Big Brother keys in on our keywords

Like a cross between Big Brother and Santa Claus, Microsoft has been making a list and checking it twice, the better to target advertising to you.

Long conspicuous by its absence in the keyword ad war dominated to date by Google and Yahoo, Microsoft is launching its own version of the little ads arrayed around the results on its search pages. Until now, Microsoft has been displaying Yahoo ads on its pages, thus being forced to share revenues with one its it major rivals. First deployments over the next six months will be in France and Singapore.

What will be different about Microsoft's ads, apart from their tardy arrival in this $4 billion business, is that they will be targeted not only by the subject of your search but also by such individual characteristics as your gender, age, Zip Code and even the time of day you visit the web site. Further, Microsoft intends to extrapolate this data to estimate such things as your education and income.

Microsoft told the press it has gathered personal information by tracking users of Hotmail, Passport and other web sites. Once the ad program is in full swing, Microsoft will use computer addresses to track who's who, but "will not release names or other personally identifiable information," says VP Yusef Mehdi. Still, the company intends to provide detailed information to advertisers about the demographic characteristics and responses of the people who clicked on its ads.

Microsoft's announcement is bound to encourage Google, Yahoo and others to begin offering similar target-marketing systems. This has huge implications on a couple of levels. First, this represents a serious new challenge to our privacy. Second, it is a frontal assault on the classic mass-media paradigm.

With respect to privacy, everyone should be concerned with how data is captured, stored, sorted, shared and sold. With data leaks increasingly commonplace at schools, insurance companies, corporations, hospitals and financial institutions, few among us retains the illusion that our identities and personal information are secure. Still, this is an unsettling presumption on our privacy.

Rather than harvesting infromation from unsuspecting site visitors, Microsoft and the others who follow should alert users to the fact that their data is being gathered -- and request their affirmative permission to participate to such programs. Many users will not object and even more will comply if they are offered a modest incentive to do so. The point is: Users need to be informed up front.

From a commercial point of view, a widescale deployment of this form of targeted marketing may go down as one of the shots heard 'round the world for mass media advertising.

Targeted, or so-called "behavioral," marketing is the direct opposite of ye olde mass-media model, whereby an advertiser throws a certain amount of mud against the side of a barn in hopes of hitting a qualified, motivated prospect. Heretofore an arcane, somewhat touchy-feely form of online advertising, beahavioral marketing has proven its benefit in limited, carefully choreographed experiments.

Revenue Science, one of the early practitioners of the art, says it demonstrated the effectiveness of target marketing in a campaign for American Airlines that pinpointed frequent fliers at the Wall Street Journal web site. The advertising agency said ads popped on targeted pages were viewed by 145% more frequent fliers than ads placed randomly on the site. After correlating the costs of advertising and the response to it, the agency said the targeted program was 45% cheaper than the randomly placed ads.

This data is interesting in two ways. First, it makes a strong case that targeted advertisiing works. Second, it unambiguously informs advertisers that they no longer have to simply hope for the best when they buy mass quantities of print or on-air advertising.

As if on cue, a former advertising executive of the San Jose Mercury News wrote this note yesterday to Jim Romenesko, the Boswell of modern American journalism:

One of the essential facts that newspaper ad people never talk about is the inherent inefficiency in newspaper advertising and that this inefficiency is what drives profitability. In fact, not only did we try to keep this a secret, the old Newspaper Advertising Bureau created a clever marketing name for the phenomenon -- "The Thin Market Concept" -- and tried to use it to get customers to buy ads on more days.

Now that advertisers can measure where and how their dollars perform, the "Thin Market Concept" is going to start wearing, well, very thin.