Why Not Take Candy From Strangers? More Privacy Problems May Make Ad Agencies Nutty

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Event Summary

AwardTrack had only been offering its services - loyalty programs by which a website can offer incentive points to its users for any behavior from completing a survey to reading an e-mail - for six weeks when ad network 24/7 (NASDAQ: TFSM) made them an offer they couldn't resist. 24/7 now owns AwardTrack after an exchange of stock valued at $75 million.

Among AwardTrack's attractions was that it allows surfers to switch their points between different programs. So, if you don't have enough points in the airline miles program you can roll in points earned in some other program. This lets the site using AwardTrack's programs brand their loyalty programs however they want but gives surfers the flexibility of combining points from different programs.

Market Impact

The immediate effect is to allow 24/7 to attract and keep more affiliates and advertisers. 24/7 will probably offer the AwardTrack services to its affiliates at a discount, and is likely to build a variety of special loyalty programs for use by its affiliates. We'd expect to see these used to build some degree of stickiness to a particular vertical or demographically defined family of 24/7 clients. Later on, we'll see even more integration between loyalty programs and advertising. For example, an ad served by 24/7 could offer points for visiting the advertiser's site.

This is a natural move for an ad agency, and we expect to see other agencies follow suit. In the short run we think it more likely that Engage (NASDAQ: ENGA), with its strong targeting and vertical programs will go this route than will DoubleClick (NASDAQ: DCLK). The reason is that there is a hidden zinger to such an alliance, and it is one to which DoubleClick will be particularly sensitive.

In order to participate in a loyalty program a surfer has to provide some personal information - how else does one cash in the points for that airplane ticket or toaster oven? So, we now have the spectre of an ad agency being able to combine information that identifies individuals with information about their web surfing behavior. DoubleClick is still sore from allegations along these lines and is unlikely to want to take another bite from the same candy bar. We predict that 24/7 will be getting its name in the news with similar problems as a result of this acquisition. But, as they say, ultimately all publicity is good advertising.

User Recommendations

Both advertisers and web site publishers are bound to see the advantages of this arrangement. Loyalty programs are fairly cheap (AwardTrack charges two cents per point award and rebates three quarters of that to the website once the points are redeemed), but they provide an extra measure of stickiness for a site. If 24/7 crafts loyalty programs that apply to a number of its clients, the stickiness may spread to the group but in the long run will be no less advantageous. In fact, it will probably enable synergistic partnerships between 24/7 clients who might otherwise have nothing to say to each other.

What about web surfers? They should become aware of the implications of joining loyalty programs. Perhaps media feeding frenzies like the one that DoubleClick has been going through will begin the education process. Some people will welcome both the something-for-nothing arrangement of a loyalty points program and the ability to see relevant advertising, which is the most probable use of the information that 24/7 or others will make of this information. The less likely but hardly impossible uses, such as denying health insurance to people who visit tobacco company websites or look up diseases on health sites, should be of concern to everyone.

Both surfers and advertising agencies should seek regulations that prevent such uses and laws that provide severe sanctions for any violations. Should the consuming public begin to believe that loss of privacy via the internet could seriously harm them - much more than the $50 limit in case a credit card number is stolen - E-commerce could be set back significantly.


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