July 31, 2010

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The tide turned today. Mark it: 31 July 2010.

That’s when The Wall Street Journal published The Web’s Gold Mine: Your Secrets, subtitled A Journal investigation finds that one of the fastest-growing businesses on the Internet is the business of spying on consumers. First in a series. It has ten links to other sections of today’s report.

It’s pretty freaking amazing — and amazingly freaky, when you dig down to the business assumptions behind it. Here is the rest of the list (sans one that goes to a linkproof Flash thing):

Here’s the gist:

The Journal conducted a comprehensive study that assesses and analyzes the broad array of cookies and other surveillance technology that companies are deploying on Internet users. It reveals that the tracking of consumers has grown both far more pervasive and far more intrusive than is realized by all but a handful of people in the vanguard of the industry.

It gets worse:

In between the Internet user and the advertiser, the Journal identified more than 100 middlemen—tracking companies, data brokers and advertising networks—competing to meet the growing demand for data on individual behavior and interests.The data on Ms. Hayes-Beaty’s film-watching habits, for instance, is being offered to advertisers on BlueKai Inc., one of the new data exchanges. “It is a sea change in the way the industry works,” says Omar Tawakol, CEO of BlueKai. “Advertisers want to buy access to people, not Web pages.” The Journal examined the 50 most popular U.S. websites, which account for about 40% of the Web pages viewed by Americans. (The Journal also tested its own site, WSJ.com.) It then analyzed the tracking files and programs these sites downloaded onto a test computer. As a group, the top 50 sites placed 3,180 tracking files in total on the Journal’s test computer. Nearly a third of these were innocuous, deployed to remember the password to a favorite site or tally most-popular articles. But over two-thirds—2,224—were installed by 131 companies, many of which are in the business of tracking Web users to create rich databases of consumer profiles that can be sold.

Here’s what’s delusional about all this: There is no demand for tracking by individual customers. All the demand comes from advertisers — or from companies selling to advertisers. For now.

Here is the difference between an advertiser and an ordinary company just trying to sell stuff to customers: nothing. If a better way to sell stuff comes along — especially if customers like it better than this crap the Journal is reporting on — advertising is in trouble.

Here is the difference between an active customer who wants to buy stuff and a consumer targeted by secretive tracking bullshit: everything.

Two things are going to happen here. One is that we’ll stop putting up with it. The other is that we’ll find better ways for demand and supply to meet — ways that don’t involve tracking or the guesswork called advertising.

Improving a pain in the ass doesn’t make it a kiss. The frontier here is on the demand side, not the supply side.

Advertising may pay for lots of great stuff (such as search) that we take for granted, but advertising even at its best is guesswork. It flourishes in the absence of more efficient and direct demand-supply interactions.

The idea of making advertising perfectly personal has been a holy grail of the business since Day Alpha. Now that Day Omega is approaching, thanks to creepy shit like this, the advertsing business is going to crash up against a harsh fact: “consumers” are real people, and most real people are creeped out by this stuff.

Rough impersonal guesswork is tolerable. Totally personalized guesswork is not.

Trust me, if I had exposed every possible action in my life this past week, including every word I wrote, every click I made, everything I ate and smelled and heard and looked at, the guesswork engine has not been built that can tell any seller the next thing I’ll actually want. (Even Amazon, widely regarded as the best at this stuff, sucks to some degree.)

Meanwhile I have money ready to spend on about eight things, right now, that I’d be glad to let the right sellers know, provided that information is confined to my relationship with those sellers, and that it doesn’t feed into anybody’s guesswork mill. I’m ready to share that information on exactly those conditions.

Tools to do that will be far more leveraged in the ready-to-spend economy than any guesswork system. (And we’re working on those tools.) Chris Locke put it best in Cluetrain eleven years ago. He said, if you only have time for one clue this year, this is the one to get… A picture named not.gif

Thanks to the Wall Street Journal, that dealing may finally come in 2010.

To get started, I highly recommend installing TACO, the Targeted Advertising Cookie Opt-Out, or its fork, Beef TACO. There are other approaches, but these work for me.

