Introduction | What are Cookies? | Current Cookie Usage | Marketing Implications for Cookie Usage | Framework for Commercial Web Sites | Conclusion
Owen Cookie Jar
This jar is the most extensive collection of cookies from any business school in the United States. See what sites have issued cookies to the 40 computers in the Owen Computer lab. Where do Owen students go on the web? Cookies tell all!
What are Cookies?
Netscape first "baked" cookies to extend the capabilities of web-based client/server applications. Netscape technically refers to the cookie programming device as Persistent Client State HTTP Cookies.
Cookies are significant because their utilization expands the flexibility of the Web. Cookies allow web administrators and marketers to build new web applications that are more responsive to individual customers.
Current Cookie Usage On the Internet
Banner Advertising & DoubleClick
If such an ad has been seen by the same user three times with no response, it is a good indication that the advertiser is wasting money at that particular location. This changing of ads is synonymous with a mail-order merchant who removes a customer from its list because she fails to order after a certain number of mailings. If technology can screen out unwanted ads, it may be considered a benefit to both the user and the merchant.
When advertisers register with DoubleClick, they create one or more target audience profiles. DoubleClick's automated system will then forecast the number of likely highly-targeted impressions available and the total costs for the ad campaign. The advertiser can also control the type of sites that are allowed to display its banner. The number of impressions can be controlled in order to prevent the advertiser from exceeding its budget. Costs are pro-rated for any advertising campaigns that end before DoubleClick can deliver the agreed number of impressions.
The company has a database of 70,000 Internet domain names that includes a line of business code for each name. This information can be used for direct advertising to the user based on a guess of the user's occupation. The company can determine the user's type of operating system from the browser program. Browser software communicates basic facts about a user's hardware and software configuration to web-site operators in order to make web pages appear on the screen.
When a user logs on to a DoubleClick client, the DoubleClick server assigns a one-time, unique ID number that is stored on the user's computer. For any future visits to that site or any other DoubleClick sites, the DoubleClick server retrieves the ID number and stores information about the visit. Gradually, the server compiles information about the user and his or her spending and computing habits, behavior, and interests. See exhibit below.
A user visits one of the
more than 60 sites in the
|DoubleClick's proprietary technology dynamically matches advertiser's ad banner with appropriate target and displays to the user...all within 50 milliseconds.|
The user sees the ad banner selected for her user profile and clicks on it for more information.
User ID's and Shopping Carts
When users return to a site for which their computer has already been given a cookie, their login information and previous shopping data are automatically matched up. They can then purchase additional items without having to re-enter their credit card number or shipping address. However, sites can only read cookies which are left on a particular computer. So users would have to re-enter information if accessing the same site from a different computer.
Besides storing user ID's, shopping carts use cookie technology to store what a user wishes to order at a site prior to finalizing a purchase. For example, if a user wishes to place some CD's in her shopping basket, a unique identifier is sent to the cookie file so that the user can browse other parts of the site without the server losing information on that user. When she is ready to check out, the server reads the cookie file and initiates a transaction based on what is in the shopping cart. Such usage of cookies is very helpful in a web-mall environment where several vendors may exist, but consumers only want to pay in one place at one time.
Marketing Implications for Cookie Usage
The greatest positive implication of cookies for a marketer is the ability to enhance targeted marketing or one-to-one marketing. For example, assume on a user's last visit to the CNN site, she reads a few articles on crime in the United States. Each time an article is read with regards to a specific topic (e.g., crime), the cookie file is updated. Once this user returns, CNN has the ability to read the cookie file and see that she read these crime stories. CNN could then send her a customized, personal banner ad for home or car security. This personalization of a web site will allow advertisers to better target promotions to users. Furthermore, it allows advertisers to test which particular banner ad is more effective. offers this service using cookies to determine which version of a banner ad is more effective by tracking the click-through frequency of various versions.
Companies selling products over the Web will also be able to track purchase patterns of repeat customers and offer special promotions to them. For example, if a consumer continually looked for certain categories of books such as science fiction at Amazon Books, a cookie could be written that shows interest in science fiction. Each time this consumer returns to Amazon's home page, the retailer could immediately offer the person science fiction books at a discount to promote buying. Cross selling is also possible through suggestive selling of complementary products. If a consumer had a pair of slacks from LL Bean in her shopping cart and this shopping cart was written as a cookie file, LL Bean could read the cookie file and offer a complementary product such as a shirt or belt with a price discount. The implication and extent of cross selling is unlimited.
It is even possible that sites have mutual agreements to share their cookie files and the interpretation of these files, enabling marketers to better understand their customers. For example, by mixing the examples above, if a consumer reads a CNN article on crime and then later visits the Amazon site, the book company could automatically offer her discounted books on crime. Vice-versa, CNN could see what books she frequently searches for at Amazon, like crime, and customize its news stories so that crime-related stories are the most prevalent ones when she logs onto its site. There are certainly technical issues involved with these examples, particularly with establishing consistent categorization of consumers across both web sites and clear interpretation of each other's cookie files. However, if the synergies exist and the costs are relatively inexpensive, there is little to prevent such collaboration among web sites. The key benefit, obviously, is tailoring content to the user and ensuring that she will continue to return to the respective web sites.
