Dave Morgan of Tacoda Systems discusses how to decipher behavioral data for maximum benefit.

Dave Morgan’s faith in behavioral marketing is firm—his company has found behavior-targeted ads to be as much as 2,000 to 2,500 percent more effective than contextual ad placement. Morgan, founder and CEO of Tacoda Systems, a New York-based organization that has provided behavior-targeting applications to publishers since 2001, says Tacoda serves more than 200 sites that reach as much as 50 percent of the entire U.S. Internet audience each month.

Prior to his work with Tacoda, Morgan founded and led Real Media Inc., a marketing technology and service company (that later merged and became 24/7 Real Media). He also serves on the associate member board of the Interactive Advertising Board and the advisory board of the New York New Media Association.

iMedia Connection spoke with Morgan as he attended the iMedia Summit this week in Beaver Creek, Colo., to get his views on how publishers can use behavioral data to their best advantage, and what issues will arise in behavioral marketing’s future.

iMedia Connection: A large part of behavioral targeting is determining what site data is useable. How do you distinguish actionable data from information that isn’t as valuable?

Morgan: What we define as actionable is we go through a process called Audience Audit, when we look at all the data that’s available for a publisher. The bottom line is it is information that is used for either targeting or measurement that enhances the value of an ad delivery for an advertiser or marketer. So it could be information that could tell you a little about the person, maybe where they live, what their current state of mind is, what kinds of content they like, how loyal they are or how frequently they’re looking.

It’s a lot more art than it is science. It’s much more based on real experience in the advertising industry, so it’s not like a black box where you have an algorithm that figures it out. It’s really about understanding what it is that advertisers and marketers value in delivering advertising, finding what of that information is available, and then actually being able to integrate it.

The one thing publishers don’t lack is data. They have data in all their systems. Publishers have dozens and dozens of machines with big databases and lots of behavioral information. So the challenge is how do you figure out which data is valuable, and how costly or expensive is it to integrate or pull it together?

Our Audience Management system actually extracts from those systems the data that’s determined valuable. There’s so much data there that you could never afford to integrate it all, it’d be way to too expensive.

iMedia Connection: How is the data analyzed to predict information like return-on-investment?

Morgan: The best way to do it is to follow the rules that are already known to the marketers. Marketers know that if someone is reading about cars that are on the market, like auto classified ads, then there’s a high degree of likeliness that this person is in the market to buy a car soon, maybe within 60 or 90 days. So it’s not so much about coming up with new rules; it’s about understanding the basic rules, and using those to project where you should target. The problem with traditional media is that it’s limited and it can’t target according to specific behaviors like you can online. It’s actually a lot easier than you might think. We’re finding that the increase in effectiveness is done by targeting the ad to someone rather than to all people.

iMedia Connection: What other data would you say is crucial for publishers to gather and understand to better communicate with marketers?

Morgan: One is to understand basic information about their audience—how they consume the site, who they are. Some sites do this by requiring registration and asking people questions. I think that a failure a lot of publishers have is that they have an idea of who they think their audience is, and they do some research once in a while, but they don’t really know.

What we do is we talk to the advertising salespeople of the site and say, “What is the information that your advertisers ask for?” And that’s where we start looking—because the advertisers know who they want. They know the basic demographic profile, the psychographic profile, and they know the behaviors and state of mind of their actual customers. All you have to do is ask them.

iMedia Connection: Do you have any other suggestions for how to best use behavioral-targeting information?

Morgan: To sell more ads for more money. That’s the basic value proposition for publishers. It’s very tactical, very upfront and very measurable.

iMedia Connection: What are many publishers not doing correctly in terms of behavioral targeting?

Morgan: Number one, there are a lot of people who ask for information and they don’t know what to do with it or have any way to use it. There are sites that capture registration data but don’t target people according to the information they’re given. In other words, what’s the point of asking people for information if you’re not going to use it commercially? Is it for research?

The other thing is that a lot of people select the information to ask according to a consensus around a conference table—the most politically correct way to do it. You get people from different departments all together and say, “What information do we ask for? What information do we collect?” Our approach is we’re the ones who help standardize it by saying, “You should be looking for or capturing information that’s going to make you money. And by the way, there are very specific kinds of information that will make you money, and the other types of information that you’re capturing really doesn’t matter.”

