INTERNET SHOPPING

December 23, 1999
		Online retailers are collecting information about customers and using that information to better target their ads. Jeffrey Kaye reports on this strategic marketing.

A Special Focus on the new Internet Economy Dec. 25, 1998: Cybershopping. Sept. 7, 1998: Online entrepreneurs Sept. 7, 1998: Net profits Dec. 29, 1997: Virtual showroom July 1, 1997: Digital dollars June 11, 1997: Online privacy Browse the NewsHour's coverage of cyberspace and business.     Buy.com Center for Democracy and Technology DoubleClick Lycos	SPOKESMAN: Log on to dsports.com ... JEFFREY KAYE: Internet merchants are flooding the airwaves and the highways with advertising. With online sales this year estimated at $14 billion to $20 billion, there is intense competition to get customers to distinguish one dot.com from another. Gregory Hawkins is chief executive officer of buy.com.
	Online retailers know where you've been
	GREGORY HAWKINS: We face the same challenge that many of our competitors face, which is trying to break through that clutter. JEFFREY KAYE: Buy.com is among the top selling online retailers, with a range of products, including computers and software. But like other merchants, buy.com uses the Internet not just for sales, but for marketing, by obtaining information about visitors to its sites. GREGORY HAWKINS: I can tell where you're buying, where you're looking, what pages you're looking at, what ads you're reading, what types of information you're trying to gain access to. At the end of the day, what we're most interested in is where you're browsing and where you're buying. JEFFREY KAYE: How will that help you? GREGORY HAWKINS: Well, certainly it gives us a chance, over time, to communicate with you, to create that personalization that we're talking about here. JEFFREY KAYE: Internet shoppers click on products to get facts and to make purchases. Buyers provide their credit card and shipping information. Many online retailers store the data to target sales pitches to repeat customers. Such marketing, known as "personalization," is a hot tool for Internet retailers. But it's also the subject of concern among Internet privacy advocates. Deirdre Mulligan is a staff attorney with the Center for Democracy and Technology, a nonprofit group. At a mall near Washington, D.C., she described how online businesses glean information for marketing. If this shopping center were online, each store visit would be recorded by a click of the computer mouse. DEIRDRE MULLIGAN: And all of the information that you've left behind, the products that you "picked up" by clicking on them, and even the purchases you make, can be fed into a single database to create a profile of what you do when you're on the Web. JEFFREY KAYE: And that can be used at the next store. DEIRDRE MULLIGAN: That can be used at any store that's part of the network. JEFFREY KAYE: Mulligan says an online retailer may know what we want before we get there. So now as we go to a department and find something, what might be awaiting us? DEIRDRE MULLIGAN: Well, the Web site knows a lot about what you do at its site. And so it may actually put things in front of you that it knows you're interested in, based on what you ... maybe you bought a red shirt upstairs, and they're going to show you red shoes downstairs. JEFFREY KAYE: So as we now peruse the shoes, what else is going on? DEIRDRE MULLIGAN: Well, in the real world people know what you've purchased, but in the online world, they know actually what I considered purchasing. JEFFREY KAYE: Finally, if a purchase is made, even more personal data -- a name, address and credit card number -- are recorded. DEIRDRE MULLIGAN: And so that information can now be combined with all those footprints that we left behind about what we looked at and what we liked, not just at this store, but potentially at other stores.
	Online ads a lucrative business
	JEFFREY KAYE: The boom in online profiling, marketing and selling reflects the transformation of the Internet. Once a medium for scientists to exchange data freely, the Web has rapidly evolved into a tool for commerce. Online advertising agencies such as DoubleClick, Inc. are thriving. Company president Kevin Ryan says everyone benefits from the commercialization of the Internet. KEVIN RYAN: I'd love to have the Internet for free, and that's what people are getting right now, and it's thanks to the advertising. That's the tradeoff. JEFFREY KAYE: DoubleClick, Inc. has turned Internet advertising into a science and into a gold mine. SPOKESMAN: I can send you a DoubleClick media kit as well -- JEFFREY KAYE: DoubleClick officials expect revenues this year will be about $300 million, up more than threefold from last year. DoubleClick's online advertising is, targeted, customized and prolific. During our visit, the company's control room recorded a delivery rate of 19,899 ads each second. KEVIN RYAN: Today we will deliver about a billion ads. Just like that. In one day. JEFFREY KAYE: With powerful computers and super sales, DoubleClick delivers tailored ads to target audiences. Web site visitors see ads that come not from the sites themselves, but from DoubleClick. KEVIN RYAN: Why don't we take a look at a site like Dilbert, which is a very successful Internet site … comic strip site. This site comes from Dilbert, but actually if I put my cursor over the advertisement right here, and I can see at the bottom of the screen that it comes from DoubleClick. JEFFREY KAYE: But Dilbert.com has nothing to do with providing this ad, this banner ad, you provide it? KEVIN RYAN: That's right. We have a relationship with Dilbert, we have had for years now. But since the beginning of the Web site, we've sold and delivered all the advertising. JEFFREY KAYE: The ads on a Web site can be targeted according to advertisers' requirements. DoubleClick's computers, for instance, can quickly identify a Web surfer's Internet address. That's like a phone number. It consists of a unique string of numbers which can be decoded to obtain information about a user's computer, its Internet connection and location. The data allows DoubleClick to deliver different ads to different regions. KEVIN RYAN: I was in Sweden the other day, and the ads on the Dilbert site that we just saw were in Swedish. JEFFREY KAYE: If a user logs on from a company, DoubleClick knows that. A recent ad campaign targeted students online from colleges. KEVIN RYAN: We know where every university is. It's matched up, and it's in a database. And so we can just tell which banner to serve to them. So it was 300 universities. We got incredible response rates.
