How do advertisers show me custom ads?

In order to deliver custom ads, companies first need to know something about you. Here are a few ways they gather that information:

Clickstream Data. In custom advertising, the term clickstream refers to a record of Web pages you've visited. This data is collected using a tiny text file called a cookie, which a site sends to your computer so it can track your movements among its pages (for a more detailed description of this topic, see "How Internet Cookies Work"). There are two types of cookies: first-party cookies, which are sent by the site domain in the address bar, and third-party cookies, which come from other domains that have embedded ads or images on the page. Marketing companies like DoubleClick, which advertise on sites across the Web, use third-party cookies to compile surprisingly complete records of users' browsing habits. This information helps them tailor advertising to specific patrons. For example, if a user's clickstream record includes a lot of sports Web sites, he or she may see more advertisements for team jerseys and game tickets, even when viewing something unrelated, like the weather.

Search Data. A 2011 Pew Internet survey found that 92 percent of adults used search engines when online, so it's no wonder that sites like Google, Yahoo! and MSN have gotten into the advertising business [source: Purcell]. They analyze search terms and user habits to place targeted advertising alongside regular search results and often allow companies to pay them for a higher position among the results for particular keywords. That's why, when you do a search for "sleeping bags," larger outdoor companies often appear first, and advertisements for sleeping bags line the margins of the page.

Purchase Data. Ever notice how Web sites like Amazon will recommend items that remind you of other items you've purchased or viewed in the past? That's because online stores often use cookies or user registration to keep track of what you buy -- and even what you put in your cart and later abandon -- in an effort to personalize your shopping experience.

Profile Data. When you create a profile on a social networking site such as Facebook you probably enter information about your age, religion, education, political views, interests and favorite movies, music and books so your friends can get to know you better. What you may not know is that these sites also use that data to provide you with custom advertising. For example, if you list one of your interests as "board games," don't be surprised to see ads for Scrabble, Monopoly or Life.

Understandably, Internet users have shown concern about the tactics used by marketing companies who provide custom ads. After all, these companies gather a great deal of information about millions of different people around the world. Then they use it to place ads that can make it seem eerily like someone's looking over your shoulder.

Much of the controversy surrounds the collection of data using third-party cookies, which can help compile a pretty complete log of a user's browsing history. Critics of this practice fear that such records could be combined with identifying information like names, addresses and phone numbers. After all, who wants the fact that you checked out a list of the top 10 hottest women alive floating around on the Web where grandma might find it? It's highly unlikely that such a thing would ever happen, though: Marketing companies are very wary of engaging in such practices, largely because of the criticism it would attract.

While third-party cookies have drawn some negative attention, most cookies are completely harmless. Some people mistakenly believe that cookies are programs that can plant a virus on your computer or mine your hard drive for personal information. As stated earlier, however, cookies aren't programs, but simple text files that can only be read by the Web site that sent them. Many are used to remember harmless things like your personal preferences for a particular Web site. Even HowStuffWorks.com uses cookies!

If cookies and other methods of data collection still bother you, consider this: Revenues from ads allow users to surf many Web sites free of charge. Marketing companies argue that giving up some of your privacy for the sake of advertising is simply the price you pay for this service. Without data collection, ads would be less personalized and therefore less lucrative, causing a loss in revenue that could cause more Web sites to charge for their content. If nothing else, custom ads bug you about something that you might actually want instead of pestering you about something you would never purchase.

If you still don't feel good about all this, you'll be glad to know that you can disable cookies on any Internet browser. This setting is usually found in your browser preferences under the "security" or "privacy" tab. Other ways to limit data collection are more drastic: Avoid performing Internet searches, making online purchases and creating social media profiles. But what fun would that be?

As advanced as the technology is, custom Internet advertising doesn't always get it right. Imagine that you're a man who shopped online to buy your wife a dress for her birthday. Now you're likely to get dress advertisements for a few weeks until the marketing companies realize that you aren't a reliable women's clothing customer. Just recently, while researching this article, I came across some poorly-targeted advertising. The ad was trying to sell me a Lexus ES, which retails for about $36,000. Sure, that's cheap for a Lexus, but let's just say my six-year-old American hatchback suits me much better.

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