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Phorm helps ISPs fight back

Internet service providers are sick of seeing Google and Yahoo hoover up their advertising revenue - and an Aim-traded software company is helping them hit back
February 20, 2008

Three of UK's Internet service providers have signed up to a new advertising platform that could create a lucrative new revenue stream - and an Aim-traded company called Phorm is running it.

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For years, ISPs here and elsewhere have watched web giants such as Google and Yahoo make off with the lion's share of the $27bn (£14bn) global online advertising market. But now, they're aiming to make money by delivering a relevant, high-quality audience to advertisers. The mechanism that could help them to do so is Phorm's Open Internet Exchange.

BT, Virgin and Carphone Warehouse, the UK's three biggest ISPs, will gather information on the web usage patterns of their huge user bases. Phorm will then takes this anonymous data and use it to help advertisers target those users via the websites they visit. The difference between what the owners of websites charge for their advertising inventory, and what the advertiser is prepared to pay to target such relevant prospects, is split between Phorm and the ISP.

Will users assent to this? BT thinks they will, saying its customers want more relevant advertising , along with the additional online fraud prevention capabilities of WebWise, the consumer-facing part of Phorm's platform that ISPs have agreed to promote to their user bases.

Phorm's board and management team includes big-hitters from operators AT&T and BT and online ad leaders aQuantive and DoubleClick - the latter pair bought by Microsoft and Google. Hopes of a similar deal may be sustaining Phorm's share price, which has rocketed from 138p at the start of 2006 - when it was called - to 3,350p today.

Analysts at Investec estimate that the initiative could add around £85m and £65m to revenues at BT and Carphone respectively. That translates to a potential uplift to cash earnings of 1.3 per cent and 10 per cent by 2010.