A study shows that Web companies are learning more about people from what they search for and do on the Internet, several hundred times a month. This information is used to predict the content and advertisements people would want to see.

A famous New Yorker cartoon from 1993 showed two dogs at a computer, with one saying to the other, “On the Internet, nobody knows you’re a dog.”

That may no longer be true.

A new analysis of online consumer data shows that large Web companies are learning more about people than ever from what they search for and do on the Internet, gathering clues about the tastes and preferences of a typical user several hundred times a month. These companies use that information to predict what content and advertisements people most likely want to see. They can charge steep prices for carefully tailored ads because of their high response rates.

The analysis, conducted for The New York Times by the research firm comScore, provides what advertising executives say is the first broad estimate of the amount of consumer data that is transmitted to Internet companies.

Data privacy

The Web companies are, in effect, taking the trail of crumbs people leave behind as they move around the Internet and then analysing them to anticipate people’s next steps. So anybody who searches for information on such disparate topics as iron supplements, airlines, hotels and soft drinks may see ads for those products and services later on.

Consumers have not complained to any great extent about data collection online. But privacy experts say that is because the collection is invisible to them. Unlike Facebook’s Beacon program, which stirred controversy last year when it broadcast its members’ purchases to their online friends, most companies do not flash a notice on the screen when they collect data about visitors to their sites.

Relevance in ads

But executives from the largest Web companies say that privacy fears are misplaced, and that they have policies in place to protect consumers’ names and other personal information from advertisers. Moreover, they say, the data is a boon to consumers because it makes the ads they see more relevant.

These companies often connect consumer data to unique codes identifying their computers, rather than their names.

“What is targeting in the long-term?” said Michael Galgon, Microsoft’s chief advertising strategist. “You’re getting content about things and messaging about things that are spot-on to who you are,” he adds.
The rich troves of data at the fingertips of the biggest Internet companies are also creating a new kind of digital divide within the industry.

Reading site visits

During the Internet’s short life, most people have used a yardstick from traditional media to measure success: audience size. Like magazines and newspapers, Web sites are most often ranked based on how many people visit them and how long they are there.

But on the Internet, advertisers are increasingly choosing where to place their ads based on how much sites know about Web surfers. ComScore’s analysis is a novel attempt to estimate how many times major Web companies can collect data about their users in a given month.

Over the years, the Internet giants have spread their reach by acting as intermediaries that place ads on thousands of Web sites, and now can follow people’s activities on far more sites.

Large Web companies like Microsoft and Yahoo have also acquired a number of companies in the last year that have rich consumer data.

“So many of the deals are really about data,” said David Verklin, chief executive of Carat Americas, an ad agency in the Aegis Group that decides where to place ads for clients.

“Everyone feels that if we can get more data, we could put ads in front of people who are interested in them,” he said. “That’s the whole idea here: put dog food ads in front of people who have dogs.”

Web companies also can collect more data as people spend more time online. The number of searches that American Web users enter each month has nearly doubled since summer of 2006, to 14.6 billion searches in January, according to comScore.

ComScore analysed 15 major media companies’ potential to collect online data in December. The analysis captured how many searches, display ads, videos and page views occurred on those sites and estimated the number of ads shown in their ad networks.

These actions represented “data transmission events” — times when consumer data was zapped back to the Web companies’ servers. Five large Web operations — Yahoo, Google, Microsoft, AOL and MySpace — record at least 336 billion transmission events in a month, not counting their ad networks.

“I think it’s a reasonable way to look at how many touch-points companies have with their consumers,” Jules Polonetsky, the chief privacy officer for AOL, said of the comScore findings.

The information transmitted might include the person’s ZIP code, a search for anything from vacation information to celebrity gossip.

Yahoo came out with the most data collection points in a month on its own sites, about 110 billion collections, or 811 for the average user.

ComScore said it recorded the ad networks using different methods and that the exact ordering of these top companies might vary with a different methodology, but the overall picture would be similar.

Google also has scores of data collection events, but the company says it is unique in that it mostly uses only current information rather than past actions to select ads.

Traditional media companies come in far behind. Condé Nast magazine sites, for example, have only 34 data collection events for the average site visitor each month.

Some companies are trying to close the gap. Walt Disney, for example, is studying how to combine data from its divisions like ESPN, Disney and ABC. The News Corporation is exploring ways to use information that MySpace members post on that site to select ads for those members when they visit other News Corporation sites.

Some advertising executives say media companies will have little choice but to outsource their ad sales to benefit from their data. The Web companies may prove they can use their algorithms and consumer information to better select which ads for visitors better than media companies can.

“I think a lot of publishers are going to find they don’t have enough data,” said David W. Kenny, chief executive of Digitas, a digital advertising agency in the Publicis Groupe. “There’s only going to be a handful of big players who can manage the data.”