Finally, cookies enable marketers to refine their web sites and make them more functional for users. For example, a web administrator can determine the average number of links a person uses to get to a particular page. If this particular page is popular and it takes an average of five or more clicks to get to it, the web administrator may place a link to this page earlier in the click-stream so that users can access it more quickly. The obvious implication is that users are more likely to return to the site if it is easier to use. The issue of a 'stateless' site is also eliminated. When surfing the web, users request web pages in a stateless fashion whereby the servers are unaware, unlike America Online, that you are still logged onto their site when viewing and reading a page. Essentially, each request for a web page at the same site is a different session with the server. Cookies enable a 'stateful' session where a unique ID code is written to that user's cookie file immediately when she logs on to the home page. Each time that subsequent pages at this web site are requested, the ID is read by the server which is able to track time spent on the web site or monitor a user's session. If an intermediary page is being viewed for only a few seconds, it may indicate that the page needs refining or improving so that users will spend more time viewing it.
Problems with Cookies
Furthermore, new efforts are being made by public-interest organizations to protect privacy. The company eTrust identifies web sites that honor users' privacy using different levels of endorsement logos. A site that does not collect any information, for example, can license an eTrust logo for its home page to prominently display to users that it guarantees '100% user privacy'. To make matters more difficult for marketers, some sites such as the Anonymizer and NetAngels add a 'middle-man' between a user's computer and the web sites. These sites filter cookies but allow the user to easily navigate through web sites. Last June, Representative Edward J. Markey (D-MA) introduced a bill to Congress that would require the Federal Communications Commission and the Federal Trade Commission to study Internet information-gathering practices. He promised that regulation would possibly ensue if the market failed to provide tools and services to regulate itself.
Finally, there is limited functionality with cookies. Marketers may assume that the same individual is always using the same browser for Internet access. In an educational setting, however, several students may use the same computer with the same browser and the same cookie file. Such students may also use several different computers. Inherently, this is one of the greatest flaws with cookies. For the short-term, there is no alternative to solving this issue of multiple users for one cookie file. Potentially, marketers could become more creative and savvy using incentives to gather direct information from users.
Summary of Benefits and Problems
Problems with Cookies
Framework for Commercial Web Sites
According to Hoffman, Novak, & Chatterjee's research, Commercial Scenarios for the Web: Opportunities and Challenges, there are six functional types of commercial web sites that help build a successful marketing strategy to promote electronic commerce:
Each of these six types are based on categories of what the site offers to the consumer and how she could benefit in interacting with the site. Within this context of interaction, we offer a framework for using cookies to further maximize the marketability and effectiveness of a site to enhance customer retention.
In this type of web site, consumers are primarily seeking to purchase some good or service or simply experimenting with the site to judge its merit before purchasing. The major issues for such a site are promoting transactions and ensuring that consumers return to the site. Examples of this type include CD Now or Security First Network Bank. An ideal framework for using cookies in this type of web site includes preventing ad burnout, targeted selling, and custom web pages based on past purchase behavior. Also, cookies can be used for automatic, convenient user logins keeping the user from having to re-enter shipping and billing information and shopping carts that enable the user to browse the site before purchasing.
Further cookie use could be in refining navigation and content of a web site by monitoring user sessions and explore synergies with other web sites. Regarding collection and reselling of consumer data, the web site companies must be very cautious. Often consumers feel 'burned' by direct marketing because they assume that their names, addresses, and interests are private. If consumers discover that some on-line storefront sites sell data, such sites may undergo severe scrutiny, possibly resulting in significant loss of sales and customers.
In a content-based web site, content or information is requested by consumers for a fee. Examples include Quote.com and Wall Street Journal, sponsored content like HotWired or BusinessWeek, and searchable databases like CareerMosaic. The key to understanding this type of web site is that information is dynamic and attractive to the end-user, resulting in repeat visits. Usage of cookies is a 'paired-down' version of the On-Line Storefront because information is not 'pushed' to the consumer. Instead, the consumer seeks or 'pulls' information either through simple browsing or a need to achieve some goal.
Primary usage of cookies to enrich the site and its information include preventing banner ad burnout, targeted advertisements, particularly if a user's interests are known through behavior or survey information, convenient and automatic user logins for those sites requiring it, refine navigation and content of the web site to better 'serve-up' the information, and monitor consumer sessions. Such sites should also explore sharing information and synergies with other sites. For example, Quote.com could share information with the Wall Street Journal and vice-versa. Finally, for such sites that maintain solid user information, particularly fee-based sites, marketers should cautiously explore the possibilities of collecting and reselling user data.
