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magnifying glassLast year, Facebook started running ads that used your Web surfing history to target you. Soon they’ll be a little more obvious about the fact that they’re doing it.

But not a lot more obvious.

After months of discussion with the Council of Better Business Bureaus, Facebook is going to start incorporating a small triangular “AdChoices” logo on some of the ads where it uses “retargeting” — the common Web practice of serving ads to surfers based on the sites they’ve already visited.

If you have a sharp eye, you may have seen the triangle on lots of other Web sites, including those run by Yahoo and Google. That’s the result of a self-policing move Web publishers made a couple years ago, in an attempt to keep privacy watchdogs and Federal regulators off their backs.

Here’s what it looks like, for instance, on an ad running on Yahoo’s home page today.

yahoo adchoices

In theory, when you see one of the triangles, you can click on it and learn more about a given Web publisher’s targeting practices. And then you can opt out of them if you want (here’s what happens if you click on Yahoo’s triangle).

In practice, I find it hard to believe most consumers notice the icons at all (that text looks a whole lot smaller when it’s side by side with everything else competing for your attention on a Web page). Or that they’ll understand the language they’ll encounter if they do click on them (“The Web sites you visit work with online advertising companies to provide you with advertising that is as relevant and useful as possible,” etc.)

In any case, Facebook is going to start using the same icons for some of the ads it serves up on the right side of its home page, where it has begun selling retargeted ads through its Facebook Exchange program.

Except you won’t see them unless you look for them, by hovering your mouse over the ad and clicking on the grey “x” that appears when you do. And Facebook doesn’t plan on using them on all of its retargeted ads — a Facebook rep says the company will only do so when its advertisers or ad tech partners choose to use them.

If that doesn’t sound like a lot, it’s at least an improvement over the current set-up. Right now, the only way you can learn that you’re seeing a retargeted ad is if you mouse over the ad, click the grey “x” and then click on the “About this ad” option.

If it turns out you’re seeing a retargeted ad, you’ll see a page that may or may not explain what you’re looking at. Here’s one I found today, from retargeter Chango, after clicking on a Dish Network ad.

If you care and know about this stuff, you’ll understand what you’re looking at. If not …

Which brings us back to the eternal “who does care about this stuff” question.

As The Wall Street Journal has documented via its excellent “What They Know” reports, the Web ad guys know a ton about you (so do the offline ad guys). And if you tell a normal person about it, they’ll get a little creeped out. They’ll also tell you that they think privacy is really, really important to them.

But in practice, this doesn’t seem to be an issue that galvanizes regular folks. And it has yet to find a powerful political ally — you didn’t see anyone running on the “I took on the cookie people” platform last fall.

Maybe that will change, and Facebook and its peers will have to be a lot more obvious about this stuff — or even ask consumers for permission before they go about doing it.

But for now, this seems like it will be enough.

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Image copyright kentoh

In a series of articles last year, executives from the ad-data firms BlueKai, eXelate and Rocket Fuel debated whether the future of online advertising lies with “More Data” or “Better Algorithms.” Omar Tawakol of BlueKai argues that more data wins because you can drive more effective marketing by layering additional data onto an audience. While we agree with this, we can’t help feeling like we’re being presented with a false choice.

Maybe we should think about a solution that involves smaller amounts of higher quality data instead of more data or better algorithms.

First, it’s important to understand what data is feeding the marketing ecosystem and how it’s getting there. Most third-party profiles consist of data points inferred from the content you consume, forms you fill out and stuff you engage with online. Some companies match data from offline databases with your online identity, and others link your activity across devices. Lots of energy is spent putting trackers on every single touchpoint. And yet the result isn’t very accurate — we like to make jokes around the office about whether one of our colleagues’ profiles says they’re a man or a woman that day. Truth be told, on most days BlueKai thinks they are both.

One way to increase the quality of data would be to change where we get it from.

Instead of scraping as many touchpoints as possible, we could go straight to the source: The individual. Imagine the power of data from across an individual’s entire digital experience — from search to social to purchase, across devices. This kind of data will make all aspects of online advertising more efficient: True attribution, retargeting-type performance for audience targeting, purchase data, customized experiences.

