In the midst of the dot com bubble, Dave Morgan founded New York-based TACODA in April 2001, the world's largest behavioral targeting advertising network. And last month, six years after its founding, Morgan sold Tacoda for $275 million to Time Warner's AOL. Not including the addition of the AOL network, Tacoda represents more than 4,000 websites and reaches more than 122 million unique visitors per month (comScore, February 2007) with major branded sites like The New York Times, NBC Universal, HGTV and Cars.com. eMarketer projects the behavioral-targeting market to grow to $3.8 billion in 2011 from $350 million last year.
Prior to his work at Tacoda, Morgan founded Real Media in 1995, one of the first online ad networks where he grew it from a start-up to a $54 million company with nearly 600 employees in 19 countries.
Following Morgan's appearance as a keynote speaker at IAB Mexico's annual event, I had the opportunity to ask him some questions about what he sees ahead personally, professionally and for behavioral targeting.
What kind of growth do you see ahead for behavioral targeting (BT)? For example, how many publishers are implementing and how many brands are buying BT now versus how many will be working with BT five years from now?
I expect BT to grow at an extraordinary rate over the next several years, and not so much because more publishers are going to adopt it for their own sales, but because we now have networks and portals that can deliver robust behavioral solutions at massive scale. Brands want more of it, particularly if they can use it to place ads on lower-priced inventory that was otherwise categorized as non-premium, so that they can buy it cheaper than they can buy contextual placements.
What is going to happen to the Vonages and Netflix of the world with more and more brand advertisers buying BT networks?
I think that there will always be a very robust direct response component to the online advertising business, and I think that it will continue to grow as more and more offline direct marketers shift their budgets online.
Will the direct marketers get squeezed out?
No. In many cases, direct marketers will be able to pay higher rates than brand marketers for the same inventory. They will always have an important seat at the table.
You started Real Media and Tacoda and sold both of them. What is next on the horizon? How long do you plan to stay at Tacoda and what business start-up ideas do you see ahead?
What's next for me is to help AOL grow into the most important digital ad channel in the marketplace. That is my focus.
There was a scene in the movie Minority Report with Tom Cruise where his character passes a billboard and the billboard actually makes a recommendation about a cold medicine that would be good for him at that moment. When do you think BT will get too close for comfort as in that scene?
I think that BT will develop hand-in-hand with consumers the desire for more relevant and valuable news and information, including commercial information. Applications like personalized outdoor displays will certainly happen, though I expect that early versions will be user-initiated. For example, users may send text messages to signs or point-of-purchase displays to receive personalized offers.
How does the industry need to regulate privacy issues so as to avoid government regulation?
We must be proactive when it comes to protecting consumer privacy. If we aren't, we will lose consumers trust and therefore the market opportunity to better serve them. That means that we cannot cut corners when it comes to privacy. We have to not only obey the laws, we need to go further. We need to always focus on giving consumers notice, choice and transparency whenever their privacy is involved.
Recently on an analysts call, Time Warner COO Jeff Bewkes expressed enthusiasm for the targeting capabilities of the company's cable network. Can Tacoda's technology be applied to the cable platform or does it only function on a web platform?
We do believe that BT will be applied to cable networks and we have built our business and our technology with that future in mind. What we do on the PC we certainly intend to do for the TV.
How about mobile?
The same. What we do for the PC, we intend to do for the mobile device. Of course, since those systems are much less open and also may involve more personal data, this area may develop much slower.
You're playing poker with circle of friends in the industry and the subject of which interactive advertising company will get acquired next comes up. What would your friends say?
All I know for sure is that there will be more acquisitions, not just because we will see consolidation in the space, but start-ups are the key to acquiring innovation and new capabilities for incumbent players. It is getting harder and harder to innovate -- much less invent -- inside companies that are so focused on serving their core businesses.
You started your career as a lawyer. Would you have believed it if someone had told you on your law school graduation day that not only would you leave your legal career but that you would go on to found two internet companies?
While I didn't expect to be a lawyer forever, I never would have expected to be an internet entrepreneur. My father was a lawyer and my mother a nurse and educator, so I never had been exposed to business. It just sort of happened.
What advice do you have for young professionals starting out in interactive marketing?
I think that all too often entry-level folks focus too much on how much they will make and not enough on what they will learn and who they will work with. However, as we all know, long-term professional growth in this industry -- and long-term economics -- are much more likely to be driven by the latter than the former.
Joe Kutchera is the interactive sales director for CNNExpansion.com. .