Startup Offer Free Calls in Exchange for Eavesdropping

Surveillance-based advertising is coming to voice communications, just as it has for Google (NSDQ: GOOG)'s Gmail service and Amazon (NSDQ: AMZN)'s Web site.

Pudding Media, a San Jose, Calif.-based voice-over-IP advertising startup on Monday has begun beta testing ThePudding.com, a service that offers free, ad-supported phone calls from a computer with a Web browser and microphone to any phone.

After initiating a call through a Web browser, the caller is presented with online ads targeted by keywords culled from the conversation through speech recognition technology. Ad targeting is further refined by basic information provided by the user, including zip code, gender, and age range.

This is similar in concept to the way that Google's Gmail generates online ads from the contents of e-mail messages and the way Amazon generates product recommendations for its online shoppers based on past purchases.

Pudding Media also is offering to license its technology to communications providers and Web publishers so that they can offer ad-supported calling.

"Everybody wins," explained Eran Arbel, VP of products and co-founder. "Communication providers can now create new ad revenue that they couldn't bring in earlier. And some VoIP providers have virtually no revenue. And the second win is for advertisers, because they have a new medium. The third win is for the consumers who get free calls and entertaining content, so everybody's happy."

Those concerned about privacy may not be so happy. Lauren Weinstein, founder of Privacy Forum and a member of the ACM Committee on Computers and Public Policy, said in an e-mail that there are significant differences between what Gmail does and what ThePudding says it will do.

One technical issue that Weinstein raised is that "voice recognition in such environments has a significant error rate, so assumptions about what is being said, and subsequent actions taken on those assumptions (even if just sending ads) are likely to be significantly more problematic (in terms of accuracy) than with text scanning."

But beyond that, Weinstein believes pushing the advertising envelope into areas of social sensitivity could create a backlash. "Most people feel intuitively that speech is much more personal than text, and many are likely to be uncomfortable with the concept of their conversations being scanned, even if promises regarding how that data will be used and logged (or not logged) are taken at face value," he said. "The entire area of speech scanning is inextricably linked with wiretapping concerns at the emotional level. If marketers attempt to push the scanning and advertising envelope too far into these discomfort zones, they risk alienating customers and the public at large, and perhaps are inviting regulatory interventions as well."

Arbel said that Pudding Media doesn't record calls and doesn't store keywords identified in conversations after they're used to trigger ads. "The privacy is much better than Google or Gmail, for instance," he insisted.