• by Wendy Davis , Staff Writer @wendyndavis, December 18, 2008

On the heels of the departure of its four U.S. board members, controversial behavioral targeting company Phorm faces yet more upheaval. The company, which has consistently said it intends to enter the U.S. market, is now losing its U.K. chief executive, Hugo Drayton, as well as U.K. chief financial officer Lynne Millar.

Phorm has named Time Warner vet Nan Richards as deputy CEO in London, and Andrew Croxson as Global CFO on an interim basis. Phorm also promoted U.K. commercial director Nick Barnett to the newly created position of U.K. managing director.

The company says the new team will help the company deploy its behavioral targeting platform in the U.K. and abroad while also "managing cash resources in a prudent fashion."

Certainly, the economic downturn has left many companies reeling. Still, it seems that Phorm faces additional pressure stemming from its controversial business model.

Phorm partners with ISPs to obtain information about users' Web activity, and then serves people targeted ads based on sites visited and searches performed. Phorm says that all targeting is done anonymously and that it dynamically discards any clickstream data that doesn't match marketing-related terms.

But the platform nonetheless alarms privacy advocates, who say they don't want their ISPs snooping on their Web activity for ad purposes. Advocates also point out that ISPs have access to far more data than older behavioral targeting companies, including all searches performed and activity on non-commercial sites.

In the U.S., those concerns were serious enough to spur congressional investigations, which eventually led Phorm rival NebuAd to retreat from a similar business plan. U.S. Rep. Ed Markey (D-Mass.) has said he believes that companies shouldn't engage in this type of targeting unless subscribers explicitly consent to it. And three of the four largest ISPs have gone on record as saying they won't deploy similar systems unless users opt in.

For now, Phorm is forging ahead in the U.K. -- though not without pushback. For one thing, European regulators are still pressuring the U.K. authorities to take action regarding secret tests conducted by Phorm and the ISP BT two years ago. Those tests, conducted without notifying users or letting them opt out, potentially violated Europe's strong privacy laws.

Secondly, ISPs other than BT -- Orange, for instance -- have been distancing themselves from Phorm. Additionally, as a practical matter, it's hard to believe that subscribers will consent to this type of targeting unless they receive something of significant value in return.

For its most recent test, BT sought subscribers' explicit consent to the targeting and promised anti-phishing protection to those who agreed -- even though this type of service is often available for free. At this point, it's unclear how successful that effort was. The test, which began in September, was supposed to take two weeks and involve 10,000 subscribers. Instead, it took more than three months and neither company has divulged how many people agreed to participate.