order to target users on direct mail campaigns and other mechanisms. Yes, they use credit card purchase data, and financial data that no consumer really would ever be excited about anyone getting access to. And yes – they’ve been doing it for years. As far as I’m concerned, this is unethical as hell. And I’ve written lots of articles over the years that state my position on this.

That doesn’t justify us doing this online, even if we were doing things in a vacuum. However, we’re not doing things in a vacuum. The process used in the online space in order to support a lot of this behavioral targeting data being actually used for buying ads requires cookie matching.

Cookie matching requires the use of a third party to find some kind of ‘data key’ that sits in a third party data provider, which is used to match two anonymous sources together. This can be an email address, or could be a telephone number, or a mailing address, or something else. This ‘key’ allows two separate anonymous cookies to be matched together as one single user.

The main providers of this service are the same exact ‘offline marketing’ data companies that are referenced by people in our industry as the ones who are ‘worse than we are.’ In other words – there is no difference whatsoever between the online and offline data providers – as they are both used in order for this behavior to function in our space.

Some of you may remember that the acquisition of Abacus (an offline data provider to direct marketing companies who built targeted mailing lists) by DoubleClick was blocked way back in 1999 because of fears that Abacus’ data would be able to merged with online data, and that this was a dangerous thing to the privacy of consumers.

But in reality – only a few years later, other providers of offline data for direct marketing began offering this kind of cookie matching service to online marketers – without any acquisitions. If this was such a concern that it caused DoubleClick’s acquisition to be rejected by regulators – then why is this not a concern when it’s done as part of the day-to-day business of the online advertising industry?

In the end, this is really just about doing the right thing – from my perspective. Consumers should give their approval before anyone without a direct relationship with them begins tracking their behavior across numerous web sites. This seems self-evident to me, and to most consumers I’ve talked to about it. The only argument to the contrary I’ve ever gotten was from professionals in the marketing industry. And as I’ve shown above, these don’t hold water as far as I’m concerned.

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It’s not your data!

(Originally published under the title “Our industry’s Unethical, Indefensible behavior”, in iMediaConnection, April 2011) by Eric Picard

I’ve been writing a lot lately on the topic of online privacy at the intersection of advertising, and particularly the way the third-party tracking ecosystem has been evolving for the past few years. There is an ongoing onslaught of discussion about legislation and how we’re probably going to get regulated. Some of my closest friends in the industry are at odds with my position, and many people are finding themselves diametrically opposed to people they respect over this issue. People are claiming that if we stop the targeting, all the value in this industry will bottom out — that another bubble will burst, and advertising Armageddon will follow. I disagree. I believe a huge amount of value can be generated without marginally ethical behavior.

To me, it’s a very clear issue — one based on ethics and logic. If companies are tracking people across multiple websites without their consent, and without providing any recognizable value, and those people want the tracking stopped — then it should probably stop. There is real money on the table for the companies that do this data collection, and changing the opt-out model to an opt-in model would decimate their financial outlooks. But this ultimately doesn’t matter. As an industry, we are doing something that most people simply don’t want us to do.

When a publisher tracks what its visitors do on that one publisher’s site, tracking is a defensible practice. The online users who visit a publisher’s site are electing to visit that publisher, and as long as the publisher is collecting data to be used only on its own website, then this falls into the standard quid pro quo relationship that already exists.

People get free or reduced-cost content that they desire to consume from a publisher. The publisher shows them ads, and frequently requires that the consumer register or subscribe (regardless of if this is a free or paid subscription) and hand over some data to be used to better sell ads to advertisers. While a person is visiting a publisher’s site, the publisher certainly has the right to track his or her behavior. There are lots of reasons justifying this right. And consumers can choose to simply avoid visiting that particular publisher if they disagree with the publisher’s privacy policy. And having a user specifically opt out of being tracked on that publisher’s site is a great option to provide.

However, my issue is with the practice that has exploded over the past few years, where third-party companies place tracking tags all over the internet — across multiple publishers — and create comprehensive profiles of consumer behavior. This without any discernable value given back to the consumer (I have lots more to say on this issue below) and without their direct knowledge or consent. This tracking is all enabled by third-party tracking using third-party cookies. This capability was not what the browser designers created cookies for, and it is a sort of hack of the way browsers operate. If “hack” is too strong a word, it’s at least an unintended loophole in browser design that has been used in ways that are hardly defensible.

While I am passionate on this topic, I actually think this argument is a moot point in many ways. I predict that the browsers are going to very elegantly enable consumers to block third-party cookies in the next few releases, and the whole house of cards built on top of this loophole in cookie security is going to fall to the ground.

The Internet Explorer team at Microsoft has already announced that IE 9 will make it extremely easy to block third-party cookies and content. And most technical people running the browser groups at Firefox (keep in mind, there really are no business people involved in this open-source browser) and Google (where technology drives most decisions) are all pretty smart; they understand the tracking behavior that they want to shield the public from. This is clearly an issue that technologists understand better than the general population, and most technical people I’ve talked to have arrived at the same conclusion: Blocking third-party tracking is in the best interest of consumers, it should be extremely easy to do, and the decision should be pre-populated as an opt-out.

