Web monitoring gives clues to broad economic trends
Wednesday January 1, 1:56 PM EST ; By Eric Auchard
(Reuters) - Can online surfing habits accurately predict real-world economic behavior? While most mainstream economists scoff at the idea, market researchers and some Wall Street investors are making the statistical leap.
Proponents who see links between online and conventional economic activity say they have uncovered close correlations between certain types of behavior -- online job searches, shopping for new home mortgages and autos -- and broader economic trends.
Officials at marketing research company comScore Networks Inc. of Chicago boast that they can give stock and bond traders as much as a seven-week jump on a few key U.S. government statistical "leading indicators" that can move markets.
"This could really change the way the consumer is monitored and understood," said comScore Chairman Jian Fulgoni, a veteran in the field of retail checkout scanner research. "Before the Internet, there wasn't any way to measure the way consumers were being exposed to a product."
Accenture, the world's fourth-largest technology consulting company by revenue, advises corporate clients on "Web sentiment monitoring," or how to cull through conversations in Internet chat rooms, message boards and newsgroups to detect both positive and negative consumer reactions to their products.
In the meantime, product advertisers, Hollywood and entertainment businesses are receiving instant marketing feedback by dredging the Internet for clues.
---ECONOMISTS YET TO BE CONVINCED---
But economists are quick to try and debunk any easy links between online behavior and conventional buying and selling.
"They are making a hypothesis that online surfing behavior predicts actual economic data. They haven't demonstrated that," says Austan Goolsbee, an economist at the University of Chicago who is considered an authority on Internet taxation.
"In a way that Wal-Mart is representative of sales, the Internet is completely not representative of sales," he said.
Online sales may scream ahead each year. They are expected to have grown to $74 billion during 2002, up 40 percent from a year earlier. But that remains a drop in the bucket compared with the trillions of dollars that change hands in the economy-at-large.
While two-thirds of Americans now use the Internet at home or at work, online audiences remain far from typical, said Goolsbee.
"Online behavior looks very different than the behavior of the economy overall. Web users are much richer, more educated, younger, white-collar, more likely to live in cities and work in states with digital industries."
Study after study have found that purchase intentions are poor predictors of actual sales, particularly for large durable goods like cars, homes and appliances, said Joseph Abati, a senior economist at investment bank Lehman Brothers.
"Are all those people browsing the Internet fully intending to purchase, or are they just gathering information?" he asked. "Price discovery does not mean people are necessarily using the Internet to actually purchase things."
Rakesh Shankar, an Internet business analyst at Economy.com in West Chester, Pennsylvania, says that any early forecasting successes will need to be demonstrated over more than just the recent downbeat business cycle.
"With just a few years of recorded data, is this simply a coincidence?" asked Michael Niemira, a senior economist at the Bank of Tokyo Mitsubishi in New York.
The economist tells the story of how he had collected a series of weather anomalies running back to the 1960s that tracked economic activity to a surprising degree. "This had an incredible run -- until the past two years -- that is, up until it stopped working," he says with a dismissive laugh.
---THOSE WHO KNOW AREN'T SAYING---
ComScore officials say they have faced down such complaints in the past -- and triumphed. The company, previously known as Information Resources Inc., helped pioneer retail checkout scanning for the marketing research world in the mid-1980s.
"We were told it was 'too early,' 'It can't be done' and 'How can you possibly measure the rural areas where there are fewer scanners in place?" Fulgoni recalled.
Over the past two years, stock analysts and other investors have been buying comScore data to track the online sales of both 100 percent Internet-based companies such as Amazon, online travel sites or eBay. ComScore also offers Wall Street data across whole sectors of online sales, such as consumer electronics, books, movies, books, banking and health care.
Christian Kugel, the head of research for IP Starcom, the online media buying unit of Leo Burnett, a unit of Publicis global advertising group, counters critics of such methods by arguing that advertisers use the Internet to find clues to the purchasing anthropology of innovators and early adopters.
"Entertainment is so fickle and depends on trends so much. You can get a lot of early warning signs online," Kugel said.
Glover Ferguson, chief scientist at Accenture's technology research labs, says that with methods of digital data collection proliferating, it is less and less a matter of finding data and more an issue of asking the right questions about the trove of data being gathered on consumer behavior (http://www.accenture.com/xd/xd.asp?it=enweb&xd=services\technology\research\tech_showcase.xml).
Market researchers and corporate advertisers must pay close attention to privacy concerns to make sure that consumers trust how they use the data, Ferguson emphasizes.
"Consumers are willing to surrender private information in exchange for something," Ferguson said. For Americans, that usually means greater convenience. But if companies then spam the consumer, "this thing could blow up in their faces," he warned.
ComScore succeeds where other data researchers have failed by promising never to reveal individual surfing habits. It focuses only on aggregate consumer behavior and sweetens the deal by offering consumers Internet virus protection, Web access acceleration services and pricey sweepstakes prizes.
It dodges controversy despite tracking the intimate Web surfing habits of up to 1.1 million U.S. consumers and another 400,000 Web surfers overseas, capturing every keyboard stroke and mouse movement. It goes beyond just Web surfing habits to recording actual sales transactions.
Details on how comScore recruits can be found on the Web at (http://www.comscore.com/about/about_method.htm).
So far, comScore has signed up 20 trading clients, including multibillion-dollar hedge fund investors and several of the major investment banks. Costs for macroeconomic and industry sector data start at $50,000 to $100,000 per year and go up from there. The biggest clients pay upward of a million dollars per year, but prefer to keep their uses secret, comScore officials say.
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