Startup gets ad data via Web providers

"All they really have is (the equivalent of) a dot on a grid somewhere that says, 'It's time to get an ad to this dot,'" said Larry Ponemon, a privacy consultant who has advised NebuAd.

If that does not reassure consumers, Dykes said NebuAd requires ISPs to ask their customers whether they want to opt out.

However, that could prove contentious. Pam Dixon, director of the World Privacy Forum, said NebuAd should instead use an opt-in mechanism — automatically excluding anyone who doesn't sign up. She said even if a marketing profile is anonymous, someone might be able to tie it to an individual Web user, if its details were as richly detailed as NebuAd indicates.

"For this particular business model ... it's got to be opt-in, because people's expectation of privacy is that this isn't happening," Dixon said.

The degree to which this privacy equation has been managed will likely be key for NebuAd.

In the company's favor, its unusual approach to gathering data could deliver better insights than traditional cookie-based systems, including those run by such powerful players as Yahoo Inc., Time Warner Inc.'s AOL, Microsoft Corp. or DoubleClick Inc., which Google Inc. hopes to buy.

Cookie networks capture information more sporadically, which is one reason "behavioral targeting" accounts for just 3 percent of spending on online advertising in the United States, according to eMarketer, a research group.

"No one has to go to every Web site, and everyone can turn off cookies, but everyone has to use an ISP to get online," said David Hallerman, a senior analyst for eMarketer.

NebuAd's system would be far less valuable, however, if not enough ISPs join the network. ISPs could get skittish if a privacy outcry erupted, justifiable or not.

"There may not be a real privacy violation, but if the individual thinks there is, then there is a problem," Hallerman said.

NebuAd also has to compete for advertising dollars increasingly being thrown at search engine result pages, where people often provide awfully clear signals about their consuming interests.

However, Tom Soevyn, CEO of Focalex Inc., a marketing agency that places ads with NebuAd, says NebuAd's system appears more cost-effective than search engine marketing, partly because it puts ads on multiple kinds of sites.

"When I've run on some of the ad networks I've had horrible results," Soevyn said. While his tests with NebuAd are still in "early stages," he added, "it seems to be working pretty well. ... We'll keep our fingers crossed."

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