Most of the discussions I’ve had on the opposite side of this issue have been with business people. They believe that there is no danger to consumers from what they perceive to be anonymous tracking of online behavior. And they continue to look at people who don’t agree with them as privacy fanatics who are irrationally trying to limit their businesses from succeeding. This isn’t the case, and I certainly am not fanatical about privacy. But I’ve learned a lot over the past 10 years about this topic, and on top of this, the market has radically shifted in the past three years. The amount of tracking going on has seen a huge increase, and the safeguards on the data being collected are quite squishy.

There is a real issue here that apparently hasn’t been understood by a lot of non-technical people. So-called anonymous tracking is fairly easily cracked open. And now that there are many mechanisms that have been created for matching cookies across domains and companies, there are numerous broadly correlated profiles of user behavior floating around. Many of the companies that have copies of these profiles are small startups, many without nearly the funding or maturity needed to build extremely secure environments. And even some of the biggest companies out there have had significant security breaches over the last few years — breaches that have leaked millions of people’s data into the public domain.

Many of the executives at the companies operating in this sphere are very reputable and honorable people who are certainly not being malicious or trying to hurt people. But what happens if their companies are purchased by less-reputable entities? Clearly those with scruples will simply quit and find other work. But now we’ve got a company run by unethical and dangerous individuals with access to a ton of data that can pretty quickly and easily be reverse-engineered to do diabolical things.

Or what if a startup isn’t successful and goes into bankruptcy — and the data assets get auctioned off to the highest bidder? Or what if there is a security breach and a hacker gets access to the company’s log files or plants spyware on its servers? There have been cases in this industry of crackers getting into server farms and hosting software there that gave them access to a lot of data. And of course, there is the other problem of companies that are just unethical to begin with.

Many proofs have been created that show how easy it is to reverse-engineer anonymous tracking. With a small amount of data to correlate with non-private activity, any decent engineer can take apart the anonymous shell around a person’s profile and merge it with personally identifiable information from other sources. And suddenly we’ve got non-anonymous profiles with all sorts of data in the hands of not-so-scrupulous people. Not a recipe for comfort.

At this point, the business people typically try to argue that without the work they do, consumers will have the horrible (never mind that it’s what already exists) experience of having to see advertising that is not relevant. The fallacy of this argument states that if we have better targeting, the ads that consumers see will be more relevant, and they will have a better experience visiting websites that are ad-funded.

There is no persuasive argument to be made that consumers benefit (really at all) from third-party tracking. The ads are not perceptibly more relevant (to the consumer), despite the advertiser’s ability to do deep statistical analysis and see a measurable lift in performance. The only groups really benefiting from the third-party tracking that’s going on are the companies that sell it, and to some degree the advertisers that are able to make use of it for a tiny percentage of their overall spend.

This argument is really hard to defend, and has been made by the ad industry for the past 15 years. I’ve made this argument myself a bunch of times. See this video for definitive proof. Please note that watching myself in this video drove two major shifts in my life: First, I saw that even I didn’t really believe this argument anymore, and I stopped championing this position. Second, I realized I needed to lose a ton of weight (which I’ve since done).

The argument of more relevant display ads is a fallacy. There is simply not enough ad inventory available to really improve relevance to a degree that it would meet the bar of a consumer. Getting a tiny percentage lift on CPAs that are already tiny doesn’t matter enough to justify the issues I’m complaining about from a consumer perspective.

Just because I looked at a pair of shoes online and then one out of 50,000 of the ads I see afterwards are for the same pair of shoes doesn’t mean that we’re making advertising more relevant. It means we’re making a few ads more relevant. A tiny handful. A handful that is so small that it won’t for a moment change the way that consumers feel about online ads. And in order to make ads more relevant, we’d need hundreds of thousands or even millions of ads from a similar number of companies in order to make advertising feel more relevant to consumers.

One argument I hear a lot is that consumers prefer the ad experience from paid search because they feel the ads are more relevant. But there is no real comparison to make here. There are something like 5,000 advertisers that make up more than 90 percent of the U.S. ad spend on display, across approximately 5 trillion monthly impressions across hundreds of millions of ad locations. Paid search has more than 400,000 active advertisers at any given time, with only about 250 million impressions per month and only something like 2-3 million commercially viable keywords. Paid search has more relevant ads than display because of this high concentration of advertisers across a small number of ads. We’d need a similar kind of ratio to really appear more relevant to consumers based on targeting in display ads — and we’re nowhere close to this. If someone ever figures out how to get local advertisers to buy display advertising, this could happen — but we’re a long way from this nirvana.

Another argument I hear is that we’re “not as bad as the offline direct marketers, who have been doing much more of this for years, and who have way more data than the online marketers.” And generally the argument is included that consumers clearly haven’t rebelled against direct mail, so they shouldn’t have a problem with what online marketing does.

This is simply silly from my point of view. First, the companies that lead the offline direct marketing industry are exactly the pivotal players that are enabling much of the third-party tracking going on in the online space. They’re the ones gluing together the cookies from multiple parties, so there is no “them vs. us.” We are the same exact industry, and the players are active across the board, across any perceived boundary.

