Questions for Bob Dykes, NebuAd CEO

Internet service providers keep trying to extract profit from the booming online ad market, yet few other than AOL have succeeded to a measurable degree. The fierce Net Neutrality debate, waged mainly between telcos with Internet access offerings and Web services giants like Google and Yahoo, is in no small part a play for a share of the riches generated by online advertising. Other initiatives have included branded portals with syndicated content, such as Comcast’s, and more questionable practices such as DNS search redirects recently introduced by Verizon.

Yet ISPs’ most potentially controversial bid for online ad dollars is only just getting underway. With the assistance of a small group of technology vendors, numerous Web access providers have begun tracking the online activities of their subscribers for the purposes of behavioral ad targeting. (Read ClickZ’s coverage of this trend.)

Among those vendors, NebuAd has the highest profile. The firm has aggressively marketed its services to ISPs, and has returned calls to ClickZ when its competitors have not. In a recent conversation, CEO Bob Dykes discussed the company’s behavior tracking and advertising system, its response to consumer privacy concerns, and its aggressive growth plan.

Q. What targeting and pricing capabilities do you offer?

A. We work with CPA (define), CPC (define), and CPM (define) advertising. For CPM, what we are providing to the advertiser is the assurance they are reaching a predefined audience. It can come from our predefined segments or the advertisers’. In some cases the advertiser has their own notion of the audience they want to reach. We allow the advertiser to define their audience.

We allow more sophisticated advertisers to define their segments. The creatives around that can be changed dramatically from one instance to another. We’re working on very dynamically created ads — combining text and graphics to allow the content of the ad to change continuously [based on the characteristics of the Internet surfer].

Q. To what degree are your ISP partners involved in selling ads?

A. We sell the advertising. We simply place the equipment at the ISP’s network. Their role is completely passive. We do all the work.

We have contracts with ISPs covering millions of subscribers. We’re rolling it out across the Internet at a rapid race. Each appliance covers 10,000 to 30,000 subscribers.

Q. How are you addressing concerns about privacy?

A. People read a lot about how search data is kept 18 months to two years. We’ve been able to apply technology to avoid keeping any records mapped against individuals. We avoid any personally identifiable information. We just keep track of that individual qualified for interest in certain categories, such as an SUV or travel to Las Vegas or shopping for a television.

It’s all macro data mapped against what we call a hash. Because it’s a repeatable event we’re able to identify the same person over and over again. We can do very micro-targeting.

Q. How do you obtain ad inventory and where do you serve the ads?

A. We buy the impressions from the ad networks. We are willing to buy from every ad network. Because of our micro-targeting capability, the CPMs we can charge our advertiser are quite a bit higher [than what networks can charge].

Q. So you’re acting as an ad network yourselves.

A. Correct, but we don’t want to replace existing ad networks we run on top of. We’re not looking to buy directly from publishers. We’re more interested in ad networks because they give us the best reach.

Q. Can you name any ad networks you’re working with?

A. ValueClick would be a name.

Q. Could you talk about your discussions with the Federal Trade Commission?

A. We explained what we’re doing not only to the FTC but to other privacy advocates. I don’t want to make a public discourse around [our contact with] the FTC. We have a law firm in Washington that represents us. So they introduced us.

When you talk about putting a footprint that tracks 10,000 people in the network, that sounds pretty ominous. That’s why we have to be out in front talking about privacy.

Q. So why not share the names of ISPs you’re working with?

A. Customers don’t like their vendors talking about them. We are not going to be talking about our ISPs. They are going to be talking about their businesses. We do require them to tell their customers and provide an opt-out.

Q. How do they tell them?

A. They have different ways of doing it. Some say putting a notice in an invoice is the right way. Others believe sending an e-mail is the right way. For some of them, they have a privacy statement that completely covers what we’re doing already. In their privacy statements they need to mention that their browsing activities are going to be monitored.

Q. How would you compare yourselves to the largest behavioral advertisers?

A. [AOL’s] Tacoda has been the biggest. They have around 4,000 Web sites in their network. We see search; we see those 4,000 Web sites; plus we see all the other Web sites.

The existing behavioral cookie-based networks only have a limited knowledge. They may have some idea you went to a travel site. That’s all they know.

We have real knowledge of the behavior, not some very high level. The Tacodas are running something like 25 to 40 different levels of categories. We have 800 today and we’re expanding that to multiple thousands. Again, more than an order of magnitude greater ability to target people.

Q. What do Internet subscribers get in return for all that data they’re sharing with you and your advertisers?

A. The ISPs have really not generated a large amount of value [from the online ad boom]. All the value is accrued to publishers, search engines, and advertisers. With regard to the large mass of inventory it allows them to generate more value.

That will indirectly benefit the consumer. You might assume over time that since we’re working with such a large number of ISPs, you might guess they’ll charge less to consumers.

Q. How many ISPs do you work with?

A. I don’t want to quote a number.

Q. What’s the range?

A. Multiple tens of ISPs.

Q. In what markets are you strongest?

A. The U.S., but we’re in Canada and launching in the U.K.

Q. What’s the total number of subscribers you’re tracking online through your ISP partners?

A. Many millions. The appliances are being rolled out, multiple a day.

Q. How many total impressions have you bought?

A. We haven’t disclosed that. We’re not as big as the larger ad networks today, but we’re certainly getting up into the mid-sized networks.

Q. Can you identify any advertisers you’ve worked with?

A. I don’t have any we can disclose up front.