July 17, 2008
Smart Money

WASHINGTON -(Dow Jones)- The chief executive of an Internet advertising start-up admitted Thursday that his firm could track peoples’ activity on multiple Web sites without their express permission.

NebuAd CEO Robert Dykes said at a House hearing that the Internet service providers with which his company partners send their customers letters 30 days before any tracking begins.

The letters, which Dykes described as “robust,” tell subscribers how they can opt out of the monitoring. If the customer doesn’t respond, however, NebuAd begins collecting data on their browsing activities to offer ads relevant to their interests.

Dykes stressed that NebuAd is committed to aggressively notifying Internet subscribers about the monitoring and giving them a chance to opt out. But he said asking for their initial consent would seriously hurt his company’s business model.

“We need to recognize that the Internet today is more than 50 percent funded by advertising,” Dykes said. “To adopt an opt-in rule across the board would do major harm.”

Other major Web sites such as Google Inc. (GOOG) and Yahoo Inc. (YHOO) track users’ activity on their own Web sites for the same purpose, but NebuAd’s business model is different because service providers participate in the monitoring, which extends across multiple Web sites.

Republicans and Democrats at the House Energy and Commerce Telecommunications Subcommittee hearing said the notification NebuAd offers isn’t enough. “I don’t know anybody that reads their damn privacy statement in their bills,” said Rep. Mike Doyle, D-Pa.

“Aren’t you sort of in part betting on consumers that are going to ignore those notices,” asked Rep. Greg Walden, R-Ore.

Dykes said NebuAd is negotiating with privacy advocates who are strongly opposed to the practice to find better ways to notify customers, including through email.

Because NebuAd doesn’t collect personal or sensitive information, Dykes said the monitoring practice is legal under an opt-out privacy standard. NebuAd can’t name users because it automatically translates their Internet addresses into anonymous identifiers, he said.

Subcommittee Chairman Edward Markey, D-Mass., said he wants the NebuAd model to be subjected to a rigorous opt-in privacy standard because the monitoring spans the entire Internet.

“You get access to all of Google. You get access to EBay, Amazon, everyone. You’re Google times one hundred,” he said.

Other Web companies also are experimenting with “deep packet inspection” tracking technology that delivers advertising tied to consumers’ interests through partnerships with Internet service providers.

Markey, Energy and Commerce Chairman John Dingell, D-Mich., and ranking Republican Joe Barton, R-Texas, are rigorously questioning phone and cable Internet providers that are experimenting with this type of Web monitoring, including Charter Communications Inc. (CHTR) and Embarq Corp. (EQ).

“There should be a barrier that exists unless the consumer determines that they do want this information to be compromised,” Markey said. Citing Charter and Embarq, Markey said, “In their affiliation with NebuAd, these questions weren’t asked from the get-go.”

Dykes said his firm tracks Web browsing under “innocuous categories,” such as travel or fashion, and avoids sensitive areas such as medical and financial searches. “We stay very, very conservative,” he said.

After the hearing, Dykes pledged to work with Markey on ways to monitor privacy without damaging the NebuAd business model. Markey acknowledged NebuAd’s commitment to privacy protections but hinted he wouldn’t be deterred from pursuing an opt-in standard.

“We don’t put laws on the books for good people. We put laws on the books for bad people,” Markey said.