ATM for ISPs or Spy in a Box?

Amid controversy over the ethical and privacy concerns of targeted advertising, NebuAd hopes to rise above the fray by offering ISPs a slice of the revenue pie. But will tracking user habits bring more headaches than revenue to the ISP?

by Jim Thompson [December 7, 2007]

"We were formed to be a source of revenue—to provide advertising revenue, in fact—to independent service providers," says Bob Dykes, C.E.O. of NebuAd, which describes itself as a "provider of behavioral advertising systems for ISPs."

As one of the newest players in the targeted advertising space (they started in 2006, but formally launched to market on November 5, 2007), NebuAd sees big potential in providing specific ads to people who have demonstrated interest in specific products or services. By partnering with ISPs in a revenue sharing arrangement, they hope to beat the competition in this potentially lucrative space.

NebuAd looks to gain the upper hand over companies offering similar services by paying ISPs a portion of their revenue in exchange for placing a 2-U, 9-inch rack mount device into their network that tracks the browsing habits of their customers.

All-Seeing appliance
Dykes won't offer specific details about the exact nature, design, and function of the installed appliance, describing it as a "sophisticated device containing a lot of leading-edge software." He says it can handle single and multi-mode fiber (a copper version is also available), has "fail open ability" built into it, and that it was built by Flextronics.

"It's a high speed, very transparent device containing leading edge software that can do deep packet inspection at one-gig speed," notes Dykes.

The box, which is installed at the ISP's location, tracks the activity of individual users and serves up ads that reflect their interest as complied from their browsing habits. "We can look at the search activity and at what a user is doing online at various sites. We are able to then optimize the ad that is going to them based on that input," says Dykes.

He adds that the browsing information, "goes either directly into the network so all of the traffic goes through this appliance or you can configure it as a hairpin of an existing B-rad and run a portion of the traffic through it. Nevertheless, we see all of the HTTP traffic that is going across the network. We have a very low latency—less than 1 microsecond latency for VoIP, for example—so we really don't tread on any traffic that goes through the appliance. If there are any problems with the appliance, it fails open."

He also emphasized that the device is not a proxy and it is not doing any address translation. If it fails open, traffic across the network is not impeded.

The box communicates with NebuAd servers that serve up the most appropriate advertisement. "When a person goes to a website, there are multiple ways to decide which ad is going to be shown," said Dykes. "We will be in rotation and ready, so when we get the call, we know the best ad to serve to that user. Because of the high value of our advertising, we generally get to the top of the rotation in each instance."

In return for installing the black box in their network, a bounty is paid to the ISP that varies from $2 to $4 per subscriber.

The ISP says
"We are looking to increase our average revenue per user by about 10-percent for a high-speed Internet subscriber,' says Chris Mangum, vice president of strategic planning for CenturyTel, which is headquartered in Monroe, Louisiana and operates in 25 states. He adds that CenturyTel currently in a market trial and has not yet fully implemented the NebuAd system across the network.

According to Dykes, NebuAd opens the door for the ISP to share in the revenue generated by advertising. "Online advertising is a $20 billion industry that is growing by 30 percent a year," he claims.

NebuAd "buys media on websites" and places ads at those locations and on advertising networks. The trick here is to have a lot of advertisers in the system so that all major interest categories are represented. If someone visits a lot of automotive sites, for example, the concept of targeted advertising only works if there are a lot of auto related advertisers represented in the client base.

Dykes would not say how many advertisers his company has, but noted that it is working hard to attract as many advertisers as possible with an emphasis on diversity.

Ultimately, the revenue for the ISP and for NebuAd comes from the advertiser. NebuAd believes it will attract more advertisers because it acts as a 'bridge' across search-type and display-type advertising systems. Dykes describes this as "behavioral targeting network on steroids."

He adds that NebuAd pays the advertising networks a "fixed price for the media we buy from them." The advertiser pays what are described as standard rates based on impressions per thousands (CPM) which range from $5 to $40 per 1,000 impressions. The website owner also gets a cut which Dykes claims is generally higher than that offered by other companies.

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