Leadership

What Is Behavioral Targeting?

By Lori Deschene

Updated on: June 17, 2008 / 1:04 PM EDT / MoneyWatch

Imagine knowing exactly who's interested in your
product and exactly when they're ready to buy it. That's the
ultimate promise of behavioral targeting. By using a highly sophisticated set
of software tools and analytics, marketers can tailor Web ads based on
consumers' online behaviors — the websites they view,
the products they research, and how close they come
to making a purchase. Since the ad is generated by a consumer's
demonstrated interest, behavioral targeting provides stronger, more promising
sales leads, allowing marketers to serve relevant ads anywhere within a network
of websites.

It's a technology not without controversy, however.
Consumers continue to be wary of — if not downright angry about —
websites and advertisers tracking their every move. That means a user backlash
could slow widespread adoption of behavioral tracking.

How It Works

Most
advertisers rely on ad networks to do their behavioral targeting for them. Ad
networks are essentially middlemen technology companies that partner with
hundreds (sometimes thousands) of websites for access to information about
visitor traffic. With technology that’s been around since the
inception of Netscape in 1995, websites drop “cookies,” or
small pieces of data, onto consumers’ hard drives to keep track of
user preferences, the contents of their electronic shopping carts, their searches,
and details on where and when users click on a site. Websites also collect
visitors’ IP addresses — the numerical code that identifies
each computer connected to the Web and its geographic location. With this raw
data, an advertising network can use software and analytics to identify
consumers with like interests and Web surfing habits. The networks then sell
advertisers access to these niche audiences.

The drawback here is that ad networks can only track consumers
when they click within websites that have partnered with the networks
themselves. In the last year, however, more sophisticated tools for targeting
emerged, which let ISPs track consumers wherever they go on the Web. The ad
serving companies that developed the technology haven’t disclosed
usage statistics. (See Key Players.)

Why It Matters Now

Market
research firm eMarketer projects that spending on behavioral targeting will
nearly double to $1 billion in 2008 and will hit $3.8 billion by 2011. The
technique is on the rise because it addresses some of the key problems that
have plagued the industry: The cost of Web marketing is rising, customer
acquisition costs are soaring, and conversion rates (the percentage of people
who actually make a purchase after seeing an ad) are decreasing —
primarily because consumers are tuning out online clutter. Behaviorally
targeted ads are a cost-effective way of honing in on potential customers who
have demonstrated some level of interest.

Until
recently, marketers couldn’t buy enough space on enough websites for
a truly effective behavioral targeting campaign. Now ad networks have amassed
enough participating websites for marketers to see the big picture of where
consumers are clicking and why. ISPs can now also facilitate data collection,
which makes the picture all the more attractive to marketers.

Why It Matters to Your Company

Compared
to other methods of advertising online, behavioral targeting offers a great
bang for your buck. If you’ve already placed ads online, or tried to,
you know that “premium” spots — the spots on
major media sites with lots of traffic— are highly competitive,
expensive, and less effective at reaching a particular customer that’s
right for you. Buying sponsored link spots next to search results is another
option, and one more likely to reach an appropriate audience, but the reach of
such a campaign is still limited by the number of users who search for terms
related to your particular business.

Behaviorally
targeted ads, on the other hand, make for a more cost-effective campaign.
Marketers pay to reach only potential customers who have shown demonstrated
interest, and serve ads only on Web pages that these customers visit and have
affordable ad space.

For
example, according to the Wall Street Journal, Pepsi worked with ad network
Tacoda in early 2007 to serve behaviorally targeted ads for the launch of
Aquafina Alive, Pepsi’s vitamin-enhanced water. The campaign targeted
“health-conscious” consumers, and then served them ads
wherever they traveled within Tacoda’s network of 4,000 sites. Compared
with other kinds of Pepsi Web-based campaigns, Aquafina Alive attracted three
times the number of consumers who clicked on the targeted ads.

The Strong Points

The
breadth of Internet usage data available to marketers is continuously
expanding, making it easier to create detailed consumer profiles. Yahoo, for
example, divides its audience into targetable groups for advertisers, such as “consciously
cruising” (eco-conscious drivers interested in alternative fuel
cars). Consumers in this category have performed a series of Web-based actions
indicating their readiness to purchase. For example, they may have searched
alternative fuels, visited Yahoo’s Green Center, and looked up the
price of a Toyota Prius. Compare that level of real buying interest with, say,
the broad swath of people who read Car and Driver, and a marketer gets
seriously interested.

It’s
not just about what marketers know from targeted info, but what they can infer
from it as well, says Bill Gossman, CEO of ad network Revenue Science. “One
of the more surprising assumptions you might be able to make, for example, is
that someone is a frequent traveler, just by noticing that he or she often
comes in through [geographically] different IP addresses,” he says. Using
that IP information, plus cookie data, an advertiser could obtain a very
detailed picture of a traveler’s habits —where she goes,
how often she travels, the length of her trips, where she prefers to stay,
which airline she prefers to fly on, and more.

The Weak Points

The
biggest challenge to the widespread adoption of behavioral targeting continues
to be consumer privacy concerns — recall the recent furor when
Facebook announced it would sell user information to marketers. Even though websites
and ad networks claim they’re not collecting and storing personal
data, like usernames or home addresses, many consumers are offended by the idea
that they’re being tracked.

In
December 2007, the FTC tried to address consumer fears by proposing five
guidelines for utilizing behavioral targeting. These include informing
consumers when their information is being collected and allowing them to opt out
of the program. But the fact that many websites continue to bury this opt-out
disclaimer doesn’t encourage consumer trust in the process.

Another
drawback: Tracking technology still has trouble distinguishing multiple people
using the same computer. In households with a family computer, marketers are
not able to accurately target who is clicking where, and why, unless each user
has a separate log-in. Until better technology can address this issue,
behavioral targeting will continue to fall short of its promise.

Key Players

Yahoo/BlueLithium:
Yahoo already knows a lot about the 500
million monthly users who log in around the world for email, news, and other
Yahoo features. The company purchased BlueLithium ad network in 2007 to extend
its global reach and targeting capabilities. Advertisers include P&G,
Best Buy, and Volkswagen.

Revenue
Science: Revenue Science is one of the
largest independent online ad networks and acts as a middleman, analyzing websites’
traffic data and selling advertisers access to specific consumer audiences.
Clients include Barnes & Noble, The Wall Street Journal, and
American Airlines.

NebuAd: This ad company developed proprietary hardware to
allow ISPs to collect surfing data on every person who connects through their services
— wherever they go on the Web. NebuAd then creates detailed consumer
profiles for ad networks to purchase. The company does not disclose which ISPs
use its technology.

How to Talk About It

IP (Internet Protocol) address: A unique numeric address — four sequences of
digits connected by periods (i.e, 35.352.422.65) — that identifies a
computer and its geographic location when connected to the Internet.

Cookies: Nearly every website drops cookies, or small pieces of data, onto consumers’ hard
drives. Cookies collect user preferences, saved passwords, and contents of
electronic shopping carts, as well as users’ searches, and where and
when a user clicks on a site. Cookies can be deleted or even rejected
altogether within specific browsers, but many sites require consumers to set
their browsers to accept cookies.

Retargeting: Serving ads to consumers after they visit a website,, based
on the premise that their visit must imply interest in the advertising company’s
products or services. Retargeting does not consider the frequency of a
user’s visits, however, to determine interest level.

Contextual
targeting: In contrast to behavioral
targeting, which serves ads relevant to users’ interests and actions,
contextual targeting serves ads relevant to the content on a Web page.