So maybe the solution to “More Data” vs. “Better Algorithms” isn’t incremental improvements to either, but rather to invite consumers to the conversation and capture a fundamentally better data set. Getting this new type of data to the market won’t be easy. Four main hurdles need to be cleared for the market to reach scale.

Control and Comfort

When consumers say they want “privacy,” they don’t normally desire the insular nature of total anonymity. Rather, they want control over what is shared and with whom. Any solution will need to give consumers complete transparent control over their profiles. Comfort is gained when consumers become aware of the information that advertisers are interested in — in most cases, the data is extremely innocuous. A Recent PWC survey found that 80 percent of people are willing to share “information if a company asks up front and clearly states use.”

Remuneration

Control and Comfort are both necessary, but people really want to share in the value created by their data. Smart businesses will offer things like access to content, free shipping, coupons, interest rate discounts or even loyalty points to incentivize consumers to transact using data. It’s not much of a stretch to think that consumers who feel fairly compensated will upload even more data into the marketing cloud.

Trust and Transparency

True transparency around what data is gathered and what happens to it engenders trust. Individuals should have the final say about which of their data is sold. Businesses will need to adopt best practices and tools that allow the individual to see and understand what is happening with their data. A simple dashboard with delete functionality should do, for a start.

Ease of Use

This will all be moot if we make it hard for consumers to participate. Whatever system we ask them to adopt needs to be dead simple to use, and offer enough benefits for them to take the time and effort to switch. Here we can apply one of my favorite principles from Ruby on Rails — convention over configuration. There is so much value in data collected directly from individuals that we can build a system whose convention is to protect even the least sensitive of data points and still respect privacy, without requiring the complexity needed for configuration.

The companies who engage individuals around how their data is used and collected will have an unfair advantage over those who don’t. Their advertising will be more relevant, they’ll be able to customize experiences and measure impact to a level of precision impossible via third-party data. To top it off, by being open and honest with their consumers about data, they’ll have impacted that intangible quality that every brand strives for: Authenticity.

In the bigger picture, the advertising industry faces an exciting opportunity. By treating people and their data with respect and involving them in the conversation around how their data is used, we help other industries gain access to data by helping individuals feel good about transacting with it. From healthcare to education to transportation, society stands to gain if people see data as an opportunity and not a threat.

Marc is the co-founder and CEO of Enliken, a startup focused on helping businesses and consumers transact with data. Currently, it offers tools for publishers and readers to exchange data for access to content. Prior to Enliken, Marc was the founding CEO of Spongecell, an interactive advertising platform that produced one of the first ad units to run on biddable media.

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Image via vichie81

Recently, Omar Tawakol from BlueKai wrote a fascinating article positing that more data beats better algorithms. He argued that more data trumps a better algorithm, but better still is having an algorithm that augments your data with linkages and connections, in the end creating a more robust data asset.

At Rocket Fuel, we’re big believers in the power of algorithms. This is because data, no matter how rich or augmented, is still a mostly static representation of customer interest and intent. To use data in the traditional way for Web advertising, choosing whom to show ads on the basis of the specific data segments they may be in represents one very simple choice of algorithm. But there are many others that can be strategically applied to take advantage of specific opportunities in the market, like a sudden burst of relevant ad inventory or a sudden increase in competition for consumers in a particular data segment. The algorithms can react to the changing usefulness of data, such as data that indicates interest in a specific time-sensitive event that is now past. They can also take advantage of ephemeral data not tied to individual behavior in any long-term way, such as the time of day or the context in which the person is browsing.

So while the world of data is rich, and algorithms can extend those data assets even further, the use of that data can be even more interesting and challenging, requiring extremely clever algorithms that result in significant, measurable improvements in campaign performance. Very few of these performance improvements are attributable solely to the use of more data.

