Digital Economy, Consumer & Retail
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Mining for Online Gold

The Market for User Data
October 25, 2011
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    In This Interview
    Ed Busby, Alumnus

    Career Highlights

    Ed is a former partner in The Boston Consulting Group's media practice and is currently chief commerce officer of Isis, a mobile-payments joint venture of AT&T, Verizon, and T-Mobile.

     

    With access to the Internet at work, at home, and on the go through their mobile devices, consumers are constantly connected and—knowingly or not—sharing a wealth of personal data at each website they visit. As they research, shop, and socialize online, their interests, purchases, and patterns of behavior are invaluable to companies seeking the “Holy Grail” of marketing: the ability to create highly customized, one-to-one messages for targeted buyers. That’s why the market for user data is exploding and industry players are carving out specific roles for themselves.

    Simon Targett, editor in chief at The Boston Consulting Group, spoke with Ed Busby, a former partner and managing director in the firm’s New York office, about how this landscape is changing and the ways in which companies can capitalize on the growing availability of user data.

    Simon Targett: How is online marketing evolving?

    Ed Busby: Advertisers are moving away from “cost per thousand eyeballs” campaigns and toward “cost per click” or “cost per action” campaigns, which better reflect actual consumer engagement. But ad networks and agencies need better user data to hit their target click-through rates—a growing challenge given the explosion of online ads. What’s more, the increasing use of costlier, rich-media advertising, especially video campaigns, has made it critical that ads not be wasted on inappropriate targets.

    Why is user data valuable?

    The more you know about your potential customers, the easier it is—or should be—to create marketing campaigns that are relevant to them. Highly targeted display ads, e-mails, and mobile messages tend to be more effective and have higher response rates than mass-marketing approaches. So user information is very valuable. As a result, a robust secondary market has emerged for buying and selling user data. This isn’t a new phenomenon, of course. Database marketing has been around since the 1980s. What is new is the depth of information available and the automated fashion in which it can now be bought and sold.

    As users browse the Internet, all the digital players—from Google to ad networks to travel and shopping websites to social-media platforms like Facebook—are collecting as much data as possible about what users are doing online, and building profiles based on what users buy, what they read, the sites they visit, and whom they interact with. These user profiles are continually bought and sold on the secondary market. Your own user profile shapes the ads you see online. That’s why when you’ve researched Tokyo hotels on a travel website, for instance, you may see an ad for the Tokyo Hilton the next time you’re online.

    What types of user data are being collected—and how?

    Marketers are interested in five types of data: demographics, such as age, gender, and income; behavioral data on a user’s interests and attitudes; data on intended purchases, often gleaned from searches or past buying patterns; social data based on the user’s relationships with other people; and location data.

    Data can be collected in three ways. When users register with a website or make a purchase, they provide information ranging from a simple e-mail address to personal data about location, demographics, and interests. This type of knowingly shared information is called opt-in data. Websites also collect data as users browse through content pages, watch videos, make purchases, or click on ads. This observed data is firsthand information that can be sold to third parties, typically through online data exchanges. The third source of data comes from drawing inferences about users on the basis of observations and opt-in data. For instance, a user who logs on to a college textbook exchange and the Cosmopolitan magazine website is probably a female college student. But these inferred data are notoriously unreliable, because the information is often collected on shared computers.

    No single data type is a panacea. Opt-in and first-party observed data are the most reliable and valuable, because they can be mapped to inferred and third-party data to create a fuller, more accurate picture. It’s worth the effort: high-quality data and effective targeting can increase ad click-through rates by a multiple of two to eight.

    Who are the key players in this growing marketplace for user data?

    There is a broad range of players. Data suppliers are the websites that supply the raw user data. Data aggregators buy user data from multiple sources. Data exchanges connect buyers and sellers through a real-time bidding platform. Companies that specialize in analytics and targeting help advertisers to better understand and use the data they collect. Data storage and management companies collect, store, and manage user information for websites and marketers. Players in the ad placement category ensure that ads are in the right places on the appropriate websites. And performance-tracking companies measure how ads perform against marketing targets.

    Are there any factors that could hamper the market for user data?

    Participants in the digital marketplace are concerned about a number of issues. First is the shift of advertising spending to Facebook and other closed sites that have their own rich sets of proprietary data. A second issue involves the accuracy of the user data. For instance, ad agencies report that the same “cookie” of user data is often reported to be a female by one data source and a male by another. Another ongoing issue is the potential for a public backlash over privacy concerns—and the risk of a regulatory response. Despite these factors, we believe that the demand for user data will continue to be strong.

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