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FCC's Do Not Track by Jordan at Investing Blog

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The FCC is considering new steps to protect internet users, allowing them to opt out of what some have called invasive tracking measures used by websites to track the behavior of their visitors. The debate is nearly a decade old, but was most recently spotlighted during Facebook’s summer of privacy complaints.

Much like the national “Do Not Call” registry, internet users would be able to sign up to a list of people who do not wish to be tracked online. Currently, websites store cookies on a user’s browser that tracks their habits, pin down their interests, and extract more advertising revenue from each ad impression.

This data is highly valuable, and rightfully so. We can now know exactly how a user will react to a specific message, or product, and how we can better provide advertising that isn’t just profitable, but relevant and interesting.

Examples

Imagine for a moment that you sell soles for shoes. After looking through your data, you realize that 54 year old, brunette women who are frequent shoe shoppers are your best customers. This demographic has an average order size 51% larger than your average customer, and generates 86% greater profit margins. If you were to bring any one person to your store, you’d hope she’d be 54 and a shoe shopping addict.

Anyway, knowing this is your best customer, you go out in search of more of her. Only a percentage of the population has brown hair, of which only half are female. Frequent shoe shoppers make up 20% of the population. And probably 1.5% are exactly 54 years old. All told, only one out of every 1300 people fit your perfect customer…ouch!

You could place advertisements to the general population, hoping to snag one out of every 1300 people with untargeted advertising. Or, with the help of shoe search data from Google, and gender, age, and hair color data collected by Facebook, and with a media campaign served up by Google’s Doubleclick, you can target that perfect customer, spending money only to reach those 54 year old female brunettes with an affinity for shoes.

Where that key demographic would previously see an ad for a general magazine subscription on their favorite news site, they now see an ad for your shoe soles. Since we know enough about this customer to know she is more likely to spend more money, and generate higher profits, more can be spent to chase her down—multiples more. Plus, the marketer and the media company takes pride in knowing that the ad is not invasive, is relevant, and wouldn’t drive the user off the site.

If the magazine ad generated half a cent per impression, and this new ad generated three cents per impression, the benefits are obvious: targetting allowed a company to advertise a product the viewer was more likely to be interested in (and less likely to take offense to), to reach a specific audience, and the media company could charge more for the same ad space and impression. The best place for earnings growth will forever be increased revenues on fixed costs.

Targeted advertising has been a dream for decades, ever since it was said that TV viewers would soon see ads targeted to the individual. While we’ve gotten close—Buick ads run during golf tournaments, and makeup commercials run during Oprah—we’re still targeting the majority and not the individual. If the FCC takes away individuality in advertising, they take away part of the user experience, and nearly all the profits.

Few realize the true value of data collection, how it improves user experience, or the difference it makes to the bottom line. It should be made very clear that if this “Do Not Track List” becomes reality, online media earnings will plummet.

About Jordan

Jordan is the web master of www.investingblog.org, a site dedicated to skillful investing, news and recent trends. You can read the original article here.

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