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While providing unprecedented targeting opportunities with its new demographic ad server, America Online is coming under fire from privacy advocates.

The new service allows marketers to target ads with precision by matching users' personal information with data from offline direct marketing companies such as Polk Co. and MetroMail Corp. This process can reveal more than 200 variables about an individual, which can be layered to paint rich consumer portraits.

For instance, a car company could direct an ad at 40-year-old males with $100,000-plus incomes who haven't purchased a car in the last five years. So far, GTE Wireless, Tropicana Dole Beverages North America and Ameritech Corp. have signed up for the targeting.


"In no way do we violate members' privacy," said Myer Berlow, senior VP-interactive marketing at AOL, pointing out how AOL members sign off on such targeting in their terms of service, and that the information is used solely for banner ads, rather than more intrusive e-mail.

Not only does the service bring value to advertisers, but "We're able to reach our members with ads that they're more interested in," he said.

More importantly, Mr. Berlow compared the service to the common selective binding that news magazines like Time use to create issues customized for people living in specific ZIP codes.

"The only difference is that you can't customize newsstand editions," he pointed out, "With AOL we can target all of our members."

Susan Scott, executive director of online privacy organization TRUSTe, begs to differ. "I think it's a gross violation of privacy," Ms. Scott said, explaining that it was her impression that she gives AOL her credit card and address strictly for billing purposes. "It wasn't so they could buy my information from database companies."

And just because ads are targeted in this fashion in magazines "doesn't make it right," she added. "As we've learned, the public holds the online industry to a much higher standard than the offline world."

For instance, a sweepstakes entry personalized with a consumer's name hardly raises eyebrows, while its e-mail equivalent is considered an affront.

By not explicitly asking consumers outside of the fine print, AOL isn't nurturing trust online, Ms. Scott asserts, which she said is crucial to fostering online commerce.


Consumer confidence in such targeting isn't strong either, according to a Louis Harris & Associates poll published in the Oct. 6 issue of Business Week.

The poll, which was based on telephone surveys with 1,002 adults, showed that only 1% of the respondents were "very willing" to share personal and financial information about themselves so that online ads could be targeted to their tastes. Some 11% said they were "somewhat willing," 23% said they were "not very willing" and a staggering 65% said they were "not very willing at all" to share such information.

But there's just as much evidence that shows consumers are ready for ad targeting and appreciate it, said Daniel Hamburger, VP, MetroMail's Internet Services Group, Oak Brook, Ill. For instance, more than a million users have given their personal information to Firefly Network's site in exchange for having more relevant ads and content sent to them.

"The objective is to serve ads aimed at people's interests and engender better results," Mr. Hamburger said. "Certainly anybody like AOL, an ISP or Web site that has a subscriber base has the ability, using ad serving technology, to accommodate demographic variables."


Indeed, other companies are getting into the act. Imgis, a Cupertino, Calif., company that sells AdForce ad management software, is also developing a demographic ad targeting system, which is expected to roll out in 1998.

But unlike AOL's model, users will remain anonymous to marketers, through a digital tag that defines them with demographic stats. Imgis, which is consulting with MetroMail and TRUSTe, is negotiating partnerships with Internet service providers and is developing a process of informed consent with users.

"To make the Internet a part of mainstream media, you need to be able to offer the same kind of parameters that are offered in traditional media," said David Kopp, director of marketing at Imgis, explaining the company's mission to classify users demographically, much like magazines or TV networks do. "It makes it much simpler to add the Internet to the media mix," he said.

Consumers also benefit from the targeting, Mr. Kopp said. Not only do users receive more relevant content, but such targeting prevents them from having to see the same ads repeated. And ultimately, he added, if sites can charge more for advertising, they'll be able to improve their content.

Dave Moore, president-CEO of ad network Petry Interactive, which is preparing to employ Imgis' upcoming ad targeting service, thinks this type of targeting is critical for the online ad business to gain parity with traditional media and "for mainstream advertisers to do more than kick the tires of online advertising."

Web sites could charge premiums up to 40% over base rates for targeted ads, Jupiter Communications analyst Marc Johnson said.

"CPMs could just go through the roof," he added, "but where's the point of diminishing returns for marketers?"

For instance, if a marketer picked all 300 criteria "selects" on which to target individuals, it would result in staggering cost per thousand rates.

If publishers fully disclose how they are using consumers' information, Mr. Johnson said he sees no reason why this won't become a staple of Web advertising.

"This is a huge step forward in targeting," he said. Even better would be a mix of offline data and behavioral data, collected from users as they visit sites.

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