Targeted Advertising and Advertising Avoidance

I examine how the increasing ability of firms to target their advertisements to particular individuals influences market outcomes when consumers have access to advertising avoidance tools. Today firms possess an unprecedented and rapidly improving ability to discover details about individuals and reach them with advertising based on this information. For instance, as many readers know, an individual’s web browsing activities may be tracked via information stored in his browser as long as he “participates” by not regularly deleting it, allowing ads to be customized to him upon visiting a web site. Less well known may be that new technology allows Internet Service Providers (ISPs) to target ads by directly tracking which websites consumers visit, meaning that not participating is not an option for consumers. Similarly, advances allow cable television operators to deliver highly customized ads to viewers. For those who don’t utilize such services, it may be surprising to learn that the many millions of users of social networking tools such as Facebook and MySpace, and of the popular email services of firms such as Yahoo and Google, allow ads to be served based on data generated by using the networking tools or gleaned from the contents of emails sent or received. Dunkin’ Donuts is testing new technology that will change the ad displayed at the counter based on the appearance of the customer. Supermarkets and other retail outlets are beginning to offer coupons to consumers at the checkout aisle based on their previously recorded shopping habits. There are many more examples. I thank Nuffield College, Oxford University, for graciously allowing me to visit; part of this paper was written there. Johnson Graduate School of Management, Cornell University. Email: [email protected]. Data such as which websites were visited and what content was viewed are trackable via small pieces of information called “cookies” that are stored in browsers. “Watching What You See on the Web,” Wall Street Journal, December 6, 2007. The technology being deployed by ISPs is potentially more invasive than that using cookies. The reason is that, heuristically, the use of cookies is most effective when many websites work together to share information, and also requires that users don’t delete their cookies too often, whereas the new technology requires neither. “Cable TV Puts New Spin on Ads,” Wall Street Journal, May 16, 2007. This article reports, for example, that “During a commercial break for ‘Lost,’ a young couple watching TV might see an ad for the latest cellphone, while at the same time their nextdoor neighbors with children may see a diaper commercial.” Facebook claims 100 million active accounts. “The Ad Changes with the Shopper in Front of it,” Wall Street Journal, August 21, 2008. “Personalized Store Ads Take Off,” Wall Street Journal, October 23, 2008. Advertising sent to mobile phones is on the rise and will be based on the consumers’ precise location as determined by embedded Global Positioning System devices. Ironically, the digital video recorder (DVR) manufacturer TiVo is exploring ways of tailoring advertisements to customers shown while these customers attempt to skip advertisements.