10 March 2007, (c) The Economist Newspaper Limited, London 2007. All rights reserved
Online advertising: New business models let communities of internet users control how their personal information is bought and sold
WIKINOMICS? Crowdsourcing? Mass collaboration? “Long tail” marketing? Nobody is quite sure what to call it, but lots of people are interested in the way the internet makes it possible for people to organise themselves according to their preferences and habits into tiny niches, access to which can then be bought and sold.
This is unquestionably a huge market—it is, after all, what Google does. Users of the internet giant's search engine and e-mail service provide information about their interests in the form of search terms and e-mail messages. Google is then able to gather up the handful of people who express an interest in an obscure term and provide advertisers with a way to reach them. In effect, Google users trade personal information in return for free use of Google's online services.
But some people think this is a bad deal. They think the personal information is worth far more than the services that Google and others offer in return. Seth Goldstein, a serial entrepreneur based in San Francisco, believes that the personal information contained in users' click trails, online chats and transactions is something they ought to take hold of and sell themselves, generating direct payback. “Attention is a valuable resource, and we're getting to the point where it can be parsed in real time,” he says. So he has co-founded a new venture called AttentionTrust.
Its approach is to turn the tables on Google and other big aggregators of personal information. Instead, users amass their own traffic patterns and preferences using a piece of “plug-in” software that runs inside a web browser. The resulting profile can then be deposited in an online vault, where interested parties can pay to see it. Prices can be structured on a sliding scale, depending on whether an advertiser or company wants to contact individuals or analyse demographic slices—graduates of the same age from the same university who share an interest, for example.
This type of grassroots self-marketing is also the idea behind GestureBank, another anonymised data-aggregation tool started by Steve Gillmor, an American technology commentator. Users will be able to make “a hell of a lot of money,” Mr Gillmor predicts, by deciding which aspects of their behavioural data go into a central pool. He imagines such services will initially take hold among bloggers, who love analysing how many readers they have, who they are, and how their readership compares with that of other bloggers. Before long, he hopes, advertisers will follow with their chequebooks.
Yet another example, established by a group of Stanford graduates, is Agloco. “Advertisers, search providers and online retailers are paying billions to reach you while you surf,” says its website. “How much of that money are you getting? You deserve a piece of the action.” Like AttentionTrust, Agloco is based on a browser plug-in that tracks users' online activity and then uses this information to allow advertisers to target people with specific interests. Agloco promises to return 90% of ad revenue, sales commissions and other income to its users. In a further twist, those who recruit other users get a cut of the revenue, too. Akshay Mavani of Agloco says the firm is on target to sign up 10m users by July.
A related approach sets out to address the problem of junk e-mail. Rather than using blacklists and filters to stop unwanted messages reaching their in-boxes, why not charge advertisers for permission to send promotional messages? That is the philosophy behind Boxbe, a start-up based in San Francisco that recently secured funding from Draper Fisher Jurvetson, a renowned venture-capital firm, for its “negotiated e-mail delivery” service. It works rather like an automatic tollbooth between the internet and your in-box, deciding which traffic to let through, and how much to charge.
Boxbe suggests that users set a price of $0.15-0.25 per message to allow companies to contact them. (The start-up takes a 25% cut.) Users fill out a personal profile and the idea is that Boxbe will be able to sign up enough users to offer a critical mass to advertisers, who will then pay to send messages to the users most likely to be interested in them. Advertisers can target messages more easily and users receive fewer irrelevant e-mails. They also get paid. An average user could make over $100 a year, reckons Thede Loder, Boxbe's founder. “It's like picking up a quarter from the sidewalk. Even rich people do it, and it adds up,” he says. The idea for Boxbe grew out of his graduate research into the economics of communications, and of spam in particular.
All of these models enable online groups of users to organise themselves into niches and charge advertisers for access to them. But sometimes the transactions can take place within the groups themselves. That is how eBay works: it brings together people so that they can buy and sell things, with the online-auction giant taking a cut of each transaction. Once again, new bottom-up models are emerging that do similar things.
A good example is Threadless, an online T-shirt firm based in Chicago. It sees itself as a community in which members can upload T-shirt art, vote for the most promising designs and order them. The company has about half a million registered users and receives 600 submissions for new T-shirts a week. Each week's winning design wins a $2,000 prize, and several thousand people end up ordering it. As the community grows, so the size of the prize, which initially started at $50, will continue to grow too, says Jeffrey Kalmikoff of Threadless. The firm is considering rewarding the thousands of members who vote each week as well, because they provide valuable insights into market trends that help the company with research and planning. This model could work in any industry, Mr Kalmikoff believes. “I am convinced Detroit could use it for designing cars,” he says.
But big firms seem to be reluctant to share control, and rewards, with the masses. Two researchers at Microsoft, for instance, created a stir recently with a scientific paper describing a scheme in which owners of portable music-players could share songs wirelessly with strangers, earning a small commission if such sharing prompted others to buy the music for themselves. Music fans could thus become promoters and micro-resellers for their favourite artists.
Rumour had it that this scheme would be included in Microsoft's Zune music-player, but it was not (though the Zune does allow person-to-person sharing within limits). Nor does Microsoft allow the researchers to elaborate on their vision for a “long tail” alive with the sound of music and money.