Second, just because consumers have given in on the offline tracking that is going on and data sharing that happens regularly across the credit card and finance industry, this doesn’t imply their implicit acceptance of similar behavior in other venues. Like a frog dropped in warm water and slowly boiled, they didn’t understand what was happening in the offline world until it was too late. Now most consumers understand the issues, and they are not happy about this happening again in the online space where companies are more visibly collecting data about their behavior without permission. At least with the credit card companies, consumers get tangible benefit from the use of the credit card. In the online space, there is no perceptible value.

If you still believe that there is a credible argument to make to the average consumer on this topic, try explaining to an acquaintance who doesn’t work in the online advertising industry what tangible value they get from allowing a third party to track them. And be sure to explain what is really happening, including how many different sites they’re being tracked on without their consent. See if they call foul on you.

And frankly, you need to really question this issue yourself. Imagine your reaction if you found out that some company was hiring people to follow your wife, husband, mother, or children around and note what they do all day in order to build segmentation models for marketing. Imagine that when you confronted them, that their response was, “But we anonymize the data — trust us.” It just doesn’t cut the mustard from my point of view.

I have discussed this issue with lots of consumers, and not a single one — not one person — has ever said that he or she was satisfied with the ability to opt out. Every single one has complained about the fact that this was done without permission.

From a moral and ethical standpoint, I can’t any longer say that third-party tracking is OK with a straight face. I simply don’t believe it. There is no justification I can see from a consumer point of view that they should simply sit back and swallow all this tracking that doesn’t benefit them. Companies are making money off of their personal activity data. Every person I’ve talked to outside of our industry believes they have the right to expect that someone should need to ask permission before tracking.

I now believe that companies with no direct relationship with a consumer should not have the right to track that consumer’s behavior across multiple websites, make money off that consumer’s data, and potentially put that user’s privacy at risk without explicitly asking permission first. First-party tracking is acceptable and justifiable. If I visit a publisher’s website, there’s an understood quid pro quo that all consumers are fairly aware of at this point; they know they need to put up with advertising in order to get access to content and free or reduced-cost tools (e.g., email, IM, etc.).

On the advertiser side, consumers generally don’t have a problem if they are tracked when they visit the website of a company of which they are a customer. Amazon is often used as an example here. Just as there is a reasonable expectation that a shop owner would watch what you’re looking at and make suggestions to you inside their store, Amazon has legitimate reasons to track shopping behavior and provides customer value by doing it.

In the end, just because we can do something doesn’t mean we should do something.

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Why consumers think online marketing is creepy

(Originally published in iMediaConnection, December 2010) by Eric Picard

When the concept of cookies was introduced into web browsers, the idea was simple and designed to allow for some permanence in the relationship between a person and a website beyond a single session. Cookies would allow someone to visit a site, return to the site, and have his or her user ID already populated into the browser. It also would allow the website itself to create a persistent relationship with a person who visits the site across multiple visits.

These browser cookies were left fairly open and flexible, and were not just limited to the sites that people were visiting. They enabled broad collection of browsing information by any entity that had rights to place images or content onto any site, even from different domains than the person was visiting. This broad capability is what enabled the creation of third-party tracking as a business. And it is extremely useful to companies that market online to consumers. Various ad serving companies enabled this capability (anonymizing the person’s browser such that no personally identifiable information would be passed to the advertiser, just a unique number representing the person) for advertisers, which then were able to understand broad consumer behavior in new ways. And the anonymous nature of these cookies made everyone involved feel justified and comfortable using the technology in this extended way.

More recently, the online advertising industry has gone through a series of revolutions that are fundamentally changing the way these tracking cookies operate. This change has the potential to radically improve the utility of advertising to companies that market online due to the advent of advertising exchanges like the Google-owned DoubleClick ad exchange, the Yahoo-owned Right Media exchange, or the AppNexus exchange, which recently closed $50 million in funding from various sources including Microsoft.

An entire ecosystem of companies has grown up around these exchanges. On the side of publishers, there are the supply-side platforms (SSPs) like Pubmatic, Rubicon, AdMeld, and others. On the side of the advertisers and agencies, there are the demand-side platforms (DSPs) such as Invite Media (owned by Google), MediaMath, Turn, DataXu, Triggit, and others. And all of these providers look for as much data as possible to be injected into the ad impression stream so that an appropriate valuation of the impression can be made. The publishers and SSPs push some data into the chain from what they’ve collected. The advertisers come to the table with what they’ve collected. And the exchanges enable third-party data companies to inject data as well. At the end of the day, the battle has become about who has the best data that nobody else has in order for someone to get an edge and either make more or pay less money than competitors. This space is loosely referred to as the “real-time bidding” space, even though RTB is only part of the story and not always used.

