WJS reports big co's are turning to small firms for social media consulting

Marketers Watch as Friends Interact Online

Using Data From Social Networking Sites, Companies Are Able to Target Ads to Like-Minded Acquaintances of Customers

By EMILY STEEL

Birds of a feather flock together. Or, in the Internet age, a customer's friend is a potential customer.

Embracing those truisms, some big marketers, including Sprint and eBay, are turning to small start-ups to help them tap social-networking data to find would-be clients among the friends and acquaintances of existing customers, to the dismay of some privacy advocates.

EBay, for instance, used online tracking technologies to identify customers who browsed or shopped for products in the clothing, shoes and accessories section of its site. It then turned to New York-based start-up 33Across, which analyzed data from social-networking sites to map out the connections between the customers eBay had identified and other Web surfers, in order to serve up ads at the right time and place.

New York-based 33Across tracks how consumers interact with one another—commenting on posts or sharing messages, for instance—across about 20 sites, online networks and third-party application companies, which build software like games and quizzes for social-networking sites. 33Across says those sites reach a total of 100 million monthly unique U.S. visitors.

For example, if an eBay customer shared a movie review with an acquaintance, 33Across identified that connection and places a cookie, or anonymous string of tracking data, on the acquaintance's browser so that they later could be targeted with a relevant ad whenever they visit certain sites.

Advertisers say the new wave of social-networking targeting is registering impressive results. Daphne Liska, senior manager of Internet marketing at eBay, said the 33Across campaign was more successful than standard online ads and that eBay plans to continue using social data to find new customers.

Sprint, which also worked with 33Across, tested the approach last summer to promote the launch of the Palm Pre smart phone and quadrupled related online sales, says Joe Migliozzi, managing director of digital at Mindshare, the WPP-owned media agency that managed a campaign for Sprint. He says Sprint is considering the same approach for future campaigns.

"A lot of what goes into a purchase comes from a general conversation between you and people in your group," Mr. Migliozzi says. "We're identifying the links between people."

33Across is one of a handful of start-ups, such as Media6-Degrees and Lotame, that aim to make use of the reams of Internet user data behind social-networking sites for ad targeting. They all use complex algorithms to track connections between consumers. 33Across says it tracks five billion connections, then weighs them to determine the closest ties.

"There are massive streams of untapped social relationship data," says Eric Wheeler, chief executive of 33Across. Mr. Wheeler says his company collects user data from MyYearbook.com but he declined to name other specific sites, citing agreements with those Web sites.

(Tracking cookies from 33Across were found by The Wall Street Journal on other sites, including popular Twitter-photo site twitpic.com, as well as music site lyricsmode.com and health site righthealth.com.)

Not surprisingly, such tracking of friends and acquaintances has attracted the attention of some lawmakers and regulators. Such ad-targeting approaches are facing increased scrutiny from federal regulators who are investigating privacy issues tied to the Internet. Some lawmakers, concerned about Internet privacy, say they are preparing to introduce legislation in the coming weeks to make more transparent Web sites' tactics for collecting information on their users.

"To the extent that ad companies are using social-media information to deliver ads in a way that is not transparent to consumers or consumers don't understand what the source of the basis of the ads are, that could present an issue," says Christopher Olsen, an assistant director in the privacy and identity protection division of the Federal Trade Commission.

The ad-targeting companies say that they abide by industry standards and that the information they collect is anonymous and can't be traced back to individual users. Industry trade groups are introducing standards that let consumers know when they are being targeted by an ad as a result of tracking.

Both Facebook and MySpace allow marketers to target ads on their sites to consumers based on the information users include in their profile, such as occupation, age, location and interests. (MySpace is owned by News Corp., which also owns The Wall Street Journal.) The new group of start-ups thinks that the data mapping connections between people—rather than their profile information—are more valuable.

Facebook ran into a privacy debacle in 2007 with an advertising tool called Beacon that allowed Facebook to track users' activities on certain external sites, then show updates on the site about those activities, such as retail purchases. CEO Mark Zuckerberg later apologized to users and changed the site's privacy settings.

The new targeting technique is rooted in decades of research about social behavior. A New England Journal of Medicine study from 2008, for instance, found that smoking behavior—such as quitting or not— spreads through social ties.

"These companies are on to an important factor in the market that we haven't tapped into well, which is how consumers are connected to each other and how they influence each other's purchases," says Emily Riley, an analyst with Forrester Research.

Still, ad executives say they are seeking more transparency about where the data come from and where their ads appear.

"Agencies are still trying to wrap their heads around it," says John Nitti, senior vice president and digital director at Publicis Groupe's Zenithmedia.

Write to Emily Steel at emily.steel@wsj.com

Posted via email from MEDIA CHECK