These sites do not offer products or services when a user first arrives. The goal of such a site is to 'pull' the user through some attractive content or information. Eventually, the site reveals its commercial interests in the hope of soliciting some level of purchase after presenting its information. Essentially consumers are not initially aware of the site's goals or objectives. For example, As The Web Turns is an Internet soap opera written by a public relations and writing firm.
Ramifications of Cookies
On the surface, the cookie concept is not a considerable revolution in monitoring and tracking consumer behavior and interests. Off the Internet, similar devices to cookies are used in our everyday lives. Caller ID, for example, is widely used in the United States for systems that can recall a customer's name, address, account information, order history, credit reports, etc. Supposedly, the Pizza Hut Corporation implemented a computer order system that can identify a caller and last order but the company still asks customers their phone numbers instead of saying "Hi David, would you like the veggie with no mushrooms again?" -- because they are afraid of scaring customers by letting on that they already know (Malcolm's Guide to Persistent Cookies).
Furthermore, traces the origins of the cookie back to catalogs that originally developed the concept of 'catalog reference numbers' to aid in better serving customers. In the traditional (print) world, it is widely accepted that catalog companies keep records of the products customers have bought in the past - sizes, colors, etc. - to better assist them in making future purchases. Such catalogs also frequently resell their information to direct marketers.
However, the cookie is more elusive and daunting than Caller ID or catalog reference numbers. The cookie rests on a consumer's computer in a computer mediated environment. The potential exists for the computer as a powerful computational and relational tool to be used to retrieve information about someone who is visiting a site or to begin building a pattern of usage and behavior on that person (Malcolm's Guide to Persistent Cookies).
If a user registers her name and address at a site, all future activity at that site could be linked to the user. That information could then be sold to others, such as consumer marketing organizations. For example, one Netscape user complained on-line that he felt like he had been "electronically tagged like an animal."
Such a statement leads into the suggestion that there is a 'dark side' to using cookies. A web site operator could design a cookie that would review a user's hard drive, in search of something that resembled a social security number or bank account number. It would only take a few well-publicized incidents like this to make Internet users leery of all on-line advertising and the usage of cookies.
Some industry writers say the biggest problem a user will likely encounter is increased junk mail (both real and electronic). They add, "The bottom line on all of this is to be aware. You don't have to be any more worried on the Web than in other places, you just need to be informed." ("Web Security and the Cookie Controversy." Mark L. Van Name and Bill Catchings, PC Week, July 29, 1996 v13 n30 pN6.) Besides, users are very much in control of their cookies with the options to turn them off or delete them.
Future Cookie Usage on the Internet
As one periodical has predicted, "Individual pages will be matched to individual interests with a precision not seen before. And the result may be unnerving, as marketers start using the Net as an instrument to peer not just into the habits but into even the thought processes of individual computer users." This source also expected the major change in electronic commerce to be driven by the successors to the cookie technology. Such changes are being incorporated into web servers, tools and databases. The new systems are expected to collect a wider range of information such as sequence of pages and sites visited including time spent at each page. Such information will be stored in databases, and marketers will tap into this vast database for consumer information.
As a user signs on in the future, information from the database will be retrieved to target specific information about the individual. Larry Footer, Chief Executive Officer of Consortium LLC, a New York-based Internet software developer, said, "Selling on the Internet no longer will be based on demographics. It's all psychographics. You want to know what a consumer is thinking." He also said that small merchants will use existing data to determine whether to offer premium or discount items to particular on-line customers.
The Chief Executive Officer of the on-line bookseller, Amazon Books, Jeff Bezos, predicts that Web retailing will never replace traditional retail shopping, but consumers may be inclined to shop on-line if more companies offered personalized services. He said, "the potential is there to completely redecorate your storefront for every customer that comes to your site."
However one industry manager predicts that technology is not the key to on-line merchant success. Satya Nadella, lead product manager for electronic commerce at Microsoft, says the real determinant will be how well a company manages its customer database.
In our attempt to explain cookies and their usage, the purpose of this paper was to demonstrate the potential for cookie technology, particularly when relationship marketing seems to be the 'golden fleece' to success on the Internet. However, we must caution that implementing an ideal database management system using cookies is a tremendous undertaking, both in labor and in cost. Mr. Bezos estimates that the internal development of a satisfactory personalization system could cost several million dollars. Nevertheless, he considers the development of this technology to be necessary for long-term survival. Furthermore, customized content may not be completely viable until the technology becomes more accessible and is easier to implement.
Owen Graduate School of Management
Cookie Jar is a collection of over 150 web sites that have issued cookies to
40+ computers in the lab, used by over 400 students. This information was
collected on December 12, 1996 by recording the cookie files from all the
Wintel and Macintosh computers in the lab.
You will quickly see how often cookies are used!