Yahoo: data goldmine

Who will prevail in the battle between Google and Microsoft for the online advertising market? We may get a clue from studying the depth of data that large media companies collect from their Web visitors.

When Microsoft made its bid for Yahoo back in February, media and internet marketing research companies released estimates of the size of the merged company's total audience. Yet audience share is less important to the software leviathan than the glut of information Yahoo compiles about its users.

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In the online advertising industry, a business projected to grow to $80 billion by 2010, he who knows his market is king. Advertisers want media companies to find their most likely customers and show their ads only to those people, rather than to the entire audience passing through a site. The graph above, based on information produced by internet marketing research company ComScore and published by The New York Times, shows the number of times major websites collect information from their visitors in a month. It is a clue to why Microsoft Chief Executive Steve Ballmer is prepared to splurge $44.6 billion on Yahoo.

• The graphs show "data transmission events" -- consumer data relayed back to the Web companies' servers when pages are loaded, search queries entered, videos played, and advertising displayed.

• Yahoo has the most data-collection points per month on its own sites, about 811 for the average user. It also has 1,709 other opportunities to collect data about users on partner sites.
• Microsoft lags not only the other big Internet companies, but also the News Corporation's Fox Interactive Media, which owns MySpace.

Potential 'Microhoo' synergies aside, three things are worth noting with respect to these statistics.  

Traditional media disadvantage

Traditional media companies, which collect far less data about visitors, are increasingly at a disadvantage when they compete for ad dollars, writes the New York Times. They may choose to outsource an increasing proportion of their ad sales to companies like Microsoft and Yahoo to benefit from their data.

Quid pro quo

If Microsoft buys Yahoo, the merged company will be an entity that has significantly more data about consumers, who will expect more -- and better -- free services in return. The development of new services and tools rests on an implicit social contract between consumers and corporations: the former are willing to exchange private information with the latter in return for gaining utility and value from the internet.

Web sites such as Amazon and Netflix already use 'customer relationship management' software to analyse the purchasing decisions of users and so construct customised web stores, with tailored recommendations and streamlined transactions.

Internet service providers such as Comcast and Verizon also monitor the type of information on their network, so as to improve the integrity of sensitive applications such as internet telephony and video, while limiting the spread of content such as spam email and viruses. Search engines such as Google and Yahoo will need to employ programmers to analyse the queries and behaviour of internet users, so as to improve the accuracy of search algorithms, and in turn generate links and advertising that better reflect the interests of individual users.

Privacy concerns

Even if 'Microhoo' successfully generates advertising that reflects its users' interests, there are growing concerns about the security of private information in a digital economy, where there are multiple leakage points both online -- through commercial, government and educational web sites -- and offline -- through printed documentation, stolen laptops or recordable media. "When you start to get into the details, it's scarier than you might suspect," Marc Rotenberg, executive director of the Electronic Privacy Information Center, a privacy-rights group tells the NYT. "We're recording preferences, hopes, worries and fears."