So let’s examine the data side of this market, and what’s going on. Because either what is going on is all perfectly fine, or it is not. And consumers are getting creeped out by it. The question is: Should they be creeped out, or not? Is everything happening in this space completely benign, or is it harmful in some way? From a more philosophical point of view, should companies be able to use cookies to track behavior of individual people via their web browsers and use that data to make money without consent of the person, and without asking first? Should this be legal? That’s at the heart of the FTC’s recent “Do not track” discussion. The commission is proposing a simplified “opt-out” of tracking that does not quite go to the onerous “opt-in” requirement that many have feared, but that would certainly let consumers easily stop being tracked.

Let’s investigate how the ecosystem for data companies works today, and let’s really ask ourselves if there is an issue here. Over the past few years, third-party data companies like AudienceScience, Tacoda (bought by AOL), BlueKai, eXelate, Bizo, and others have found that they can create business arrangements with various websites to enable tracking of behavior, which can then be sold to one of the companies in the RTB space. A good example of this kind of relationship would be a travel website that enables a data company to cookie any user that is searching for travel arrangements and collect the dates and destinations of those travel plans. Or an automotive website that lets a data company track which models of car a person is shopping for. Once the data is available to advertisers and ad agencies, either through a publisher, an SSP, an exchange, or a DSP, the advertiser can bid on impressions specifically based on the audience characteristics suggested by their browsing behavior.

All of these companies go to varying lengths to ensure that no personally identifiable information is exposed when they trade this information over, and nothing I’ve said above sounds overly concerning — especially when you think about the messaging that this is anonymous. And some companies in this space have gone to great lengths to ensure that there is at least a potential consumer upside. BlueKai comes to mind immediately with its BlueKai registry, which enables consumers to see what data are collected about them, edit their profile, and then select a charity to which a portion of the proceeds from their tracking can be assigned.

Very few people outside our industry are aware of all the “cookie matching” that goes on. This process essentially lets two different data providers compare cookies and match the intersection of the audience members between those cookies. This is typically done through a third-party service like Acxiom or Experian, which don’t allow the two parties to match the users in such a way that they can accidentally match personally identifiable information to a profile. A scenario would be an advertiser that has a list of cookies of its customers, which could compare those cookies to a data provider’s list of cookies that show their customers’ other profile attributes from surfing across various websites. Then the advertiser can bid differently on its own customers when it sees them. Given that the cost of acquiring a customer is far higher than retaining a customer, this is good business in many ways. But is it good in general?

It does beg the question about whether you should have to go and opt-out of this in the first place. I’ve had dozens of conversations with people about this, and not one of them was happy about being tracked this way. Some were resigned and disappointed, some were creeped out, and others were downright angry. When people start saying things like, “What gives them the right?” I get a bit concerned that legislation can’t be too far behind.

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The real reason consumers are creeped out by online ads

(Originally published in iMediaConnection, September 2010) by Eric Picard

Direct response marketers have been using various statistical models for decades to determine how to predict human behavior. They’ve built proven models that can help a marketer reach a highly targeted audience with a high degree of reliability and show that audience a message that has a higher probability of success than a random untargeted message. The easiest way to see this at work is to buy a house.

Two years ago, I bought a house (my timing was impeccable). Within weeks of my mortgage closing, I began to receive all sorts of interesting things in the mail. This was interesting because I explicitly opted out of having the data from my mortgage shared with anyone (or so I thought). As it turns out, this isn’t really possible — at least, I wasn’t able to pull it off, and I am aware of how the DR industry works. The average consumer hasn’t got a chance.

The kinds of mail I began receiving included lots of offers for things like mortgage refinance (despite that I had only bought my house weeks before), various types of insurance (most were flavors of home warranties), and then literally hundreds (possibly thousands) of offers from local businesses to try their services. This included some that were logical and tied to my physical relocation to a new neighborhood — various dentists, hair salons, landscapers, accountants, hardware stores, and roofing companies.

The DR industry has statistical models that clearly show the series of marketing opportunities that are associated with major life events. So when you have a baby, there are many things you’re likely to need to buy. When you buy a house, it’s very similar (in fact, these events are highly correlated). For instance, having a baby frequently is followed by purchasing a new (and safer or more spacious) car, SUV, crossover, or minivan. Life insurance is another highly correlated purchase.

These models are built, and the “sensing” mechanisms flow out into the various sources of publicly available data, as well as numerous private sources of data like financial services companies. For decades, your every credit card purchase has been carefully scrutinized and analyzed and applied against highly refined statistical models to figure out what opportunities exist to sell you other products and services.

Many people have begun to realize this — but it took decades to build the systems, and decades more to have the knowledge of its existence permeate the culture. So by the time you read this, many of you have simply accepted that this is standard practice. You’ve come to terms with your outrage at the fact that, without explicitly asking for your permission, data about your private life has been used to segment you into various buckets in order to more effectively market to you.

One of the major problems with this traditional direct response marketing is the massive expense behind it. Despite being a highly profitable, high-revenue business, it’s extremely expensive to operate. Building the statistical models, mining the data across numerous sources, and then building personalized (not private in any way, mind you) profiles against which to sell the personal contact information you’ve amassed — including phone numbers, physical home addresses, and names — isn’t cheap. And when it first started out, the costs were much higher because computing power was relatively much more expensive.

