From the May 2003 issue of Entrepreneur

Do you use web bugs? You're not alone if you say yes. Increasing numbers of netpreneurs now rely on web bugs, aka web beacons, as a subtle way of gathering data on site visitors. These small image files, embedded in web pages or e-mail messages, allow you to better understand visitor usage patterns by evaluating the number of page visits, browser usage, the effectiveness of mass e-mails and even personal information.

Although overall Web bug use on the Internet isn't rampant, it increased 488 percent between 1998 and 2001, according to the most recent study from Internet site tracking firm Cyveillance in Arlington, Virginia.

Most web beacons are used through products and services from companies that offer site analysis services or products, such as WebSideStoryand NetIQ. These companies employ web beacon technology in combination with cookies to learn past surfing habits and record details about anonymous or aggregate visitors. That information includes which web pages users viewed and how long they usually stayed on a page. With this information, entrepreneurs can understand customers' traffic patterns and adjust their content to suit visitors' interests.

WebSideStory's HitBox Services are used by BackcountryStore.com, an online retailer of outdoor adventure gear in Heber City, Utah, to track site activity anonymously. John Bresee, vice president of marketing and co-founder of BackcountryStore.com, says the practice helped his company increase sales more than 160 percent in 2002, to more than $1 million. "HitBox continues to be a key reason for our online success," says Bresee, 36. "It helps us optimize our marketing and merchandising efforts and dramatically increase sales."

The technology has allowed BackcountryStore.com to learn, for instance, that site visitors using the internal search tool were four times more likely to make a purchase than those who navigated the site on their own. As a result, the company greatly expanded the search tool function across its entire site, resulting in more conversions and increased revenues.

BackcountryStore.com also uses HitBox to identify exactly which promotions generate the most orders, customers and revenues in real-time. This information then lets the business determine which campaigns to support and which to cut. The technology even helped with recent site redesign. HitBox's path-tracking technology also analyzes how visitors make it to a purchase and where they fall out of the process.

Privacy Factor

Although web bugs help businesses gather valuable information, their potential for collecting detailed information worries privacy advocates. They're concerned about the potential of web bugs and cookies to link records of online behavior to names, addresses, e-mail addresses or transactional information and then send that information to third parties without the end-user's knowledge. However, Bresee insists WebSideStory never collects personally identifiable information about their visitors and uses only aggregate traffic figures.

But if you do choose to use web bugs--even for aggregate data--one thing's for sure: You should let your users know about it. One way to do this is to follow the guidelines for notice and choice released late last year from the Network Advertising Initiative (NAI), a coalition of online ad network operators. The guidelines state that, whenever web beacons are used, the site's privacy policy must include notice of their use and explain what they're used for. In addition, the user should know if personally identifiable information is being collected--and sites should obtain a consumer's permission before using the technology to collect and share such data. Organizations included in the development of the guidelines include 24/7 RealMedia, Advertising.com, Coremetrics, DoubleClick, Guardent, IBM, KeyLime Software, Microsoft, the U.S. Postal Service and WebSideStory.

Two major self-regulatory seal programs, TRUSTe and BBB Online, also assisted in the development of the guidelines. In fact, TRUSTe, which maintains the largest privacy seal program in the world with more than 1,500 Web sites, says it will incorporate the guidelines into its seal of approval program. The FTC has also issued a staff opinion supporting the standards. For a full description, visit the NAI at www.networkadvertising.org.


Melissa Campanelli is a marketing and technology writer in Brooklyn, New York.