January 14th, 2008

Aim High: Ad Targeting Moves to the Next Level

By Brian Morrissey
Adweek

Want to find people who just bought a snowblower? How about a hunter who enjoys off-roading, happens to be in the market for a pickup and is leaning toward a Chevy? What about the people others turn to for recommendations about electronics? Perhaps you’d like to speak to a couple million pragmatists?

For better or worse, all those are becoming possible, thanks to a new crop of entrants into the red-hot behavioral targeting space. The success of behavioral ad pioneers like Tacoda, Revenue Science and BlueLithium has led others to pile on. Although each takes a different approach, the newcomers promise to gather new forms of data to make digital advertising more personal and comprehensive, even at the risk of raising a privacy backlash.

“We’re going to see billions of dollars spent on behavioral advertising, probably extending into mobile and TV,” said Dave Morgan, the founder of Tacoda who now leads AOL’s ad strategy. “[New entrants] have to go into the white space where there aren’t people yet.”

At the heart of the moves to mine more data is the Internet quandary: The near-limitless inventory of advertising space yields mostly low prices, other than the choicest locales. A report issued this month by Merrill Lynch pegs the average Web CPM at a paltry $2.50, as little as one-tenth the price of comparable placements in newspapers. More sophisticated targeting to provide relevant ads is key to closing that gap, the investment bank’s Internet analysts posit. That led to big purchases, like AOL’s $275 million deal for Tacoda last July and the $300 million Yahoo shelled out for BlueLithium two months later.

The “white space” staked out by their would-be successors is varied, with some betting on new methods to get a fuller view of customer behavior from the current cookie-reliant methods used by behavioral systems. Other new players see a chance to use purchase activity as a more direct indicator of interests, or sophisticated psychographic analysis to find likely targets for brand advertisers. Still other new companies are looking to marry the current vogue for social media and word-of-mouth marketing to discover product influencers.

One of the more promising new avenues involves the collection of additional data about consumers. NebuAd, which is backed by $30 million in venture financing, is one of a few companies striking deals with Internet service providers to track users across all their Web activities, including search. The company won’t reveal its ISP partners, but CEO Bob Dykes claims it has cobbled together a data-collection network that covers “tens of millions” of people. It then buys cheap ad space on networks and through exchanges like Yahoo-owned Right Media to find those people.

This approach will lead to more finely targeted ads, according to Dykes. For example, an automaker might be able to find in-market car buyers through behavioral networks, but NebuAd could see what type of car they compared, the searches they performed, the car sites they visited and psychographic data like an interest in the outdoors. This can all be used to not only find the person, but show him an ad tailored to his interests, Dykes said. The payoff: CPMs that average $10. It shares ad revenue with its ISP partners.

Dykes asserts NebuAd poses fewer privacy threats than cookie-based systems because it never collects data on who the person is or stores it. Others are not convinced. Alissa Cooper, a policy analyst at the Center for Democracy and Technology in Washington, D.C., said the jury is still out on more exotic forms of targeting, particularly since few people realize the extent of behavioral tracking taking place behind the scenes. “The biggest risk is the charge continues to go forward without the privacy questions being addressed,” she said. According to Morgan, AOL, which continues to operate a large ISP, currently is steering clear of that kind of data collection. “We think they’re a little creepy right now,” he said.

Several ad veterans have thrown their hats in the ring with fledgling start-ups. Former Avenue A executive and Atlas president Tom Sperry over the past two years has quietly built a data cooperative called aCerno, which counts among its backers direct-marketing legend Lester Wunderman. The company, which declined to comment on its plans, acts as a clearinghouse for retailers to share anonymous purchasing data. According to executives who have worked with aCerno, the system would allow an online retailer to contribute information, such as a cookie tied to a customer who bought a lawn mower. Another co-op member could then use that data to show the person an ad for a related product, like gardening supplies, with the supplier getting a cut.

It’s a promising approach to systems that can only infer purchase intent, said Eric Porres, partner at Underscore Marketing, describing it as “a donation versus a pledge.”

Another well-known digital ad executive sees an opportunity to marry ad targeting with social media. Former Neo@Ogilvy North American CEO Eric Wheeler, who left the WPP Group agency in May, has started a company called 33 Across, named after the answer on a crossword that unlocks the entire puzzle. The company is raising capital and plans to officially launch in the spring, but Wheeler confirmed that it would look to advance behavioral targeting by mining social media in order to find influencers in product areas. The hope is to marry precise, Web-wide targeting with the word-of-mouth appeal that marketers have come to embrace as the key to product decisions.

“The whole industry has been built on page-driven economics,” Wheeler said. “The whole idea of the page view is almost irrelevant with how pages are being published by RSS [syndication] and other ways. We’re just now starting to see the intersection of word of mouth, social media and influence all come together to drive brand response.”

The needs of brand marketers are foremost in the mind of Jim Meyer, an industry veteran with two decades of experience working with packaged goods at shops like Benton & Bowles, Saatchi & Saatchi and JWT. He found a dissociation between the Internet, which tended to be built around direct response, and brand marketers, who have lagged in moving budgets online.

“There’s for a long time been a disconnect of how brands talk about themselves and how the Internet talks about itself,” he said. “Brands are still looking for ways to reach people on a mass scale. The reason behavioral targeting has had trouble selling its wares to them is that they’re really good at generating small lists of prospects.”

His new company, Mindset Media, due to launch in the next few months, seeks to remedy that by catering to how brands buy media through psychographics. Mindset is using a combination of 100,000 75-question personality surveys and modeling techniques to allow marketers to target users based on affinities like “leadership,” “spontaneity” and “altruism.” It will launch with 20 personality buckets that can each reach a minimum of 2 million users, Meyer said.

This and other new approaches will face the same test ad-targeting systems based on behavior did in their early days, Morgan said. Marketers also will doubt whether many can provide scale enough to be worth the effort. Bill Gossman, CEO of Revenue Science, added that advertisers are more likely to question whether the data sets are strong enough. “The next level here is going to be how do you trust what you’re buying,” he said. “This year will be the time for a hue and cry for transparency of the data you’re using to target.”

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