A lot of sites use basic page Web analytic systems to track their page consumption and things like that, and at the end of the day it isn’t really that relevant to their business. It’s so much more important to know how loyal people are. That’s more important and relevant to the business.

iMedia Connection: Can you give an example of one of the largest challenges Tacoda has faced? How did you overcome it? Or did you?

Morgan: The challenges we’ve identified are consumer privacy and data ownership. No one really knows yet how consumers are going to react to being tracked around the Web and being targeted. So our approach is to, number one, take the position that Tacoda does not own and never will own any consumer data. It’s entirely controlled by the publishers. Number two, our publishers proactively communicate to their consumers who interact with their site what they’re doing, so that they know.

Consumers don’t mind if they get value and they trust the person who’s taking the information. When we heard all the privacy commotion four years ago, no one ever complained about the fact that the New York Times Co. profiled people on its website and were targeting ads to them because people gave [the information] voluntarily and they also trust the Times. So I think an issue a lot of behavioral targeting applications will have to deal with is: Do consumers understand what’s going on? Have they truly consented?

iMedia Connection: Do you see the growth of anti-spam, anti-pop-up solutions posing a problem for the behavioral marketing domain?

Morgan: I don’t think so. I actually think they create a big opportunity because people are different about their willingness to accept certain kinds of advertising or the appropriateness of the ad. I think for advertising to be successful long term online, it has to be more relevant and have less clutter. One of the advantages of capturing information is you can target smaller groups of people, and only those people you have pre-identified as being most likely to be interested in the offer. It is one of the best ways, and the only way ultimately for online advertising to deal with the consumer control issue because consumers will block things and not accept them if they aren’t delivered the ads they want. The only way to know what they want is to know who they are and what they’re doing.

A very invasive, automotive rich media ad may offend 90 percent of the people, but it isn’t as likely to offend 8 percent of the people who are in market for a car at one moment. It’s actually doing a great service to your consumers by not barraging them with ads they really don’t care about and actually don’t want. Understanding that information about the audience is essential to dealing with the backlash issues of consumers over time.

iMedia Connection: What do your foresee in behavioral marketing’s future?

Morgan: One of the biggest problems confronting the media and marketing industries today is media fragmentation. You read it in many business headlines today—where have all the young men gone? They’re not on TV and they’ve just disappeared. So the challenge is that as there is more and more media information, they’re fighting for consumers’ time, and as they continue to fragment, the challenge of fragmentation creates great opportunities for integration.

We’re working with a number of our customers to not only tie together their different Web information and digital information, but to tie it with offline data, too. So newspaper companies are able to tie their print circulation database and their online Web database so they can better coordinate the delivery of ads. I think that’s a very unique opportunity online media has: It can really become the glue or integrator of all the various offline media.

For example, one of our customers, DallasMorningNews.com, has integrated its print circulation database with its online database. It now has the ability to give advertisers more reach in the market, specifically reaching those people who don’t read the newspaper, with an ad. There’s a lot of value there for the advertising marketplace to specifically reach those people. And at the same time, they may be buying ads in print in the newspaper, so it really helps the various types of media work together better.

iMedia Connection: What is next for Tacoda Systems? Are there any new services that you plan to provide in the next year?

Morgan: We’re looking very hard to understand what tools marketers want themselves. If you think about what happened in the online world, marketers are actually becoming like media companies. Websites are amassing vast audiences that they interact with and can potentially try to convert to prospects or customers. So we’ve been approached by a number of marketers about using our tool not just for the publishing community, but also for the marketing community itself, where marketers can use the system to manage the audience they now have, the direct-to-consumer communication that they have, particularly through the Web.

Most importantly, marketers should be able to change their message to people who show up on the Website, depending on whether they’ve presented ads to them before, where they presented them, and whether they dug into product information before. Right now there are no tools to manage the messaging differently.

Marketers see the world in terms of a marketing funnel; you have audience that sits at top, and you turn the audience into prospects, and prospects to customers—customers come out at the bottom of the funnel. And they don’t really have many tools to effectively manage that process at the top of the funnel—the audience members they’re reaching. We believe it’s actually the exact same kind of problem media companies deal with today, which is: How do I integrate people from my various sources? How do I find those few needles-in-the-haystack bits of data that will make a difference in what messages I send to whom? How do I get this together to make it actionable in real time? Those are all the kinds of things our Audience Management system already does.