Web analytics is becoming a hot niche in a cold Internet advertising market, as a slew of companies launch projects to make sense of consumer data collected online. Units of AOL Time Warner and SPSS, an analytical technology company, joined forces this week to tap America Online's vast audience for market research. Other companies such as online advertising company Agency.com and search service LookSmart have recently introduced consulting and Web analytics divisions. Online portal Yahoo also has been selling insights to advertisers and partners from data collected on its millions of users. Web companies are hoping analytics services--the process of making sense of data compiled from cookies and other data-gathering techniques--will prove the Internet is worthy of dwindling ad dollars. They also are seeking a new source of revenue. During the dot-com implosion, doubts surfaced about the efficacy of online marketing. Web companies sought to dispel those concerns by producing in-depth research on the medium's performance and effectiveness. Now, many are looking at the reams of data they collected on consumers with fresh eyes, hoping to cash in its effects for market research. But industry experts say their efforts may be short-lived because of apparent conflicts of interest, fierce competition in the industry and an overestimation of the market's worth. "Everyone in the online space is looking for additional sources of revenue, especially given the slowdown in online advertising," said Jim Spaeth, president of the New York-based Advertising Research Foundation. "These companies are data rich, so research looks like a good idea. The problem is that for the same reason that online ad revenues have slowed, ad research has slowed even more. Nobody's advertising, nobody's testing." Industry veterans estimate the US research market is worth about $7bn (£5bn) annually, with the international market reaching about $16bn. As attractive as that looks, marketers typically spend only a half of a percent of their ad budgets on research, experts say. Sales in online market research were only worth about $259m in 2000 and are expected to hit about $459m this year, according to research firm Inside Research. Nevertheless, AOL says its new partnership is expanding the revenue potential for its marketing subsidiary, Digital Marketing Services, which has been conducting online surveys with AOL's and affiliates' customers, who agree to answer questions about products and services in exchange for rewards. The deal with SPSS opens the service, at Opinionplace.com, to more companies looking for Web research, said Dennis Gonier, senior vice president at AOL. In addition, marketers will have access to one of the largest samples of customers through the program, including AOL's 31 million members. "These are resources for an extending industry, allowing more research companies to conduct surveys online," said Gonier. Others are hoping to take advantage of data collected daily from Web usage and advertising campaigns. Last week, New York-based Agency.com launched a division called Site Analytics, which will use Web site traffic patterns as a basis for developing targeted marketing strategies. LookSmart also announced a service last week to track, report and optimise online marketing for its partners. It hired the founders of former Web analytics firm Primary Knowledge and licensed its early technology to crunch the data. And earlier this year, Yahoo pushed into Web analytics, promoting its Full Service division for data-warehousing, hosting and research services for advertisers. Agency.com, for example, plans to analyse customer behavior and motivations through its clients' Web server logs. It hopes to help clients improve sales and site performance, save money on marketing, and justify spending on the Web. Industry analysts, however, are quick to highlight an inherent conflict of interest in consultancy and analytic services within many companies. For example, an agency selling inventory on sites and conducting research on ad performance could run into problems if the numbers don't justify the money spent. "If research gives a client a report showing that all the ads placed on children's sites didn't work, for example, then the client will most likely ask, 'Why the hell did you buy ads there in the first place?'" said Gartner analyst Denise Garcia. Because companies want unbiased research, these divisions will never be as big as hoped, she added In addition, companies selling Web analytics services will be competing directly with such entrenched companies as Jupiter Media Metrix, Millward Brown and IPSOS-ASI. Other companies, such as Dynamic Logic, have carved out niches in the market. "People get into this business and then quickly discover that it's harder than they thought," said Nick Nyhan, chief executive of Dynamic Logic, which specialised in research on the effectiveness of brand advertising on the Internet. "Research is not just about data collection; it's also about interpretation and telling a story. That's a skill set." Nyhan said he doesn't view new competition as a serious threat because he believes there will always need for independent research. "It's a cost of doing business for some of the publishers, and ultimately they could turn this into a business if they want to make a dedication to it," he said. "But this is also a time of cutting costs, and companies tend to want to do things as quickly as possible." See the E-commerce News Section for the latest headlines. See the Business News Section for full coverage. Have your say instantly, and see what others have said. Click on the TalkBack button and go to the ZDNet news forum. Let the editors know what you think in the Mailroom. And read other letters.