And that’s been the problem with DR since it began: Building these mailing lists of highly personalized targeting opportunities is so expensive, the pools of individuals who match them are so small, and the amount of time that the data are fresh and relevant is so short that the opportunity for any single marketer to reach target audiences is pretty small. Maintaining the freshness of the data is a big part of the expense. From a marketer’s perspective, the decision to use these mechanisms is quite simple — the response rates are well known and the ROI decision is easy. But the number of customers any one company can create using these tools is low enough that other forms of marketing are needed.

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If the benefits of DR are its targeted, effective nature and clear ROI, its handicap is the limited audience size for any one company. DR is like fly fishing; pick the fly that will work on that specific type of fish and get the fly into the right location at the right moment. Good old brand advertising has nothing to fear from DR for this reason. The benefit of brand advertising is that you reach a large-scale audience at a low cost and get your message to the masses. Brand advertising is like fishing with a big net; you catch a lot of fish, but you have to throw a lot of them back because they weren’t what you were looking to catch. The problem is, at these large scales, the ability to know how effectively you’re reaching the ideal audience is pretty limited.

Over time, a secondary market of service providers using panels of users that fit various criteria has developed. And at very large scale, marketers have been able to look at various media planning tools for decades that can show them the likelihood of reaching a desired audience based on association of the audience with various television shows, magazines, radio stations, newspapers, etc. But all these tools show is that there is a probability of reaching a certain relatively broad type of audience (e.g., women in a certain age group). But this is better than nothing and has worked fairly well.

And thus the market flourished. And along came online advertising.

When online advertising began, many saw this as the holy grail of marketing. Finally (they said) here is a place where computers are deeply integrated by nature, and we can combine the two methodologies: We can build systems that enable DR and brand advertising to coexist, and eventually we can find a way to do both things. We can reach highly targeted audiences at large scale and low cost and dynamically generate targeting profiles that radically improve ROI.

I cannot tell you how many meetings over the past 15 years that I’ve been in where the conversation flowed essentially like this. “What we’re really trying to do is build a database with one row for each person on the planet, and one column for each targeting attribute we believe we can sell to marketers.” This 6 billion row database with millions of columns has been theoretical of course; neither the technology to pull it off nor the reach to every person on the planet has been available.

And there is, of course, the major issue with privacy that keeps coming up and biting this industry on the backside. Whereas it took decades for the idea of big DR databases with personal data to permeate into the culture, online advertising showed up when the issues were a lot clearer to most people. And since the state of the art of behavioral targeting has begun to show some noticeable results, people are beginning to get “creeped out.” Recent Wall Street Journal and New York Times articles have highlighted how the industry has begun to change; they’ve talked about all the various targeting tags all over the commercial web that track interest and behavior. Users are noticing targeted ads, for better or worse. And the consumer response typically has been something along the lines of, “Who gave you the right?!”

Recently a friend of mine said that she had searched for a specific pair of shoes online, added them to the shopping cart of a website, and then decided to hold off on the purchase. For the next few days, she saw ads for that specific pair of shoes on numerous websites as she surfed across the web. She didn’t find this targeting of a relevant ad to be useful or “less annoying” than non-targeted ads. She found it creepy.

When I talk to people in our industry about the issues surrounding privacy and targeting, they frequently fall back on the defensive leg of providing consumers with more relevant advertising. They say that that once ads are more relevant, consumers will resent advertising less — that they might even like it. I’ve used these arguments myself in the past. The reality is that consumers would benefit from more relevant ads and might resent advertising less if the content of those ads matched better against their interests. But when we make them feel like someone is watching over their shoulders as they do things online, make no mistake — they resent it.

The example of Amazon.com comes up frequently in conversations around our industry. Amazon inherently shows products that match the kinds of things you’ve shopped for or purchased in the past. And often I’ve heard examples like, “When I go into a store and the shopkeeper recognizes me and makes a recommendation for me, I like it, and I begin to frequent this store more often because of the personalized service.”

But the reality is that this is a direct relationship that the consumer has with a specific merchant. It’s a one-on-one relationship that gives specific benefit and that has a clearly understood set of relationship rules. One colleague recently described behavioral targeting like this: “It’s like you are shopping in a store, and a guy in dark sunglasses and a trench coat is following you around and whispering into his watch. Then when you go into another store, he sidles up to the merchant and whispers in her ear that you were just shopping for negligee in another store down the street, and that you seem to prefer underwire cups.”

The reality of behavioral targeting is not far off from this example, and this seems to be missed by the marketing industry. Ultimately, consumers will decide what is and isn’t acceptable to them, and beware the marketing industry executives who believe they will make that decision on the consumer’s behalf. Now that people are relatively aware of the DR marketing practices in the traditional world, they are getting fed up with them in the online world, where they felt relatively anonymous and private. Consumers recognize that Amazon.com might know a lot about their purchase and shopping behavior while on that particular website; however, they would likely feel very uncomfortable if that data were then sold on the open market without their explicit permission to any advertiser willing to pay for it. Politicians have become aware of this growing consumer resentment, meaning that legislation is likely not far behind.

