Behavioral Targeting

Author: Tim Hull

March 2008

Behavioral targeting is defined as the serving up of online advertising messages based on what pages the user has previously visited and/or what the user has previously searched for over a specified period of time. By tracking a user’s Web history, behavioral targeting allows publishers to serve up ads that are more relevant to the user by allowing publishers to change ads on the fly for different users. Needless to say, the future for behavioral targeting looks bright. According to an eMarketer projection report generated in the second half of 2007, spending for Internet advertising with a behavioral targeting component will increase from $575 million in 2007 to approximately $1 billion in 2008.

Behavioral targeting can take place within an individual site or across a network of sites. If a publisher, Yahoo! for example, knows that a user visited a number of Y! Health pages on its site, they can then serve up health-related ads when the user hits any page of the site whether that page is health-related or not. Since the user has shown a propensity to view health content, Yahoo! selects ads related to this behavioral interest and presents them to the user based on the tracked interest to that particular topic. This same method can work across a network of sites as well. For example, a user may visit several pages of FoxSports.com, then visit an automobile page of MSN.com followed by a click to check his email on Hotmail.com. In this instance, MSN would be able to theorize what type of ads the user would be interested in. So when the user hits his or her Hotmail inbox page, the user may see an ad for a new sports car or sports related memorabilia, whereas another user with a different Web browsing history would see a completely different ad.

The goal is to present products and services that may actually interest the user, benefiting both the user or potential buyer as well as the seller. The end result is somewhat similar to direct mail targeting that increases conversion rates since the recipient may actually have an interest in purchasing the product or service the seller offers. The difference is that the online behavioral marketing approach is near real time or at least within the proximity of the time the user displayed a potential interest in a specific topic. According to a Forrester report on consumer attitudes toward advertising, there are three main sources of advertising irritation to consumers: ads are too numerous, disruptive and irrelevant. Behavioral targeting was created to help eliminate these complaints, as well as command premium ad placement fees by serving up fewer, more relevant ads. The advertiser has demonstrated willingness to pay these premium fees in order to increase the conversion rates, revenue and overall return on investment (ROI).

While different types of online targeting have been around for years, many people do not understand the differences – even between the two most common targeting methods, behavioral and contextual targeting. The difference is that behavioral targeting serves up ads based on previous search or browsing behavior while contextual targeting serves up ads based on the current content of a Web page. For example, Google AdSense ads are a form of contextual targeting, thus the serving up of a 2009 Honda Civic ad on a used Honda search results page of Cars.com.

While publishers like the fact that behavioral targeting makes inventory more valuable and marketers are embracing this form of marketing for its effectiveness, consumer groups are not fond of publishers tracking users across the Web. In fact, some groups are calling for a national do-not-track list similar to the famous national do-not-call list to help curb this sort of tracking. Also, some groups are calling for sites to instantaneously disclose what a site intends to track. In an effort to head off these consumer group complaints, some of the larger publishers are putting increased emphasis on how, what and when they track. For example, AOL announced on October 31, 2007 that it will initiate a major campaign to educate the public that it only tracks non-personally identifiable information. AOL also announced that the company will offer a permission-based opt-in to behavioral tracking, which is something consumer groups have been calling for.

One company pushing the envelope of behavioral targeting is NebuAd. The company announced at the ad:tech New York Conference in November that their new behavioral targeting system generates a greater percentage of ad conversions and higher ROI than any other behavioral system. According to the company’s CEO Robert Dykes, NebuAd receives analytical information about which ads work best, and in turn, the higher ad effectiveness increases the value of inventory above and beyond what other behavioral systems offer. The driving force behind NebuAd’s system is that their hardware tracks at the ISP level rather than the site or network level. By using ISPs, it enables NebuAd to track a user’s movement across the entire Web rather than just a specific site or a network of sites. To protect consumer privacy, NebuAd uses one-way hashes, a type of digital fingerprint or signature, if you will, that allows accurate tracking yet maintains the anonymity of user identities. NebuAd takes the approximately 70 percent of ads that are currently untargeted and targets them by observing Web searches, Web pages accessed, and the ads consumers click on. It then creates and updates anonymous consumer profiles to better focus ads. The company charges advertisers and shares a percentage of those revenues with publishers and ISPs. It is too early to tell how effective NebuAd’s system is or what the consumer group reaction will be, but there are already copycat systems being announced, and as everyone knows, imitation is the sincerest form of flattery.

Behavioral targeting has many benefits, including increased ad effectiveness, increased value of ad inventory and even an increase in ad relevance for the consumer. These benefits have caused explosive growth in the marketing dollars allocated to behavioral targeting, which shows no signs of slowing down in the near future. However, consumer groups see behavioral targeting as a violation of privacy and are doing everything they can to limit the depth of tracking. Publishers have responded by trying to make their tracking methods more transparent, as well as beginning to create voluntary tracking opt-ins. No matter which side wins the battle of public opinion, one thing is certain: behavioral tracking systems will continue to evolve by increasing the depth and breadth of information collected in an effort to optimize ad trafficking while at the same time addressing consumer concerns before legislation forces it.

Timothy J. Hull is President & CEO  of TDH Marketing, Inc., a Dayton, Ohio-based marketing firm with alliances and joint ventures in the U.S., England, and Singapore that support its global client base. The firm provides strategic, marketing, operational, and communications planning and implementation for both large and small corporations looking to develop profitable, technology-driven business growth.