For the sake of illustration, imagine you want to marry someone who will help you produce tall, healthy children. You are sequentially presented with suitors whom you have to either marry, or reject forever. Let’s say you start with only being able to look at the suitor’s height, and your simple algorithm is to “marry the first person who is over six feet tall.” How can we improve on these results? Using the “more data” strategy, we could also look at how strong they are, and set a threshold for that. Alternatively, we could use the same data but improve the algorithm: “Measure the height of the first third of the people I see, and marry the next person who is taller than all of them.” This algorithm improvement has a good chance of delivering a better result than just using more data with a simple algorithm.

Choosing opportunities to show online advertising to consumers is very much like that example, except that we’re picking millions of “suitors” each day for each advertiser, out of tens of billions of opportunities. As with the marriage challenge, we find it is most valuable to make improvements to the algorithms to help us make real-time decisions that grow increasingly optimal with each campaign.

There’s yet another dimension not covered in Omar’s article: the speed of the algorithms and data access, and the capacity of the infrastructure on which they run. The provider you work with needs to be able to make more decisions, faster, than any other players in this space. Doing that calls for a huge investment in hardware and software improvements at all layers of the stack. These investments are in some ways orthogonal to Omar’s original question: they simultaneously help optimize the performance of the algorithms, and they ensure the ability to store and process massive amounts of data.

In short, if I were told I had to either give up all the third-party data I might use, or give up my use of algorithms, I would give up the data in a heartbeat. There is plenty of relevant data captured through the passive activity of consumers interacting with Web advertising — more than enough to drive great performance for the vast majority of clients.

Mark Torrance is CTO of Rocket Fuel, which provides artificial-intelligence advertising solutions.

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Editor’s Note: This guest post is written by Doug Pepper, who is a General Partner at InterWest Partners where he invests in SaaS, mobile, consumer Internet and digital media companies. He blogs at dougpepper.blogspot.com.

Everyone expects startups, even successful ones, to undergo a cycle of hype, disappointment and ultimately growth on the way to a sustainable business. But what about new technology markets themselves? Does the growth of a new market follow a similar pattern?

Fred Wilson recently wrote about the twists and turns that startups face (expanding on Paul Graham’s astute “Startup Curve”). I’d like to take those ideas further and describe the “Market Curve” — a similar path that new markets take on the path to sustainability.

The chart below shows the basic pattern. Markets often experience a “Hype Cycle” of overheated expectations followed by a trough — call it “Facing Reality.” If the market ultimately succeeds, the next phase is “Liftoff.” But troughs don’t end until several ingredients are present. First, there must be broad adoption of core underlying technologies that support the market. Second, there needs to be compelling reference applications to drive mainstream adoption. Finally, there must be a pioneering company, typically with a charismatic leader, that leads the market out of the trough. Obviously not all markets are destined to make it out of their trough.

For entrepreneurs and investors the most exciting element of the Market Curve is that, once the trough ends, strong technology markets ultimately prove more valuable than anyone imagined even during the Hype Cycle. Here are a few examples of how different technology markets fit into this curve.

Internet: Broadband Penetration and YouTube

The late ‘90s saw extreme hype surrounding the Internet but the market was simply not yet ready to deliver. With only five million fixed broadband connections in 2000 the underlying technology wasn’t there. Plus there were very few truly compelling applications. The Internet entered its “Facing Reality” trough in the early 2000’s and failed to live up to initial expectations.

But, by 2005, there were 43 million U.S. broadband connections and addictive applications like YouTube and eventually Facebook. That year Jeff Bezos launched Amazon Prime and convinced mainstream consumers that they could conveniently and safely shop for anything online. Since then, the Internet has proven to be more transformative to our civilization and more ingrained into mainstream culture than ever imagined.

Amazon has surfed the wave of the Internet’s Market Curve almost from the very beginning. Their stock price clearly follows this pattern.

Mobile: The iPhone and App Store

Between 2000 and 2005, nearly every VC firm had Mobile as a core investment sector. And, with few exceptions, those investments were unsuccessful. During that time, mobile networks were slow and unreliable (remember the CDPD network?), devices were clunky and carriers thwarted innovation. Clearly, that all changed when Steve Jobs launched the iPhone in 2007 and replaced the carrier decks with the App Store. And, with more than one billion mobile broadband subscribers globally, the post-PC mobile computing industry is in a “Liftoff” phase that is accelerating beyond wildest expectations.

