The Profilers: Invisible Friends

SAN FRANCISCO (03/08/2000) - Considering all the discussion there's been on the topic of profiling, by now you've probably formed a picture in your mind of how it works: A T-shirted techie huddles in the glow of his monitor, vigilantly tracking your every move on the Net. Suddenly, he strikes. "He's at ESPN.com!" he shouts. "Send him the Chevy pickup ad!"

The truth about targeting is much less exciting. But it's far more compelling.

Someone is not watching you, something is: the all-seeing, all-knowing eyes of a bunch of Windows NT servers, humming quietly to themselves in a cool, dark room. Gator.com is one of many startups currently building a business on the basis of targeted advertising. Gator's lure is its free digital wallet, which knows just when to pop up with your shipping information and password. In only eight months the gimmick has attracted 2 million users to Gator, making it one of the leaders in the wallet field.

Gator users will soon be seeing more of their steadfast shopping companion.

Gator will not only pop up when you're ready to make a purchase, but also before you buy. So when you're contemplating that Crocodile Dundee video at, say, Reel.com, Gator will surface to offer you a $10 coupon from Reel's competitor BigStar.com. Just as you complete your customer application at Schwab.com, Gator could "surprise and delight" you with an offer of $75 off membership at a site like E-Trade.

If you're not surprised and delighted, you can uninstall the software. But if you do want Gator to make an appearance when you go to a site, you can't opt out of the targeted ads that Gator will soon be sending users. It's all or nothing. Because as Gator and businesses like it are discovering, the money's not in wallets, it's in ads. Given the number of companies that are now tracking consumers online, The Standard decided to find out how, exactly, the process works.

We asked Gator to show us, and Gator obligingly offered a peek behind the scenes. We were met at the door by Scott Eagle, Gator's VP of marketing, who still can't get over his company's new office. "It came with an espresso machine!" he says, a trace of amazement lingering in his voice. "Would you like some espresso?" The trendy coffee service aside, Gator's digs are not exactly what you'd expect for a company on the cutting edge of advertising.

It's a drab, cookie-cutter office building neighboring the Oracle campus in Redwood City, Calif. Inside is a sea of Dilbert-like cubicles, most of them vacant. It seems Gator executives are well aware of the space shortage in Silicon Valley -- the office they occupy now will allow for growth far beyond the current 35 employees. There's reason for optimism. Well over half the 2 million people who have downloaded the Gator wallet since last July are using it regularly, Gator says. Now Gator's going to test their willingness to receive targeted advertising. "It's a fine line," Eagle acknowledges. "We want to be there for what you want us to do. We'll be trying different ways to let you tell us what kinds of offers you want, but we're wrestling with what to do with the occasional user who says, 'I don't want to see any offers.'" Americans hate junk mail.

An estimated 98 percent of the direct mail delivered by the postal service ends up in the trash. So why do we keep getting it? Simple: It works. It may come as a surprise to anyone who hates receiving those endless RadioShack circulars, but there are people out there who actually do respond, just as there are people who respond to online advertising. What's an invasion of privacy to one consumer is a great deal to another. So where do you draw the line?

There's no easy answer. For instance, when Amazon.com bought Alexa Internet in 1999, no one knew exactly what Amazon had in mind for the browser-companion software company. To find out, the Federal Trade Commission launched an investigation last month. Amazon is cooperating with the FTC, whose request for documents is being called an "informal informational review" by the online retailing giant. Unlike the privacy storm surrounding DoubleClick, whose target users are largely unaware they're being served tailored ads, the Alexa probe raises a different issue:

When consumers agree to let a "browser companion" follow them, exactly what rights do they have? Many of these companions are digital wallets like Gator.

They're designed to make the checkout process faster and easier when you're shopping online. You give the wallet your name, address, credit card number and shipping preferences, then every time you make a purchase the software fills out all the forms automatically. But these wallet companies, which in addition to Gator include Brodia.com, CyberCash's InstaBuy and EntryPoint, have admitted that simply providing a form-filling service is not enough to sustain a business.

That's why they're morphing and calling themselves "smart shopping companions" or "credit cards 2.0." Peel off the labels, though, and what you find are little more than targeted-advertising companies. They'll remember your passwords and help you fill out forms online -- if you let them deliver ads for other products they think may interest you. Once you've given Gator.com all your vital stats, the Gator software downloads quickly and easily onto your PC (it's not available for Mac users yet).

