The Promise of Behavioral Targeting

By: Bruce Clay, May 2006

The mass marketing techniques that dominated in the 20th century are becoming outdated as ad-targeting technology continues to advance. This is true in Internet advertising and search marketing as well.

It used to be that search marketing targeted only with keywords. However, current technology now allows advertisers to target by demographics and behavior.

Ad Targeting

Search marketing, by its very nature, is a targeting medium. Users are self-directed in conducting queries that take them where their interests lay, be it information, entertainment or commerce. This data is all tracked and recorded by the search engines.

Most marketers are familiar with contextual targeting; it has been used in offline and online advertising for a long time. You read a magazine article about home gardening and the ads on the page might be for Miracle Grow or Roundup. The same principle is applied to the web.

Behavioral targeting is relatively new. The Internet, with its ability to record behavior, is largely responsible for the increase in behavioral targeting. Marketers like targeted ads because they reach specific consumers, eliminating waste and increasing advertising efficiency.

Within online advertising, there is certainly no better example of efficient targeting than search, which can drive relevant messages welcomed by consumers. Search marketing is effective because it is actually a form of self-targeting.

As marketing dollars shift from traditional media to online media, today's marketers are embracing search strategies such as SEO (search engine optimization) and PPC (pay per click advertising), as well as contextual, demographic and behavioral targeting.

Behavioral Targeting Research

Behavioral targeting is attractive to advertisers because it delivers ads to consumers based on their past search behavior. Since user behavior reveals their interests, prospects are highly motivated and likely to convert.

A recent survey by MarketingSherpa reports that 22 percent of marketers plan to increase behavioral targeting budgets significantly this year. Thirty-six percent of respondents said they got "great results" with behavioral targeting, compared to 52 percent who claimed "great results" for PPC. IMedia Connection found that 83 percent of marketers were satisfied with behavioral targeting and 7.3 percent indicated they were "very satisfied."

Forrester Research queried marketers interested in using behavioral targeting and found that 52 percent already use it, 17 percent are testing and 31 percent plan to test later this year. The study identified the top three benefits of behavioral targeting as:

1. More click-throughs (35%)
2. More conversions (26%)
3. Improved ROI (21%)

Based on the above research, behavioral targeting gets a thumbs-up from marketers. However, there can be drawbacks. By its very nature, behavioral targeting has the effect of reducing reach. It may be effective to target ads to a motivated audience, but there are also a lot of potential prospects that do not demonstrate an interest through past behavior. Advertisers could be missing a lot of sales opportunities. Some folks never learn about new products unless they are advertised.

Targeted Ads Gain Respect

Industry research shows that marketers are spending a good portion of their marketing budgets on targeted ads. The majority of marketers spend over 15 percent of their marketing budgets on targeted ads. Twenty-two percent spend over 45 percent of their ad budget on behavioral targeting.

One of the reasons that advertisers are moving toward targeted advertising is the degree of audience fragmentation. With targeting, they can reach a large number of people within a common target group. Audience fragmentation is driving the development of geographic, demographic, contextual and behavioral targeting in search.

Behavioral Targeting With Search

Search profiling allows marketers to target search users with delayed ads after the initial search. For instance, a user might be gathering information on plasma TVs. Current technology allows marketers to serve user ads based on these searches a few days after the initial query. This allows advertisers to reach consumers in the final stages of the buying cycle.

You can also target users with paid search ads on landing pages after they leave a search site. Many of these sites sell ads at low CPMs. Post-search ads can benefit users by presenting them with relevant ads while maintaining their privacy (ads are cookie based and personal information is not collected). Advertisers can create more opportunities to reach customers beyond search real estate and at subsequent stages of the buying cycle.

Microsoft adCenter formally launched in the U.S. this May. You can select time of day and adjust bids for demographics. MSN's targeting and audience intelligence data comes from registered users voluntarily providing information upon registration for MSN products and services, as well as MSN Passport registrants and third-party data from Experian.

Market Size

Emarketer estimates U.S. advertisers will spend $1.2 billion on behavioral targeting this year, up 30 percent from 2005. This growth rate exceeds the total online advertising growth rate for this year (24.7%).

Search engine marketing is one of its fastest growing segments of Internet advertising, representing 41 percent of total online ad revenues and continuing to rise. Online ad revenues totaled $12.5 billion in 2005 (U.S.), an increase of 30 percent over 2004.

Consumer Resistance to Behavioral Targeting

The industry would like to believe behavioral targeting is good for everyone: the advertiser gets more efficient targeting, the publisher sells more inventory, and the consumer is exposed to relevant messages based on interests.

However, consumers and advocate groups have been vocal about the lack of disclosure and loss of privacy. H.R. 2929 (the "SPY ACT") passed the House of Representatives last year but so far has not cleared the Senate. This Bill requires web publishers to give consumers prominent notice about the information collected (who will collect it and how it will be used) prior to collecting any cookie information. Consumers would have to be given the opportunity to opt out, not in a privacy policy on another page, but clearly and conspicuously on the page before gathering cookie information about consumer activity. All advertisements would have to be labeled.

Research has shown that consumers want more transparency and would be willing to give up some privacy if provided adequate value in return.

The Task Ahead

Technology gives advertisers new opportunities to reach consumers more efficiently. To realize the promise of behavioral marketing, the online ad industry must build trust among consumers who increasingly demand more disclosure about what is being tracked on their computer and why. This can be done since behavioral marketing does not require the use of any personally identifiable information. The risks that concern consumers, such as identify theft and misuse of personal information, need to be disassociated from behavioral marketing. Furthermore, if marketers adopt the principles of providing more transparency and giving consumers adequate value for using their data, they can advance the cause of behavioral marketing.