SaaS: Salesforce.com and Successfactors

When I first joined my VC firm, InterWest Partners, in September 2000, the Application Service Provider (ASP) concept was all the rage. These ASPs offered off-the-shelf software to enterprises delivered over the Internet. However, between 2001 and 2007, adoption was slow because enterprises were more concerned with security risks than the benefits of hosted software.

Over time, Internet security and reliability improved and several pioneering companies, including Marc Benioff’s Salesforce.com and Lars Daalgard’s Successfactors, emerged with proprietary software applications that proved the benefits of SaaS delivery. Today, this market has broadened into a larger paradigm called Cloud Computing with corporations shifting nearly every aspect of their IT infrastructure into the Cloud. This could not have been imagined during the Hype Cycle of this market.

Market Failures: Troughs That Never End

Of course, not every market recovers from its trough. For example, while there are certainly specific nano technologies that are fundamental to many products, a broader nanotechnology market hasn’t emerged. It’s not clear that it ever will. And, in my opinion, Cleantech currently sits at the bottom of the trough. Because of extreme capital intensity, long sales cycles and wavering enterprise and consumer interest in “Green,” this market has become challenged. The question is whether Cleantech will ever emerge from the depths of the trough where it sits today and become the powerful market that John Doerr, Vinod Khosla and many others had hoped.

In the chart below, I show where a number of current technology Markets sit along the Market Curve.

Takeway: Have Conviction During the Trough

The best investors recognize and take advantage of these troughs and the best entrepreneurs lead Markets out of the trough. When SaaS was in the trough, Marc Benioff built Salesforce.com and Dave Strohm invested in Lars Daalgard at Successfactors. When the Internet was in the trough, Jeff Bezos built Amazon.com and Roelof Botha invested in YouTube. In the case of Steve Jobs, he invented a product and pioneered a business model that altered the Mobile market and led it out of the trough. The key is to have conviction about a Market and, as an investor, look for the technologies, products and leaders that will end the trough. Or, as an entrepreneur, launch market leading products and business models to end it yourself.

Marketo is an example of an investment my firm, InterWest, made during a trough. During the late 1990′s, there was a peak of excitement around Marketing Automation with companies like Annuncio, Rubric, Marketfirst and ePiphany. But, the market was not ready. Marketers were not adopting Internet techniques for acquiring customers and they didn’t have sufficient budgets to adopt and implement enterprise software.

By 2006 when InterWest invested in Marketo, the company’s founders believed, and my colleague Bruce Cleveland and I agreed, that the market had progressed along the Market Curve. Marketers had begun consistently utilizing search engine marketing, landing pages, email marketing, and online content marketing … all the activities that are harnessed and optimized by Marketing Automation and Lead Nurturing products. And, the SaaS delivery and business model meant that marketers could quickly see ROI without big budgets or IT resources.

We had conviction that that the Marketo team would create the compelling products needed to lead the Marketing Automation market out of the trough. Today it seems clear that this market will be larger than expected even during the initial Hype Cycle.

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The NAI Opt-out Tool was developed in conjunction with our members for the express purpose of allowing consumers to "opt out" of the behavioral advertising delivered by our member companies.

Using the Tool below, you can examine your computer to identify those member companies that have placed an advertising cookie file on your computer.

To opt out of an NAI member's behavioral advertising program, simply check the box that corresponds to the company from which you wish to opt out. Alternatively, you can check the box labeled "Select All" and each member's opt-out box will be checked for you. Next click the "Submit" button. The Tool will automatically replace the specified advertising cookie(s) and verify your opt-out status.

Opting out of a network does not mean you will no longer receive online advertising. It does mean that the network from which you opted out will no longer deliver ads tailored to your Web preferences and usage patterns.

If you have any questions, please visit our FAQ section.

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