The online advertising industry isn’t wholly clueless, and many have been trying to come up with new approaches that they feel are less antagonistic to consumers, while still providing value to advertisers. In future articles, I’ll be exploring some of the ways that companies are thinking about the problem and beginning to address the issues.

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Fixing Online Advertising’s Privacy Woes

(Originally published in iMediaConnection, August 2010) by Eric Picard

Privacy is something I’ve been concerned about for some time when it comes to online advertising. John Hagel and Marc Singer’s excellent book “Net Worth” raised the issue in a significant way for me from a business perspective, way back in the ’90s, and Cory Doctorow’s recent novel “Little Brother” paints a bleak picture of what could happen to private citizens if privacy isn’t carefully guarded.

I raise this, of course, because of the recent Wall Street Journal and New York Times articles that have raised the specter of major privacy concerns because of the widespread tracking done by numerous parties in the online advertising space. I began worrying about the likelihood that targeting and privacy would begin to clash in a significant way back in 2004 when I started to understand what was going to happen with display advertising as we moved as an industry away from selling mainly context-based display ads and toward personalized, highly targeted audience-based display ads. And as we began moving toward automated buying systems and real-time bidding for ads based on audience attributes over the last five years, I knew we were in for it once again. From my point of view, it’s always been about when, not if, we were going to run into a consumer backlash against how much data we can (and do) collect in the online space.

Of course, the part that is a little ironic is that very detailed tracking of purchasing behavior and extrapolation of that behavior to other personal life stages and psychographic profiles (a process that is pretty accurate) of each person’s behavior has been common for decades via credit cards, financial services, and offline (traditional) targeting for direct marketing. And for the most part this hasn’t been widely reviled by the press, nor has it caused a consumer backlash against so-called massive mega-corporations with vast amounts of data about what we personally buy, do, and who we are.

Yes, it’s ironic that traditional marketing media have been tracking far more data than we can today online, and yes, it really could be interpreted that we are “less bad” than our traditional media cousins. However, this is not really a strong defensive statement, though it is still frequently stated by my colleagues in this industry. Perhaps only slightly less frequently than that other old nugget about consumers getting the benefit of “more relevant” or “personalized advertising” if they submit to being tracked for the purposes of selling targeted advertising against their anonymous profiles. This is, of course, only a statement I’ve ever heard espoused by folks in the online advertising industry — and not something consumers are consciously happy or excited about, nor something almost any consumer would react positively to.

It’s a bad meme — something we as an industry know to be true (after all, many magazines, as an example, are bought just as much to see the ads as read the articles. Think fashion, home improvement, and technology magazines if you disagree.) But that just isn’t a powerful message for consumers, and it is generally used by the press with some sarcasm to show how out of touch we are with consumers. And don’t get me wrong — I’ve made these statements myself. In fact, I was videotaped last year for a privacy-related video where I talk about targeting and online advertising — and I ultimately don’t get much beyond any of the arguments above in my short clip.

So, what is the issue here? Let’s look at some of the main questions being posed:

  • Should we be able to target ads based on tracking of anonymous user behavior? I believe so.
  • Is there significant chance of consumers being personally identified and something nefarious happening to them? Not today — although down the road, that could change as computing power gets much more advanced.
  • Do consumers get any value from targeting that we can use as a value proposition in educating them about these issues? Absolutely yes, but which messages we should use are not always clear.
  • Is the massive amount of data being tracked about consumer behavior a good thing or a bad thing? Well, that depends.

The advertising economy
When my parents were children in large working-class families in Massachusetts, it was a very big deal to have chicken for dinner. Chicken dinner was something their families typically had on Sunday — with a large family carefully dividing up a relatively small bird (by today’s standards.) Oranges might be available at certain times of year, but year-round access to all sorts of fresh vegetables and fruits was simply unheard of. And products in general were scarcer, relatively costlier, and were generally less affordable to large swaths of the population.

But with advances in supply chain management, modern manufacturing and farming techniques, and reduced transportation costs, the way the average modern family lives would be considered vastly wealthier and more privileged by the standards of my parents’ or grandparents’ generations.

As technology across all industries improves, we continue to see cost reductions in products and a wider variety of products due to general efficiencies and capabilities growing over time. And as media has fragmented, we’ve seen the costs and inefficiencies of marketing and advertising grow significantly as well. Targeting and personalization of marketing are mechanisms that help us rein in the growing costs and gain efficiency as well as effectiveness.

I have a core belief that I’d like to share with you. I believe that advertising is a fundamental driver of our economy. Advertising, as it so happens, actually works. Companies that advertise (especially those that do it well) sell more products and services. Those companies prosper, and hire more employees to work for them, thereby creating more jobs. And this virtuous cycle is very clear.

It is fairly well understood that watching the marketing spend of major corporations is a major predictor of the economy. When marketing spend drops, the economy soon drops as well. And it’s a leading indicator of a return to economic health — when marketing spend increases, the economy is on its way back to health. The question is: Which is driving which effect? Ultimately, I believe that advertising is both a predictor and a driver of the economy. It’s been shown repeatedly that those companies that increase marketing spend during an economic downturn generally do better during that downturn than competitors, and they tend to have incredible long-term advantage over competitors that decreased spend during the downturn. In some cases, this long-term advantage can create a market-leading company.

