The controversial behavioural marketing company Phorm has been under constant criticism for several months. The latest reports suggest that they may be pulling out from the UK altogether.

A spokesperson from Phorm said:

‘Phorm remains fully committed to its operations in the UK.

‘We continue to be active in the market and are confident of the opportunities domestically. Meanwhile, Phorm is also making substantial operational progress internationally.’

Speculation comes after two of the internet service providers that it intended to work with have pulled out. BT, who were involved in the controversial ’secret’ trials of Phorm on their networks have ‘no imediate plans’ to continue with Phorm. Talk Talk have pulled out and Virgin Media ‘continues to examine behavioural advertising technologies, including Phorm.’

Phorm claim that they: ‘…remain in ongoing discussions with a number of UK ISPs and remain optimistic about our longer term potential in this market.’ It is unknown who these providers are.

The companies latest figures show a loss of $15m in the six months preceding June. However after raising $24m to tide it over it is undertaking its latest trials with the largest internet provider in South Korea, KT. Despite is current failure in the UK it is involved in 15 other markets across the world.

Phorm has been lambasted from opponents of behavioural marketing who say that it is an invasion of privacy. In the United States a recent study from the University of Pensylvania said that most Americans (66%) were not happy with the idea of receiving targeted advertisements.

The European Commission has been monitoring the developments in behavioural marketing. Viviane Reding, commissioner for information, society and media said that they are receiving many complaints about targeted advertising. On Tuesday at a lunch debate in Brussels she said that the situation was being closely monitored:

‘European privacy rules are crystal clear: a person’s information can only be used with their prior consent. Transparency and choice are key words in this debate… I will not shy away from taking action where an EU country falls short of this duty.’

For the first time ever online advertising spend has overtaken spending on TV advertisements in the UK. This is a sure sign that companies are really taking the power of internet marketing campaigns seriously.

A report from the Internet Advertising Bureau (IAB) found that £1.75bn was spent on online advertising in the first half of 2009, which represents a 4.6% increase compared to the second half of 2008.

The report also shows that ad expenditure online is up £82m to a record market share of 23.5%. The UK has the highest online percentage spend.

Guy Phillipson, chief executive of the IAB, said:

‘Internet advertising has beaten all expectations to achieve growth in the most challenging market conditions.

‘Online display has performed notably well against its peers in TV, print and radio despite more than £1.5bn being wiped off the advertising industry.’

The increased number of Channels available over the last ten years has diluted the power of TV advertising and the joy of online advertising is that it can be so specific and targeted.  Behavioural marketing, although sometimes controversial, enables companies to trace user behaviour and target campaings that are more relevant.

Additionally, Perhaps the recession has encouraged more online advertising with its cost effective return on investment.  Guy Phillipson, chief executive of the Internet Advertising Bureau, said:

‘Internet advertising has beaten all expectations to achieve growth in the most challenging market conditions. Online display has performed notably well against its peers in TV, print and radio despite more than £1.5 billion being wiped off the advertising industry. We have a rollercoaster of a year ahead but even in tough economic conditions marketers still recognise the value, accountability and measurability of online advertising.’

Facebook is in the centre of a controversy as it has been accused of clickthrough fraud for the second time in one month. A case against Facebook has been filed in the US by Unifed ECM who are accusing them of charging for ‘non-existent, fraudulent or invalid clicks.’

Earlier on in the month RootZoo, a sports forum, sued the social networking site for charging for clicks that did not materialise. Their data showed that on one day Facebook had generated 300 clicks but they had been charged for 804. RootZoo had advertised on Facebook from November 2007 to June 2008.

Facebook is a social networking site that is increasing in popularity both in the UK and all over the world. This, combined with the way that it uses very target behavioural marketing techniques, makes it a very attractive prospect for companies wanting to advertise online. Done well, advertising with Facebook can be very successful.

However, this latest complaint will be concerning to those who advertise with Facebook and companies are advised to check their own analytics figures carefully with those of Facebook.

Facebook, who are obviously keen to maintain their reputation, responded in an email last month to bnet:

‘The goal of our advertising programs is to deliver value to advertisers and, as a result, we take click quality very seriously.  We have developed a series of sophisticated systems to detect anomalous activity and ensure advertisers are not charged for this activity.  In addition, we analyze tremendous amounts of data to discern larger click patterns and, in rare cases where this research, other analysis, or advertiser questions reveal charges for invalid clicks, it is our practice issue credits to impacted advertisers.  While we’re pleased at the opportunity to shed some light on the systems and policies we’ve established and continue to improve to protect advertisers, this litigation is unnecessary and baseless.’

