BT blow for Phorm

(By Philip Carnelley Monday 6^th July, 2009 10:30am) Hat tip to our good friend George O’Connor at Panmure for spotting the story in today’s Guardian that BT has decided not to deploy Phorm’s Webwise, the highly controversial Internet software product. We don’t agree with George (for once!) that this will be good for marketing analytics software player, Alterian – we don’t think it will have an effect – but there is no doubt this is a big blow to AIM-listed Phorm. Its shares plummeted one-third this morning on the news.

Webwise potentially allows advertisers and content providers to provide targeted material to web browsers based on their previous surfing history. The idea is that the page you’re currently looking at may not really reflect your interests, and an idea of what else you’ve been looking at recently is a better bet. So, you may be looking at a page about Wimbledon right now, but really you’re more interested in cars, so an ad on the page about BMW’s latest offer would have more impact.

The trouble is that tracking people’s web surfing is like waving the proverbial red rag to the bull for the privacy lobby. Even Sir Tim Berners-Lee has expressed concern about Phorm, as has the EU. But we met Phorm’s development and strategy people last week, and they really do think that Webwise does not invade privacy any more than, say Google Mail’s targeted ads or page ranking. They also said that in principle your ISP (already) knows exactly what you’ve done and where you’ve been, to the nth degree. Phorm believes that what they are doing isn't open to abuse by advertisers, ISPs or indeed Phorm itself. They actually want ISPs to see Webwise as a value-add service that will differentiate them in a commoditised market.

The key point about today’s news is that Phorm’s solution – and business model – is entirely dependent on getting buy-in from ISPs to install its software. For BT to say ‘no’ is a problem, because it is the major UK broadband provider and often an early adopter paving the way for others. Despite Phorm’s employing BT Retail’s former CTO as its own CTO, clearly BT has been spooked by all the controversy. Phorm will now be pinning its hopes on a Webwise pilot at Korea Telecom (a major broadband provider in perhaps the most advanced market in the world). If successful, this will boost Phorm’s approaches to ISPs in other countries less mired in the privacy debate – and perhaps sidestep the UK market altogether. But for now this is a blow it really didn’t need.