So when we talk about techniques for improving the effectiveness of advertising, like targeting, I get very excited. I believe there is incredible value to increasing the effectiveness, reducing inefficiency and increasing the amount of spending we do on advertising as a society. The overall increase in economic value from advertising is something I believe in. And one major way to increase the amount of spending done on advertising is to increase efficiency and decrease waste.

That’s where targeting and personalization of advertising are incredibly important. By showing ads to consumers that are relevant to them — and personalized to whatever possible degree — we can help advertisers hone their messages, spend money on reaching the audience interested in their products or services, and do it at scale. The positive impact of this isn’t well understood by most people — even many of those in our industry. Many parrot these words about “more relevant” advertising as if they are a shield to keep away the hounds of regulation. But there is a truth in this message that goes far beyond what is generally understood.

So — is this economic boom on its way? When will we feel its effects? Read on.

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In reality, even the most sophisticated systems we have for targeting and personalizing messages to consumers are pretty bad at it. Even if we knew literally every piece of information about a consumer that could possibly be used to deliver a targeted advertising experience, we couldn’t really do much with it today. Maybe publishers are able to charge a bit more for those ads that can be sold on a targeted basis. And maybe advertisers and agencies can bid higher in real-time for ads they know are going to be delivered to their target audience. But this is really just the beginning of a much more sophisticated advertising industry, and not a world where we can effectively reach an audience with the mythical “right ad at the right time in the right place.”

In a sense, the whole way we go about it is wrong. The surreptitious surveillance of the population in order to data-mine their online activity and build statistically driven models for how to deliver appropriate and relevant ads is possible to some extent today. As computing power grows over the next few years, it will become even more accurate and effective. And eventually the ad creative itself will become intelligent and customize itself to fine-tune the images, sounds, videos, and even the pitches to the individual consumer’s preferences. But doing this quietly in the background — hiding that it is being done — is perhaps destructive to the relationships businesses should be building with their customers.

Hagel and Singer raised this issue very effectively in “Net Worth.” Their prediction was that some entity would become an “infomediary,” building a set of tools and technologies that would allow the user to control what information is tracked about their behavior. This infomediary would enable the user to control which other entities would get access to this data, and perhaps even ensure that the consumer is paid for access to the data that enable better targeting of marketing. In other words, the infomediary would represent the consumer’s data to marketers on their behalf and share the proceeds with them. In 1999, this sounded like so much science fiction. And in a sense, it was. But we’re much closer to a world where this is possible — and desirable to both consumers and businesses.

So is the infomediary the only way to protect consumers?

No. There really isn’t anything shady going on here. While every industry will always have a few “bad actors” who try to game the system, the motivation for targeting marketing communications to potential and existing customers is self-evident value. Any company trying to sell its products must educate potential customers of the fact that its product exists (make them aware), educate them on the value proposition of that product (create purchase intent if it’s possible), and ultimately create demand for that product.

Some products are well suited to some consumers and ill suited to others. Enabling the kind of filtering that shows ads for adventure vacations to those who like to take them and quiet romantic beach vacations to those who are more likely to take them is an easy-to-understand motivation to most people. The concern is that something nefarious will be done with this data. People are concerned that, at best, some big faceless corporation will profit off of data collected on their customers. At worst, people fret that information that is sensitive or embarrassing would be used in a way that somehow affects the consumer.

And why shouldn’t people be worried that something bad will happen, or that they are being “used” by companies and taken advantage of?

Ultimately, we’re in a nice quiet moment where the technology is not yet advanced enough to have much happen — good or bad. While there is definitely a statistical advantage to having the data applied to marketing campaigns, the advantage is really just tightening up efficiencies for marketers at this point. But there’s little question in my mind that things will progress pretty quickly; within three to five years, much more sophisticated and effective technologies will exist.

I do think that the ad industry has a golden opportunity to self-regulate, and it’s also likely that some form of regulation will be applied to this space as well in the next few years. I’m personally not happy about this, as the nuance in how these technologies work is quite important. Heavy-handed regulations will stymie the development of this space at a time we can ill afford it.

An argument could be made that if a viable infomediary model were to arise, consumers could share in the revenue generated by it. But the reality is that we’re talking about a very small amount of money. On the individual consumer’s behalf, it’s probably not enough money to be meaningful. On the other hand, the impact that the data could have on advertising spending is significant, and the positive impact of this would be incredibly valuable to all consumers.

Before legislators begin jumping in and trying to “protect consumers” from this kind of technology, they should really understand what both the downside and upside of these technologies are likely to be. The downside is relatively painless, while the upside is potentially massive. There are great opportunities for this nascent industry to get momentum and really create a positive impact. But that will only happen if we as an industry are careful to avoid any perception of bad behavior in the way we track consumer behavior and target the delivery of ads.

