Microsoft's cookie cutter termed threat to Web ads

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Microsoft Corp.'s offer of a beta patch to its Internet Explorer browser that would alert users to cookies sent by third parties is being decried as a threat to Web advertising.

Although few believe Web users will download the patch -- predicting Microsoft eventually will alter Explorer default settings -- Web advertisers are nonetheless concerned that targeting Web ads could become more difficult if consumers use the patch to turn off ad servers' cookies.

"It could be pretty damaging," said Mike Donahue, exec VP of the American Association of Advertising Agencies, suggesting that a number of commonly used measurements of click-throughs could be affected. "If you cut out the cookies of third-party ad servers, the user can't be targeted as effectively."

PENALTY WITHOUT PROTECTION

"What [Microsoft] has done is penalize third-party Web servers without doing anything about privacy," said Jarvis Coffin, president-CEO of Burst Media, a third-party ad server. "The industry is on the verge of coming together to set standards. We are disappointed they have taken this step unilaterally."

Microsoft's latest Internet Explorer browser allows consumers to either turn off all cookies or be prompted on how to proceed when a cookie is stored. The patch, to become available in six to eight weeks, would allow consumers to continue to get a Web site's own cookies, but turn off or be notified of third-party cookies. America Online's Netscape browser already offers similar functions, but requires a consumer to turn on the prompt; Microsoft's default patch settings automatically prompt users.

Jason Mahler, VP-general counsel of the Computer & Communications Industry Association, said his group is worried that the patch would not affect Microsoft's sites -- MSN serves 90% to 95% of its own ads -- while making it tough for competitors who depend on third-party ads to compete. "There is a potential competitive problem with the fix they are proposing," he said. "We are worried that it . . . is setting up Microsoft as the party that will determine what options are available to most consumers." Mr. Mahler further predicted that widespread adoption of the patch could put smaller advertisers out of business.

`ENORMOUS COMMITMENT'

Richard Purcell, director of corporate privacy at Microsoft, said based on reaction to the patch, Microsoft would offer a version this fall that would also add other privacy enhancing measures. "It's an enormous commitment to advancing consumer protection," Mr. Purcell said. "It provides consumers with more and better information about who is collecting data."

He acknowledged that much advertising on the Web uses cookies and if consumers turn them off, the patch could have a major impact. "If that is the popular decision, the Net will become a subscription service," he said. But Mr. Purcell predicted consumers instead would better understand the trade they are making for information. "It's a value proposition. It is important that consumers understand that."

GENERAL SHUT-OFF FEARED

Web advertising experts, however, expressed fear that consumers would turn off third-party cookies.

If default settings remain the same as the beta, or test, version of the patch, Microsoft "is going to drive a lot of consumers to make a decision about privacy" they didn't previously realize they could make, said Chris Hansen, research analyst Banc of America Securities. If consumers decide to let only Web sites they are visiting cookie them, third-party ad-servers such as DoubleClick and Engage that rely on cookie data for even basic, anonymous ad targeting and campaign management could lose data central to their business model, he said.

Daniel Jaye, chief technology officer of Engage, while praising Microsoft for moving privacy to the top of its agenda, said widespread adoption of the patch would "affect certain business models." He said Engage would be less affected than some other companies.

In a statement, the Network Advertising Initiative, the association of third-party ad servers, warned against "overbroad" privacy solutions that would hurt small and medium-size Web sites and "undermine the Internet business model that allows Web sites to remain free." NAI urged Microsoft to hold off on the patch at least until NAI releases new industry privacy standards, an announcement that could take place next week.

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