What matters is that they show you at least some of the tracking activity that’s going on. And a little knowledge is better than none. (You can also block tracking as well.)

Meanwhile, this gives us more to talk about (and work on) at VRM+CRM 2010. Bonus barf. I don’t think we need legislation here (it’s too early and sure to have bad unintended consequences), but I also don’t think the Internet Advertising Bureau is operating in Reality.

[Later...] Jeff Jarvis thinks the Journal is being silly. I love Jeff, and I agree that the Journal may be blurring some concerns, off-base on some of the tech (see comments below) and even a bit breathless; but I also think they’re on to something, and I’m glad they’re on it.

Most people don’t know how much they’re being followed, and I think what the Journal’s doing here really does mark a turning point.

I also think, as I said, that the deeper story is the market for advertising, which is actually threatened by absolute personalization. (The future market for real engagement, however, is enormous. But that’s a different business than advertising — and it’s no less thick with data… just data that’s voluntarily shared with trusted limits to use by others.)

[Later still...] TechCrunch had some fun throwing Eric Clemons and Danny Sullivan together. Steel Cage Debate On The Future Of Online Advertising: Danny Sullivan Vs. Eric Clemons, says the headline. Eric’s original is Why Advertising is Failing on the Internet. Danny’s reply is at that first link. As you might guess, I lean toward Eric on this one. But this post is a kind of corollary to Eric’s case, which is compressed here (at the first link again):

I stand by my earlier points:

  • Users don’t trust ads
  • Users don’t want to view ads
  • Users don’t need ads
  • Ads cannot be the sole source of funding for the internet
  • Ad revenue will diminish because of brutal competition brought on by an oversupply of inventory, and it will be replaced in many instances by micropayments and subscription payments for content.
  • There are numerous other business models that will work on the net, that will be tried, and that will succeed.

The last point, actually, seemed to be the most important.  It was really the intent of the article, and the original title was “Business Models for Monetizing the Internet:  Surely There Must Be Something Other Than Advertising.”  This point got lost in the fury over the title of the article and in rage over the idea that online advertising might lose its importance.

My case is that advertisers themselves will tire of the guesswork business when something better comes along. Whether or not that “something better” funds Web sites and services is beside the points I am making, though it could hardly be a more important topic.

For what it’s worth, I believe that the Googles of the world are well positioned to take advantage of a new economy in which demand drives supply at least as well as supply drives demand. So, in fact, are some of those back-end data companies. (Disclosure: I currently consult one of them.)

Look at it this way…

  • What if all that collected data were yours and not just theirs?
  • What if you could improve that data voluntarily?
  • What if there were standard ways you could get that data back, and use it in your own ways?
  • What if those same companies were in the business of helping you buy stuff, and not just helping sellers target you?

Those questions are all on the table now.

VRM + CRM 2010

So that’s the logo for the first VRM+CRM workshop, which will happen on 26-27 August, at Harvard Law School. It’s free. You can register here.

ProjectVRM, which I’ve been running as a fellow at Harvard’s Berkman Center has been growing nicely over the past four years, and is on its way toward becoming an independent entity. (It will exist, as always, to support a community of developers and interested parties outside of the project itself.) It’s funny, I remember Jeremie Miller, who encouraged me to choose VRM (before it had that name) as my Berkman project when I started out in late summer of 2006, telling me “it will take five years.” Meaning that’s generally how long any new world-changing development effort spends in the quiet shadows before it breaks out into the open and starts taking off. (If it does at all.) That’s about how long it took for Jeremie’s own Jabber/XMPP efforts. (He predicted five years at the beginning of that too, and he was just a kid then. Wise dude.)

I’ve liked keeping VRM in the shadows, because I felt that code mattered more than anything. Code talks. Buzz walks. And I say that even though I’m not bad at generating buzz when I need to. Now the code base is growing enough that many of us feel a need to start talking about it. Especially to potential partners in the business world.

We’ve described VRM as the “reciprocal” of CRM at various times. It’s much more than that, actually. Its tools that give individuals independence from others, yet useful means for engaging with others — especially organizations, and among those especially sellers. But the core elements are individuals and independence.