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Facebook’s frighteningly impressive ad potential

(Originally published in iMediaConnection, September 11, 2009) by Eric Picard

I’m pretty active on Facebook. I check my account at least once per day, and I frequently will fill downtime by reading through my friends’ status updates on my phone. I find Facebook to be a brilliant and incredibly useful tool. It has reconnected me with old friends, given me a closer relationship with relatives who live far away, and helped create a closer, more personal relationship with many of my professional colleagues. And the amount of data that Facebook stewards for me is both impressive and scary.

In 10 years, Facebook will know what an entire generation’s boyfriends, girlfriends, spouses, and children look like. It will not only have a map of the social graph and deeply understand the relationships between people across the world, but it will also know what things they like, what companies they’ve worked for, and, in many cases, minutiae of value to advertisers — such as what products they’ve owned.

And despite the relative quiet around what Facebook is doing in advertising, the network has created one of the most powerful and elegant advertising tools I’ve seen so far. For the past six months, I’ve been telling people in almost every advertising discussion I’ve had that they should go and create an ad on Facebook. The process is a revelation.

The buying process inherently involves targeting. Keyword targeting is only one method used — and not required. Ads can be targeted not only to geography and demographics, but also according to workplaces, relationship status, and even ads shown on people’s birthdays. The tool implicitly gives you an estimate of the audience size you could potentially reach. And as an advertiser, I can’t imagine a buying scenario where I’d trust the estimate more. In a city like Seattle, which has numerous technology companies, an advertiser could even build offers specifically to employees of specific technology companies.

Recently I saw an ad from a guy who was trying to find a job in marketing at Microsoft (I work at Microsoft). His ad had a picture of him, a brief background, and a goal for what kind of job he was looking for. And it linked to his profile. Now, I must admit that I had mixed feelings about this ad, but I was also impressed at his chutzpah and also by the simple fact that it was possible to do this.

Scott Tomlin is a colleague of mine who owns a comic book store here in Seattle called Comics Dungeon, and we’ve chatted repeatedly about the difficulty he has as a local small business owner with advertising online. This is despite the fact that he has worked as a software engineer on advertising platforms for the past six years, and knows quite a lot about advertising.

Unfortunately the lessons of national advertising don’t apply very well to his local small business. He’s tried all the “usual suspects” in traditional media, but has really pushed hard on the idea of advertising online, especially given his main career. And he has had a hard slog of it — with the exception of his efforts on Facebook.

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Scott’s main push with online advertising has been selling subscriptions to comic books, and while he’s a local business, customers of his subscription service are spread across the U.S. The main reason he focused here is that he can justify the relatively high acquisition costs for a subscription customer, rather than just driving in foot traffic. And his acquisition costs with online advertising have been high — especially via paid search.

As I mentioned, the one shining ray of hope he’s had is Facebook. With Facebook, he can target so incredibly well that he can get his ad in front of folks he could never reach using other methods. He walked me through some of the campaigns he’s running on Facebook right now, and the results were pretty impressive. With Facebook he’s been able to branch out beyond his subscription sales and effectively target local customers to bring traffic into his store. And with Facebook’s features for hosting events, he’s found a very powerful tool to bring potentially high value customers from around the region into his store.

Unlike a national advertiser, as a small business, it’s in Scott’s best interest to spend some time honing his campaign to address incredibly small micro-targeted audiences — audiences that would be too much work and too tiny for a big advertiser to bother with. He showed me one campaign he’s been running to promote an event at his store. With the five targeting parameters he’d assigned to the campaign, his estimated audience was only 620 people. But he had more than 40 clicks on this campaign and, at last check, had 24 people who had signed up to participate — using Facebook’s event promotion tools. It is this integration of incredibly rich targeting with tools specifically available for individuals, organizations, and companies that make Facebook so incredibly valuable from a small local businesses standpoint.

I first recognized this power when I happened to notice an ad for a local Vietnamese restaurant called Monsoon East on my Facebook homepage. I still don’t know if Facebook was somehow able to glean that I love Vietnamese food, or if the ad just targeted me as a local. But what really grabbed my attention was not the ad itself, but what happened when I clicked on it. The ad didn’t link me through to the restaurant’s website. It brought me to a group page for the restaurant. My first thought was, “Oh — smart — it’s providing a landing page for local advertisers so they don’t need a website.” But then I saw that Monsoon East did, in fact, have a website — and after a bit of clicking, I realized that the restaurant actually has one hell of a website. It’s elegant, beautifully designed, and a fantastic site for a local restaurant. At first I was baffled as to why Monsoon East didn’t link to its website, but I quickly realized that its group fan page is brilliant.

This was a fan page with concise, relevant information that told me about why I might like the place, and then the magical “bit at the end” — the members’ list and discussion board. Monsoon East currently has 109 members on its group page, mostly filled with young, good looking, active-lifestyle (judging by their profile pictures) people. Despite my cynical ad-pundit view of advertising, I thought, “This looks like the kind of place I might like.” Just that they had 109 members on their fan page made this restaurant much more legitimate to me (as a consumer). And that’s powerful.

So kudos to a savvy set of local entrepreneurs who are unleashing the power of social networking to promote their businesses. I think we all have something to learn from them.

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