Commentary

Bad Year For Phorm: Company Loses $30M

Controversial behavioral targeting company Phorm lost $30 million last year and $49 million in 2008, the company said in a financial report issued this week.

Phorm serves ads to users based on information about their Web activity gleaned from Internet service providers using deep packet inspection technology.

The company conducted tests of its system in the U.K. between 2006 and 2008, but said in its most recent report that it isn't working with any U.K.-based ISPs. Phorm, which is incorporated in Delaware, has said it intends to launch in the U.S., but hasn't yet tested its system here.

Consumer advocates, lawmakers and others say that ISP-based targeting poses more of a threat to privacy than older forms of behavioral advertising because broadband providers have access to users' entire clickstreams, including search queries and visits to noncommercial sites. Older behavioral targeting systems only gather data from a limited number of commercial sites within a network.

Phorm's rival NebuAd conducted tests with six U.S. ISPs in 2007 and 2008, but suspended plans for broader deployment after Congress stepped in. The company, which folded last year, still faces a potential class-action lawsuit by subscribers who allege the company violated their privacy.

Phorm, like NebuAd, repeatedly said that any data collected about Web users is anonymous, but privacy advocates say that clickstream data can in itself provide clues to people's identities.

For now, Phorm is operating exclusively in Brazil -- where, according to CEO Kent Urtugrul, it uses a "full opt-in approach."

"It is now possible to ensure that the only data that our system comes into contact with is that of a consumer who has explicitly granted opt-in permission," he boasts.

The report also said opt-in rates are "significantly above both our own and analyst estimates."

Despite the report's positive tone about Brazil, the Ministry of Justice in that country this week opened administrative proceedings against Phorm and Oi, its ISP partner, according to The Register. The proceedings allege that the companies didn't answer a request for information about how the targeting platform works, The Register reports.

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