	Cookies trace online shoppers
	JEFFREY KAYE: Online marketers also use devices called "cookies" to track the behavior of Internet users. Cookies are small files that record information about a user's visit to a Web site ... the site transmits the data back to a user's computer and then reads it when the user returns to the site. Sometimes users don't know the information is collected. Other times they willingly provide it. HomeGrocer.com, for example, sells and delivers groceries to homes in the northwest and in southern California. Its cookies are not only the edible variety, but are also digital data. The company uses cookies to identify repeat visitors, their locations and previous purchases. Some consumer advocates worry when information is collected without the user's knowledge. DEIRDRE MULLIGAN: I think for many individuals, the fact that somebody unbeknownst to them, who they've never known, never chosen to do business with is collecting information about them -- about activities such as what they're interested in, what they're reading -- without their knowledge and certainly without their consent is troubling at the very least. JEFFREY KAYE: But Jeffrey Bennett, a vice president of the Lycos Web site, says computer users often provide personal data because they receive a valuable service. JEFFREY BENNETT: Increasingly, customers are coming to us and they want more information that's relevant for them. So they want to tell us that they are living in New York, so that they get the weather about New York, not the weather about Albuquerque, New Mexico. So increasingly, consumers are registering with us so that they'll get more and more information that's relevant to them. JEFFREY KAYE: They're also getting more and more ads. Lycos is a search engine, which are among the most popular Web sites for consumers. Users seek information by typing in keywords. Once bare-boned, search engines are increasingly crammed with ads. Lycos made $93 million from advertising in the past year. Like other search engines, Lycos sells advertising rights to keyword searches. Clients pay up to $100 for every 1,000 times their banner ad appears in response to a search. But sometimes it's hard for consumers to know what's paid for and what's not. JEFFREY KAYE: All right, so now we've put in "camcorder," and we've got a number of things that we're seeing. Up here the banner ad is for camcorders. JEFFREY BENNETT: That's right. From an advertiser of ours called 888-camcorder. And you also have an ability to go to Barnes & Noble to look for camcorder books. JEFFREY KAYE: And here: "Buy camcorders at LycoShop, buy and sell photos and electronics," and again another "start here." Maybe we can click that on. "To save money on camcorders and electronics." And that takes you to ... the Supreme Video. JEFFREY BENNETT: The Supreme Video. Right. JEFFREY KAYE: Where it says here, "Start here," "Click to save money on camcorders and electronics," does that mean that you, Lycos, have determined that that's the place to save money? JEFFREY BENNETT: That is a promotion that the merchant is actually paying to have placement there. JEFFREY KAYE: Do the people who use the Internet, do you think they know these are commercial pitches, or do they think ... are they perhaps slightly misled and think at these may be objective? JEFFREY BENNETT: I don't think that there's any dissuasion going on here. I mean, we're trying to provide information to the consumer. They've keyed in "camcorder," and they want information about the camcorder. JEFFREY KAYE: At buy.com, there is also a fuzzy line between product information and marketing. The site lists "great buys" and "top products." Those are not neutral editorial recommendations. Vendors pay for prime positions. How does the customer know? GREGORY HAWKINS: The customer has no idea, if you will, whether a vendor has paid for a position or not paid for a position. To the extent that a vendor has a solid product and they want to provide a premium merchandising position, we will work with them. JEFFREY KAYE: Consumer advocates want online businesses to be more up-front about how they gather information and what they do with it. DEIRDRE MULLIGAN: On the Internet, everybody is trying to figure out how to get a workable business model. How do you support all of the free content that is available on the Web? And what in fact you're finding out -- the content is not free, it's just that you're paying for it not with money, but many times, unknown to you, you're paying for it many times with your information. So this information is viewed as an incredibly valuable commodity, because the more people can target ads to people who are going to be interested in their products, the less they have to advertise, the less money they have to spend on advertising. And so there's a real tension in this particular business model and individual privacy. JEFFREY BENNETT: Without question, there is tracking of information that many companies are doing to build their base of -- to build their base. But we're not doing this in a way that is Machiavellian. And that is, in many ways, how we derive our revenue base, through advertising and increasing activities by helping sell things. So we are picking up more and more revenues from transaction share. But I don't think that's all that bad. I just think we need to be very cognizant and respectful of the line that we walk down, with respect to the kinds of information that can be shared. JEFFREY KAYE: Many sites have privacy policies that explain how information is collected and what's done with it. Sometimes consumers can opt out of targeting efforts. Computer users can modify settings to block or restrict the placement of cookies. And on the Internet, where just about everything else is for sale, a growing industry is selling software to mask identities and protect privacy.

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