News : Google to target ads based on online activity

By Alexei Oreskovic

SAN FRANCISCO (Reuters) - Google Inc will begin to aim online ads at people based on their Web browsing history, joining an industry trend that has raised privacy concerns even as it makes product pitches more effective.

The new program, dubbed "interest based" advertising, is being rolled out on a test basis across Google's network of partner websites and on its video-sharing site YouTube, according to an announcement on Google's blog on Wednesday.

The move comes a few weeks after the Web search leader's smaller rival, Yahoo Inc, unveiled its own advertising enhancements, which rely on an individual's online activity.

While behavioral ad techniques have been around for several years, some past efforts have raised privacy concerns, and Google has refrained from offering such advertising until now.

"Advertisers are under increasing pressure to be able to tie as much marketing spend as they can to direct sales revenue," said Andrew Frank, an analyst at market research firm Gartner.

Shares of Google rose $9.74, or 3.16 percent, to $317.91 on Nasdaq.

Until now, the types of text and display ads that Google served to Web surfers were based solely on the content of the specific Web page being viewed by an individual.

With behavior advertising, Google and advertisers will be able to consider an individual's broader history of Web surfing when deciding which ads to pitch.

"If, for example, you love adventure travel and therefore visit adventure travel sites, Google could show you more ads for activities like hiking trips to Patagonia or African safaris," Google Vice President of Product Management Susan Wojcicki explained on Google's blog, adding that advertisers have been asking Google for such features for a long time.

Advertising based on consumer interest or behavior have the potential to increase consumer response and so-called click-through rates, which translates into higher ad revenue for the sites.

But U.S. lawmakers held hearings last year on behavioral advertising, after concerns arose when a company called NebuAd, in a deal with cable company Charter Communication, disclosed a pilot program to track customers.

Congressman Rick Boucher, head of the telecom subcommittee of the House of Representative's Energy and Commerce, has said the issue will be a top priority this year. The Virginia Democrat's office had no immediate comment on Google's plans.

MORE REGULATION?

The U.S. Federal Trade Commission recently expanded its voluntary guidance on how websites inform consumers that their data is being collected, to include mobile and Internet companies. Regulators have warned that failure to comply would lead to tougher regulation.

In announcing the initiative on Wednesday, Google said privacy issues were an important consideration. "This kind of tailored advertising does raise questions about user choice and privacy -- questions the whole online ad industry has a responsibility to answer," Wojcicki said in the blog post.

Google said it has three key safeguards: consumers can choose to opt out of the program; consumers can edit their profile of preferences based on online activity; and consumers can click on a button to learn how an ad was pitched to them.

Marc Rotenberg, executive director of the Electronic Privacy Information Center, said that regardless of Google's efforts to address privacy concerns, the company's new ad program "throws up red flags" for Internet privacy.

"This is the Internet's largest search company now profiling and tracking Internet users. That shouldn't happen," said Rotenberg. He said his organization was evaluating "possibilities" about a potential response to Google's move, but declined to specify what options were under consideration.

But Ari Schwartz, vice president of the Center for Democracy and Technology, said there are positives in Google's plan, including users getting access to their own profile.

"On balance it is a step in the right direction," said Schwartz, whose group was consulted while Google developed its plan. But he noted that Google plans to still rely on consumers opting out, rather than in, which most of the public opposes.

Google, the No.1 Internet search engine in the United States, generates 97 percent of its revenue from advertising. Much of that comes from text ads that appear alongside search results.

Google acquired DoubleClick for $3.2 billion in 2008 in order to beef up its position in the market for display ads.

Adopting behavioral ad techniques is "a logical way for Google to get better at the display game," said Emily Riley, a senior analyst at Forrester Research.

In particular, she said, the vast size of Google's AdSense network of partner Web sites and the company's technology could generate valuable data for marketers and advertisers.

"In theory they should have great scale with the behaviors they're tracking," said Riley.

(Reporting by Alexei Oreskovic; Additional reporting by Kim Dixon in Washington; Editing by Richard Chang)