August 1, 2005, 12:00 AM

Crumbling

Consumers refuse to swallow retailers’ cookies—calling into question retailers’ ability to track and create comprehensive customer relationship data

By Linda Punch

Online retailers have long relied on cookies to give them insight into their customers’ wants and needs. Those small pieces of software downloaded onto consumers’ computers enable e-merchants to track how often customers visit their sites, what they do on the sites and what they do before and after visiting.

But cookies’ value as a measuring tool is diminishing. Recent studies show that a large number of consumers, spurred on by privacy concerns, are deleting cookies at an alarming rate-some as often as daily, according to one study. If the trend continues, the results could be devastating for online retailers and advertisers, observers say.

The enabling technology

“Cookies in large part are the enabling technology that ties what people are looking at, how they’re browsing through merchandise, to the actual purchases and the lifetime value of customers,” says Eric T. Peterson, analyst at Jupiter Research. “There are lots of things that cookies are used for, all of which essentially are at risk.”

Until now, cookies have been low on most e-retailers’ radar screens. But a cookie uproar erupted in March, when Jupiter Research released a report showing that as many as 39% of online users could be deleting cookies at least monthly. 17% deleted cookies weekly; 12%, monthly; and 10%, daily. Based on that data, Jupiter concluded that cookie deletion is crippling sites’ ability to track users and make critical marketing measurements such as the number of returning visitors and how many times the average shopper visits before making a purchase.

Hard on the heels of the Jupiter report was a May report from WebTrends Inc. that found the average third-party cookie rejection rate increased more than four-fold, from 2.84% of visitors in January 2004 to 12.4% in April 2005. WebTrends’ analysis of 5 billion visitor sessions found that on average, 12% of Internet user traffic blocked or rejected third-party cookies. Retailers experienced a cookie-rejection rate of 16.9%, higher than the other 11 online industries.

Most observers attribute the cookie-deletion problem to the proliferation of anti-spyware technology and upgrades to Microsoft’s Internet Explorer, both of which remove unsolicited software from computers. But consumer attitudes, stemming in part from publicity about spyware and identity theft, may play a larger role.

Privacy concerns

Concerns about privacy are a leading reason for consumers to delete cookies, according to a study released in June by Burst Media. The study found that 38.4% of those surveyed delete Internet cookies once a month.

When asked by Burst Media, an Internet ad services and online ad sales rep company, why they delete cookies, 44.9% of consumers surveyed said they remove all unsolicited downloads and 44.6% said they don’t want their web-surfing activities monitored.

Consumers also said they delete cookies because they don’t feel personal information is safe when cookies are on their computers (34.6%), because their spyware program suggested they should (31.6%), and because they don’t want anyone to know when they’re on a web site (22.1%).

Jupiter also found that consumer attitudes are driving cookie removal. “Consumers are constantly hammered with concerns, fear, uncertainty, and doubt about their privacy and security,” Jupiter’s Peterson says. “So you give them this very easy thing to do-turn cookies off, disable cookies or use anti-spyware to delete cookies-and they’re going to do it.”

What frustrates marketers and advertisers most is that consumers believe cookies fall into the same category as spyware and adware. “People lump everything together,” says Jarvis Coffin, Burst Media cofounder and CEO. “They think we’re all part of some big evil machine.”

But cookies are much less invasive than a grocery store loyalty card, Coffin says. “Consider what consumers are willing to trade in exchange for swiping frequent-shopper cards at the supermarket,” he says. “Cookies are benign.”

No cookies, but pie

Cookies mark the computer, not the consumer, and gather no data other than tracking the user’s online behavior. “Privacy is a legitimate concern of consumers, but when they properly understand the issue of cookies, they’ll also understand that this is not an invasion of privacy,” Coffin says.

Because of marketers’ and advertisers’ heavy reliance on cookies, the industry is looking for a replacement. United Virtualities, a marketing services provider, has developed PIE-the persistent identification element-a measurement application based on Macromedia Flash. PIE restores the original cookie when a visitor returns to the site, says Mookie Tenembaum, company founder.

When a consumer first visits a PIE-enabled site, the site downloads a cookie to the user’s computer but then also attaches a tag with unique identification information to the visitor’s browser. If the original cookie is not present when the person returns to the site, the user is hit with a PIE, which activates a back-up of the original cookie based on the additional identifier that the retailer placed on the consumer’s machine. “They do the same thing they were doing before they used PIE but instead of just having 20% to 50% of the people with cookies, they go back to 100% of the people with cookies,” Tenembaum says.

Tenembaum admits PIE doesn’t address consumers’ concerns about privacy. “If you don’t like cookies, you don’t like cookies, whether you get them in the normal way or with PIE,” he says. “The only difference is that by using PIE, they are very, very difficult to erase and anti-spyware programs can’t touch them.”

Peterson, however, thinks that cookie substitutes-such as PIE-will encounter the same problems as cookies-and smart software developers won’t let the market go unaddressed for long. “If somebody builds a technology-based proxy for cookies, the anti-spyware guys will just go through and delete those files as well,” he says.

The sampling method

But the value of cookies lies not only in knowing when a customer returns to a site and how soon they buy. Retailers also use them as the basis for calculating various metrics and detecting trends that can help them enhance their web sites and marketing campaigns.

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