You thought search was the biggest thing to hit online advertising? Just wait. Behavioral targeting will blow it out of the water.
Online advertising continues to grow by leaps and bounds. Since 1997, online advertising has grown from a $301 million industry to a $30 billion industry. Graphical display ads were one of the first revenue engines on the web. (Remember VCs trying to wrap their heads around the brand value of clickthrough rates and site stickiness?) Then came email, which was leap-frogged in the early 2000s by search. Search has remained the dominant online advertising revenue driver ever since, now accounting for nearly 40 percent of online ad revenue. Its success derives from the fact that, unlike early graphical display advertising and later email, it, well…works. It makes more money for marketers than it costs. Often a great deal more.
The real question is: How much longer can search marketing keep growing and maintain its dominance?
If you ask SEMPO or Google, the answer is "forever." However, step back and look at the underlying economics of the business -- the same metrics that supported the growth of search marketing in the first place -- and the answer becomes less clear.
According to the Online Publisher's Association, search accounts for approximately 12 percent of the available ad impressions on the web. With user-generated content sites now adding billions of ad-supported pages to the web annually, that already small percentage is bound to decrease over time.
At the same time, search CPCs continue to rise, albeit not by the double-digit percentages we saw a few years ago. Search has become a mainstay of online marketing for direct marketers and branders, large and small. Now that everybody's in the pool, the competition for choice keywords can only increase.
Combine inventory limitation with the inevitable price ceiling and suddenly it's time to look around for what's next.
If you judge by the M&A activity of the major portals and agency holding companies in the past six months, the answer is behaviorally-targeted graphical advertising.
Behavioral targeting is a game changer for the web and ultimately for all media. Once you know what someone is interested in, you can serve them the right ads no matter what website they visit. Or what channel they watch. Or what radio station they listen to. Our own BlueLithium Labs data shows that behaviorally targeted ads drive sales conversions at 3 to 12 times the rate of old-school RON targeting. For many of our clients, we're acquiring customers at a cost equivalent to only four or five clicks on their high volume Google keywords.
If search is the killer app for the bottom of the consumer sales funnel, then behavioral targeting owns a position just above it, call it pre-search: people interested in a product or service but not actively shopping for it at that moment. eMarketer reports that behavioral targeting revenues will reach $1 billion by 2008 and $3.8 billion by 2011. And that's just banner ads. They're not taking into account the impending marriage of behavioral targeting and online video, which will produce a marketing wonderland that the guys on AMC's hit series Mad Men could only dream about.
Piper Jaffray estimates that online advertising will reach $81 billion by 2011. Search marketing will unquestionably play a leading role. But don't be surprised to see graphical display advertising steal the show for the next decade. Thanks to behavioral targeting, display has finally become advertising that works.
Dakota Sullivan is chief marketing officer, BlueLithium. Read full bio.