A controversial new service that tracks internet users’ behaviour as they browse so that closely targeted advertisements can be sent to their screens moved closer to launch today.

Shares in Phorm, the AIM-listed advertising technology company, rose 22.45 per cent after it said that it had made significant progress in preparations for a network trial with BT. The company said that consumer trials with two other internet service providers, Virgin Media and Carphone Warehouse’s TalkTalk, were also due to start. Phorm shares closed at 750p.

The controversial service, called Webwise, tracks users’ behaviour as they browse the internet to increase the effectiveness of online advertising.

In February, Phorm made agreements with BT, TalkTalk and Virgin Media, which together have more than 10 million customers. Phorm said that other major internet service providers (ISPs), agencies, publishers and advertising networks were showing interest.

In April, the Information Commissioner said that Webwise did not represent a threat to privacy, but concerns from consumers have persisted. The Foundation for Information Policy Research, a group of Cambridge academics, has criticised the platform, saying that it infringed users’ privacy. BT was drawn into the privacy row earlier this year when it admitted to carrying out secret trials of the Phorm technology in late 2006.

Phorm is designed to make online advertising more relevant by taking account of all the websites a person visits, rather than just the content of a single web page. If, for example, a person visited five golfing websites before visiting a financial services page, the system might suggest delivering a golf advert on the financial page, where typically an advert for a financial product might have appeared.

Phorm works by having equipment at ISPs that will capture, for each site you visit, the URL, any search terms entered in a search engine, and other data from the page, in order to categorise it. The system places a cookie with a unique number on the browser when a person starts using it, and this remains there. This data is used to create a profile of your internet usage. When someone visits a page where the ads are sourced from the Open Internet Exchange set up by Phorm, their browser will see adverts targeted to their profile. While their browsing history is not retained, the cookie persists and is refined as they browse further.

The Information Commissioner’s Office said that the service did not infringe an ISP customer’s privacy, because it did not collect information that would allow them to be identified. The system will also give users the opportunity to opt out of individual tracking, meaning that it does not breach the principles of the Data Protection Act, the commissioner’s office said.

ISPs hope that Phorm’s technology will enable them to increase their share of the burgeoning online advertising market. Advertisers are also said to be enthusiastic, because it will give them the chance to tailor their marketing more closely.

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