The following is the second half of a post I wrote earlier this week regarding behavioral targeting and the related privacy concerns. You can read the first half here if you haven’t seen it already.

There are arguably four distinct types of Behavioral Targeting techniques currently being used:

1. On-Site Targeting: The users are segmented based on content views or actions on one site and then are targeted on the site itself…this has been happening for years now – some are doing it more effectively than others, but the idea here is that as users consume specific content, the advertising these users see is impacted accordingly. While it may be an issue of awareness, consumers – in general – don’t seem terribly concerned with this type of behavioral targeting technique.

2. Network Targeting: The users are segmented based on content views or actions on one site and then are targeted where ever they go on sites participating in the behavioral ad network. This technique starts to get generate some concerns as the concept is further understood. The idea of network targeting is to connect disparate web properties with one another for marketing purposes, allowing increasingly more relevant advertising to surface based on the content and sites a consumer frequents.

3. The third behavioral targeting technique is a game-changer that has effectively made the issue of online privacy a national – and international – topic for debate. Internet Service Providers (ISPs)– the guys that connect you to the Internet itself, Comcast, Charter, AT&T, etc. – are getting into the behavioral targeting space and because the ISPs own the ‘source code’ if you will about what sites these users are visiting, the specific content they’re consuming and the actions they’re taking – or not taking – there is a growing concern about how this data is being collected, analyzed and used for marketing purposes for customers and privacy advocates.

4. Though dramatically different from the ‘spy-ware-like’ behavioral targeting techniques cited above, the popularity of, and the reliance upon social networking sites like Facebook, MySpace, YouTube and others has ushered in a new type of marketing tactic – ‘Social Targeting.’ I see social targeting as the confluence of community, brand affinity and usefulness. Without rehashing Facebook’s Beacon disaster of last year, we can all agree that social influence plays a critical role in our daily lives – just think about how often your friend’s recommendation, a colleague’s comment or an acquaintance‘s perspective alters or influences your behavior… When you examine the financial requirements of sites like Facebook and MySpace – and the kind of information consumers are broadcasting about themselves, the idea of monetizing this data through relevant marketing programs begins to make more sense.

Opt-Out or Opt-In? The letter Charter Communications recently sent out notifying users of their new behavioral targeting policy provides the ability for customers to opt-out of the program if they do not wish to be monitored. While it’s clear that Charter is hoping the majority of their customers will remain in the program, it’s unfortunate that Charter chose to make this program opt-out, as opposed to opt-in. Although Charter’s letter communicates its intention to collect user-behavior data and apply these profiles for marketing purposes, automatically enrolling all of their customers into the program, and forcing them to opt-out only continues to reinforce the perception – and potential reality – of unethical business practices. My advice to the ISPs and advertisers is be incredibly transparent – if these kinds of targeting programs really can make my online experience better, explain that to the consumer upfront and you might be surprised by the response.

A Better Experience.One of the consistent claims of behavioral targeting is the promise of a better online experience. But what does this mean? Anyone who’s surfed the web for even a few minutes quickly realizes that – in large part – advertising is driving the internet economy. The current experience is one fraught with marketing and advertising irrelevance, clutter, noise and distractions. An experience (the marketing and advertising experience that is) ‘controlled’ or influenced by behavioral targeting is likely to be more relevant and interesting to the customer, thus the promise of a better experience. There are customers who will find this more relevant experience to be a better one – but again, be clear about what you’re doing, and even more importantly, why you’re doing it.

Brand Loyalty.Brand advertisers need to pay special attention to this issue as the potential for brands and organizations to unknowingly participate in behavioral targeting programs that could result in a major backlash is potentially high. This is a particularly important issue for the world’s largest brands who spend substantial media dollars in an effort to build brand awareness and attract new customers. Brands must be very careful not to associate their media placing strategies by participating in behavioral targeting practices that might harm the brand’s value and equity. As marketers, we are always looking for that unique and differentiating insight that can be exploited and optimzed to reach the intended targets, but doing so in a manner that the majority of consumers feels is potentially unethical or perhaps even more to the point, invasive and sinister, is a sure-fire way to alienate your customers and reduce the value of your brand.

I’ve written in the past about the increasingly contested and complex issue of online privacy and behavioral targeting. Last week I was featured in an NPR piece discussing this issue within the context of a recent Charter Communications announcement that they would soon begin monitoring their users online activity and behaviors for the publicly stated purpose of improving their targeted advertising platform.

When you examine the topic of online privacy and behavioral targeting, it’s quickly apparent just how complex and multi layered this issue has become. In light of the recent NPR piece, I thought I add some additional context and perhaps fodder for debate – and in an effort to make this more readable, I have broken this post into two parts. I’ll post the second half tomorrow.

One of the fundamental aspects that privacy advocates are missing when they lobby for potential legislation and regulation of online monitoring is the very nature of the Internet Economy – an economy that is predicated, and has been since its inception, on the basic notion of trade. Digital brands (Facebook, MySpace, YouTube, The New York Times, Gmail and countless others) are providing a valuable – and clearly very popular – set of ‘free’ services that are advertising supported and funded by brands in the very same way that television has been broadcasting ‘free’ programming for 75 years. In the case of the social networking sites, consumers are being provided with large amounts of virtual storage space and sophisticated platforms that allow these consumers to connect with their social circle in a single place, communicate via free email services or bypass the $1.50 each day it costs to buy a physical version of the NYT. The key point to understand is that these brands are providing tangible, valuable services that are essentially free to consumers, and the implicit – and explicit – agreement that exists is the trade of information for the use of the services.

While it’s clear that consumers have essentially embraced and accepted the current economic terms of the Internet – services in exchange for personal information – they’re clearly not thrilled with the idea of monitoring their browsing behavior for the purposes of developing more effective marketing. I suspect that consumers understand the 1:1 relationship they have with an a single online brand, but are fearful of the potential repercussions of being monitored on a ‘network level.’ The requirement to monetize these traditionally ‘free services’ via smart, relevant and effective advertising platforms will continue to challenge marketers and publishers to balance the privacy concerns of consumers against the need to generate profitable revenue for providing these services.

I will explore some of the other aspects that are contributing to this complicated and ever-changing issue in subsequent posts, including the second half of this story tomorrow. As always, comments, opinions and questions are welcome.