MARY LOUISE KELLY, host:
For the last decade, Google has dominated online advertising with its search ads. When you search for, say, ear plugs, Google gives you an ad link to a company that would love to sell you earplugs. But last week, Google put up an old-fashioned billboard in the middle of Times Square. The point was to remind everyone that they're also in the display ad business. Those are the ads with pictures.
As NPR's Laura Sydell reports, Google is one of many companies vying for a big piece of a display ad market, a market that's becoming more targeted and more lucrative.
LAURA SYDELL: The colorful automobile advertisement on your computer five years ago may not look different from the one you see today. But behind the scenes, it sure is different. Let's imagine an Internet user named Jane Smith who was online looking at cars on the General Motors website.
Mr. MICHAEL BAKER (DataXu): As Jane visited the website, they placed a cookie on her browser.
SYDELL: The tracking device for GM shows Jane was looking for a car, explains Michael Baker of DataXu, which advises online advertisers.
Mr. BAKER: They've measured the fact that you came to their website, but you did not buy.
SYDELL: But they know Jane was looking, and is probably in the market for a car. The cookie lets them follow her.
Mr. BAKER: As she continues surfing, she next goes to CNN.
SYDELL: And guess what Jane sees?
Mr. BAKER: She sees an ad for a new car.
SYDELL: And what they know about you can get even more personal, says Joanna O'Connell, who follows online display advertising for Forrester Research.
Ms. JOANNA O'CONNELL (Forrester Research): Your gender, your age, your household income, you know, whether you have children, psychographic information, like whether or not you consider yourself to be an introvert or an extrovert or a liberal or conservative.
SYDELL: And if you registered for something - say, a Yahoo email account - you give the company your name, gender, birth date and zip code, says Mitch Spolan of the company's ad division.
Mr. MITCH SPOLAN (Advertising, Yahoo): There is certain information that they volunteer when they're registered that we can leverage to deliver even a more targeted message to them.
SYDELL: Yahoo runs something called an ad exchange. It's a computerized auction for ad placement. This is how it works: When Jane Smith arrives on a particular webpage - say Yahoo Finance - all sorts of information about her is sent to the exchange. In a millisecond, advertisers may know that Jane is looking for a car, that she's mother of three, lives in Phoenix and has a household income of $150,000. Advertisers looking for someone like Jane will bid to put an ad in front of her.
Mr. SPOLAN: And we have thousands of advertisers that are bidding in real time on these impressions to reach the target audience that they're seeking.
SYDELL: Jane's eyes go to the highest bidder. The result is that Jane may see an ad for an SUV that's family safe and is for sale where she lives in Phoenix. Analyst O'Connell says this kind of targeted advertising is what's helping to revive online display ads.
Ms. O'CONNELL: You know, it's less waste. It's a better impression for them, and they're going to be willing to pay more.
SYDELL: In the last 20 years, online ads keep getting more targeted - from food ads on the cooking site, to the search ads Google pioneered. And according to the analyst firm eMarketer, the US display ad market is set to grow from just over 34 percent of online ads to more than 40 percent by 2014. But the new world of targeted display ads is going too far, says Jeff Chester, the executive director of the Center for Digital Democracy.
Mr. JEFF CHESTER (Executive Director, The Center for Digital Democracy): So you're talking about a commercial system that's a digital dossier about your innermost secrets, concerns and personal matters. And that should not be available so people can target you or, frankly, your kids.
SYDELL: Chester says it can be information many people don't want public: health conditions, financial matters. Plus, increasingly, people are taking care of business and doing their banking online.
Mr. CHESTER: And these big institutions, these Fortune 1,000 companies, these big advertising companies, not only do they know that, but they're studying those behaviors very closely.
SYDELL: Proposed legislation could give consumers more control over their own information. But the industry will regulate itself, because they don't want to offend potential customers, says analyst Joanna O'Connell. She says many people find it creepy when an ad follows them around.
Ms. O'CONNELL: There's sort of the human element, the sort of ick factor. And marketers are aware of that. Depending on the marketer, there are some that are very reticent about using certain types of targeting.
SYDELL: And O'Connell says seeing ads is part of the deal consumers have to live with if they want free online content, because ads are the only way to pay for it. While many consumers may be happy to watch an ad, they may not be willing to give up so much of their privacy.
Laura Sydell, NPR news, San Francisco.