From then on, the Gator "eyes" icon automatically appears in the lower right-hand corner of your screen every time you go on the Internet. The software, including an encrypted file with your personal information, resides on your desktop. When you reach a site that requires a password or information for a purchase, a window pops up to ask if you'd like Gator to fill in the data for you.

Gator engineers have collected forms from thousands of sites on the Internet and programmed your software to recognize them. Every morning, a team of programmers enters updates to accommodate changes in existing forms and add new sites requested by Gator users. Gator emphasizes that your information resides on your computer, not on the company servers, as it does at some of Gator's competitors. But Gator still needs to know when to pop up, so it has to know where you are at all times, right? Jeff McFadden, CEO of Gator.com, insists that he has no intention of tracking your every online move. He calls Gator's process "selective clickstream monitoring." "When you're doing anything else [besides shopping] on the Net, we don't want to know about it," he says. "We don't want that kind of tracking information on our servers."

In April the company plans to publish on its homepage a list of the roughly 25,000 sites to which Gator can supply your personal information. Sites that aren't on the so-called Green List aren't tracked by Gator's software. Go to a porn site, Gator won't care. Go to Wal-Mart.com, Gator makes a note that you're there. When pressed, McFadden admits that, although Gator doesn't sort data by individual usage, it could if it wanted. "It's not 'we can't,' it's 'we won't,'" he says. Instead, Gator sorts only by e-commerce site, compiling information from its users' activities to deliver ads from advertisers. In pitching its service to E-Trade, for instance, Gator would run a report to show how many unique machines logged in at Yahoo Finance, MSN Finance and all of E-Trade's other competitors during a given period. It would then break down the report to show likely targets -- users who are not currently trading online but who frequent finance sites on the Web.

Or the brokerage might want to target folks who aren't trading stocks but who conduct a lot of transactions online. Gator could query its database and deliver a report to E-Trade that provides a snapshot of the size of the audience it could target through ads delivered by Gator. Once a company buys an ad on Gator, the fun begins. Gator's engineers queue the advertisement in the Gator system, then every time a certain specification is triggered -- say, a visit to Schwab.com -- Gator fires off the E-Trade ad. Advertisers that have signed on so far include video retailer BigStar.com, GreatFlowers.com and Ebates.com.

Gator plans to roll out its program to a large number of merchants by the end of June. Advertisers can pay by performance, by cost per thousand or on a hybrid CPM-performance basis. A legalese-filled software license and terms-of-service list on the site lays out the company's intention only to aggregate user information for targeted advertisements. The rather opaque prose will soon be replaced by a new policy, currently being drafted, that the average Internet shopper can understand. Asked what percentage of users actually read the privacy page, Eagle, the marketing VP, says he's not sure. "I imagine a small percentage of people at the time of the download actually take the time to read it." Analysts believe the outcome of the DoubleClick investigation could have a significant impact on the future of companies like Gator, which rely solely on targeted-advertising revenues. "If the DoubleClick [investigation] drags along and ends up being a juicy one, I think it will take on the kind of specter that the Microsoft trial had," says Charles Rider, senior consultant with market research firm Patricia Seybold Group. "This is just the tip of the iceberg."

San Francisco-based Brodia, which offers a wallet service that competes with Gator's, takes a different approach to delivering targeted offers. Customers' information resides in encrypted files on Brodia's servers instead of on the user's computer, enabling shoppers to log on from anywhere. Despite that Brodia's business model relies almost entirely on ad revenues, the company lets customers opt out entirely from targeted ads.

Brodia even gives its customers the option to remove their data from the aggregated information that's shared with advertisers. If you do want the offers, advertisers send them to you at your Brodia-hosted e-mail address instead of in a pop-up window, the way Gator does.

Gator's own research shows that 89 percent of users like getting Gator's inaugural offer -- a coupon for video retailer BigStar.com that pops up when they visit a competing video site. "It's the delivery in context that makes it magical," says Eagle. "If we're going to send you a $20 coupon to buy a book, it will be much more relevant to you when you're actually buying one than if you see it later in your e-mail." As was the case with Amazon's purchase of Alexa Internet, privacy issues in the wallet space will likely come to the fore if acquisition activity heats up.

Consider this hypothetical scenario: Yahoo purchases Gator and suddenly the portal has data on what a whole slew of people are doing on the Net. If it's not careful about how it uses that data and what it tells consumers, it could run into the same problems as Amazon. Gator hasn't said that Yahoo or anyone else is interested in buying the company at this point. But with 2 million users and growing fast, odds are that a day will soon arrive when someone comes calling. In fact, Gator's beady little eyes will probably know they're there, even before they knock.

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