The future of Phorm, the developer of controversial internet “spying” technology, looked increasingly uncertain last night after Carphone Warehouse joined the list of big-name clients shunning the service.

Shares in Phorm slid 192½p, or 40 per cent, yesterday to 282½p after BT pulled plans to use the service, which tracks internet users as they browse and sends specially tailored advertisements to their screens based on their personal tastes. The decision followed a barrage of attacks from privacy groups.

After BT’s move, Charles Dunstone, head of Carphone Warehouse, said: “We were only going to do it if BT did it and if the whole industry was doing it. We were not interested enough to do it on our own.”

Virgin is also reluctant, meaning that Phorm, whose non-executives include Lord Lamont, the former Chancellor, has lost Britain’s three biggest internet groups, prompting analysts to question its future.

Dan Cryan, head of broadband at Screen Digest, the research and intelligence consultancy, said: “It is never a happy position to be in when a company potentially loses most of its customers before it has even had a full commercial launch.”

Phorm, which listed on the Alternative Investment Market in 2004, is one of a growing number of companies seeking to cash in on the trail of personal information that we leave behind on the internet. Its service is aimed at showing advertisements based on who is looking at a particular web page, rather than the content of the page itself. A car lover, therefore, could be presented with car adverts even if searching for flights.

For internet service providers, it offered a potentially valuable new way of generating money from their subscribers. “Tailored” ads potentially reap 100 times more than traditional ads, according to some analysts.

BT, Virgin Media and Carphone Warehouse’s TalkTalk had all signed up as partners in the service. Last year, however, Phorm came under fire when it emerged that BT had been conducting secret trials of its technology on 36,000 of its broadband customers. Privacy groups said that the system was intrusive and even Sir Tim Berners-Lee, creator of the World Wide Web, condemned it: “I feel it is very important that my internet service provider supplies internet to my house like the water company supplies water to my house — connectivity with no strings attached,” he said.

Phorm insists that users are stored as a “unique random number” rather than a name, that it does not gather personally identifiable information and it does not store IP addresses. It said yesterday that its British ambitions remained intact.

The company is hoping that BT will rethink its decision. However, a recently published report from its broker had already identified the next six months as critical for the company and its investors, who ploughed £32 million into the group last year.

Phorm, which last year made a $48 million pre-tax loss after running trials in the UK and South Korea, said that it was focusing on opportunities abroad. “In so doing, we have already minimised our dependency on the deployment by any single ISP or in any particular market,” it said.

Other firms involved in “behavioural targeting” online include Wunderloop, a company backed by Niklas Zennstrom, the co-founder of Skype. Search engines such as Google also use “cookies” that tap into users’ search history.

Prying eyes

Beacon: A new advertising system that provoked anger among users when Facebook, the social networking site, introduced it in 2007. The tool, designed to tap into the “recommendation generation”, notified online “friends” of Facebook members about purchases made on retail sites outside the social network

Wunderloop: Makes technology that lets sites build profiles of users by monitoring them online. Armed with the technology, which tracks behaviour by installing “cookies” on users’ computers, website owners can sell information that enables advertisers to target consumers more accurately

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