I’ve also seen VRM from the start as fundamentally an open source effort, not a commercial one. I also saw open source tools, with their high use-value, having enormous leverage into sale-value for any company selling products or services based on those open tools. This would include, among other things, many fourth-party services — itself another whole new category.

CRM in the meantime has grown to become a $15-billion business. It has also lately enlarged its intrest to include Social CRM. Our friend Paul Greenberg has written extensively on both, and is the driving force behind Destination CRM next week in New York. (Which I hate to miss, but have a prior commitment elsewhere.) Since VRM will be a topic at Destination CRM, and we can get space here at Harvard before the students come back, we put together the workshop to follow at the other end of the same month.

The workshop is for VRM and CRM developers and other interested parties (such as CRM customers) together to start building out the common ground between them. The nature of relationship is to exist between and apart from both parties. Neither controls the other. Both work together, in a common space between the two. We haven’t had that space before. The default on the CRM side (and one that predates CRM itself) is for vendors to control relationships with customers. What VRM proposes is that neither controls the other, but both manage the space between them, in mutually beneficial ways.

The workshop will mostly be an unconference, though there will be some opening briefings by VRM and CRM folks, to set the stage for sessions to follow. Here are a few of the topics and questions I expect will come up. (These are copied over from a post I just put up over on the ProjectVRM blog.) –

  • Terms of service. How can we get past the legal hurdles and shackles that inconvenience both buyers and sellers when they get acquainted?
  • Privacy policies. How can we reduce the suspicions and frictions that these involve?
  • Personal data. What tools, methods and services are being developed for individuals to keep track of data they generate or is being kept by sellers and other parties? What means do we have for sharing or exchanging that data in secure and trustable ways?
  • Signaling. What new methods will both individuals and organizations have for notifying each other of interests, intentions, policies, preferences, or changes in any of those? How can we make these common across the industry, rather than different for every organization?
  • Self-tracking and personal informatics. What vendor-independent means are being developed for individuals to keep track of their own personal data, and manage it?
  • Interactive shopping. The Live Web we saw coming in 2005 is here. So is the mobile one. Combine those facts with the ability to issue personal RFPs (or just to publish your shopping list to trusted retailers and fourth parties), and what do you get?
  • Search. What new paradigms for searching are being developed, especially in the context of all the topics above?
  • Non-coercive loyalty. What ways are being developed for individuals to express and manage their own forms of loyalty to sellers and other organizations? How can this improve existing loyalty programs?
  • Personal RFPs or Advertising in Reverse. How can individual customers notify whole market categories of their intent to purchase a product, safely and securely, without inviting a torrent of promotional jive in response?
  • Leveraging base-level protocols, standards and tools. There are hundreds of thousands of free and open source tools, protocols and other goods already in the world, ready to serve as free building materials and guidelines. What can we use of these, and what new ones do we need? What new ones are in development on the VRM side?
  • Reducing MLOTT — Money Left On The Table. In our current system, a huge sum of demand goes un-met because of the the means for communicating interest and availability are on the supply side. How (including the means listed above and others) can we equip demand to notify supply of money ready to be spent? In the old days this was seen as “lead generation” by suppliers. But now it’s time to get past that.
  • Tie-ins with SCRM. Social CRM is the hottest topic in CRM. How can VRM connect with and through social networking? Important question: Should “social” be restricted to just what can be done through Facebook, Twitter and other commercial services?
  • Patient-driven health care. How can individuals be the collection points for their own health data, and the point of origination for what gets done with it?
  • API symphonics. The commercial world is increasingly building around a collection of interconnected APIs, or Application Programming Interfaces. Many CRM systems are built around their own APIs. VRM will surely connect into many APIs. How should we be thinking about and guiding evolution here?
  • The oppposite of cookies. Sites and companies of all kinds have been keeping track of customers through cookies since the mid-’90s. How can customers do the same with their suppliers?

Feel free to add your own, correct these, or make other recommendations.

More details on the event wiki page.

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