There is certainly no evidence that Facebook has deliberately defrauded anyone but it is well known that they are still a fairly new and developing company who are obviously still getting their act together. It remains to be seen whether this new law suit will adversely affect their reputation and whether any more companies are angry enough to take their click through complaints further.

Nationwide building society is the latest company to pull out of the services that Phorm has to offer. As previously reported Phorm’s targeted behavioural marketing service has been called into question after consumer groups complained that the service invaded people’s privacy.

Phorm’s service works via internet service providers recording their client’s browsing history. This information then creates a ‘profile’ of customers possible needs which is used to target them with very specific marketing and sales information. For marketeers it sounds like a dream and in theory consumers should be receiving information about products and services that could be very useful to them.

Complaints from consumer groups and an investigation into the Government’s endorsement of Phorm has meant that many companies who were interested in the new service have pulled out. These companies include: Amazon and Wikipedia and Talk Talk. Even BT, who allowed Phorm to conduct several controversial trials on their network said they no longer wanted to work with the company.

The latest company to reject Phorm is the Nationwide building society. Nationwide said that it is pulling out because of concerns over privacy. In a statement posted on a pro-privacy site they said:

‘We have had discussions with our online advertising agency on Phorm and as a result of this review we have decided to contact Phorm and ask them not to scan the Nationwide website. Investigating the service that they are looking to offer, we do not see the benefit to our customers or to us of allowing them to scan the Nationwide website in this way. We will be getting in touch with Phorm over the next few days, though we are unfortunately unable to confirm how long it will take for them to action our request.’

Phorm has not commented on this particular situation although they have been robustly rejecting claims that their business compromises privacy and even have a website dedicated to their rebuttal.

As previously reported Phorm are a search marketing company who are planning to launch Webwise, a behavioural targeting service. Webwise, will work through internet service providers (ISPs) and will use deep packet inspection to examine pages in order to analyse who is looking at what. They have received much controversy over the last year and privacy groups have said that Phorm has not complied with privacy legislation in particular after they undertook secret trials last year through ISP BT Broadband. Phorm has been telling the public that all their activities are perfectly compliant but now they are hitting back strongly with a new site: Phorm: Stop Phoul Play.

The new site is combative and unusual, and backlash to bad media press and consumer-led sites such as BadPhorm. It lists its critics in an almost ‘name and shame’ way.

‘Over the last year Phorm has been the subject of a smear campaign orchestrated by a small but dedicated band of online “privacy pirates” who appear very determined to harm our company. Their energetic blogging and letter-writing campaigns, targeted at journalists, MPs, EU officials and regulators, distort the truth and misrepresent Phorm’s technology. We have decided to expose the smears and set out the true story, so that you can judge the facts for yourself.’

One of the issues of contention is more obvious and easy opt-in options for the consumer rather than the current opt-out feature. However, Open Rights Group executive director Jim Killock has since admitted that, even if web sites opt out of the programme, ISPs supporting Phorm will still be able to profile users visiting those sites.

“This is because Phorm can scan search requests entered in those sites, even if it cannot detect the web site pages users are viewing,” Killock said.

“For example, even if Google opts out of Webwise, when a user types in a Google query and they are using BT, it will still go through Phorm before it reaches BT.”

Webwise will gather the url from a search and enough header data to ascertain the content of visited pages.

The issue for consumers is that they don’t want to be spied on. What the consumer wants is security. To know that they are safe. One of the problems lies in the technical aspect of online marketing. It can be harder to explain to the public in a way that will leave them reassured. Phorm’s new site tries to do this and explains that search engine data collection is more invasive to privacy than their system and that their very targeted behavioural marketing techniques is more beneficial to consumers. It could be argued that it could have just defended itself without criticising its opponents and that this would have been a better reputation management technique.

Unfortunately for Phorm business relies on reputation and rightly or wrongly its has been tainted. Organisations , like Amazon and Wikimedia who were lined up to work with Phorm have now retracted. It remains to be seen whether Phorm can regain their reputation. We will be watching to see if the UK government are cleared by the European Commission enquiry concerning their allowing Phorm to trial via BT.