In March of last year, the first column I wrote for iMedia Connection ran at a time when behavioral targeting was just beginning to generate interest from publishers. The subject was how, even though Google was the hottest property in online advertising, behavioral targeting would be of equal, if not greater value. I'm sure many, if not most, readers read the article with a healthy dose of skepticism. Those of us providing behavioral targeting often had to work to defend its merits. But the advertising world has seen great changes since then.
Today, behaviorally targeted advertising is projected to increase 65 percent to make up nearly 21 percent of all online media purchases in 2006 -- more than double the 2005 figure, according to a study by iMedia and the Ponemon Institute. It's clear that the acceptance and use of behavioral targeting by advertisers and publishers has made major strides in less than a year, and that there's every reason to believe this trend will continue, especially as behavioral targeting is made available at portal scale that creates the liquidity buyers and sellers require.
However, for the lingering few who still doubt that online advertising is rapidly moving to focus on targeting the deep context that users bring with them, rather than the relatively thin context that a single page provides, let me present my case.
Exhibit A: The Shift in Traffic Growth
Veronis Suhler Stevenson's 2005 Communications Industry Forecast projects "consumer internet" consumption will reach 183 hours per person in 2005, up from 176 hours per person per year in 2004. The report shows positive growth continuing through the end of the decade. What is notable about this is a change in the trend from growth being driven by search to being driven by content sites -- particularly on very rapid-growth, context-poor content sites such as social networks. That means the contextual advertising model is beginning to lose share because these growing sites require an audience-based approach that leverages the highly targeted context every user brings with them to the site.
Exhibit B: The Numbers
Financial reporting from the two dominant players in online advertising -- Yahoo! and Google -- reveal interesting trends if you know where to look. Yahoo!'s latest financial reporting shows that the company's revenue growth is outpacing its profit growth. This means that they are paying a lot of money for the contextually rich real estate that has been the driver of their growth this far, but that they are seeing less and less benefit.
Google, on the other hand, seemed to stumble briefly in its financial performance in Q2 but now is hotter than ever. If you look at the data very, very carefully, you'll see that one of the reasons for this is that its growth rate of traffic growth has stopped (second derivative for you math types) -- that's a major change that indicates a tipping point for online media.
Exhibit C: Buyers Need Answers
A frequent refrain I hear from the media buying community is that it is getting too expensive to put money to work because of the rising cost of contextual advertising. The answer for publishers is not to continue to bid up contextual prices forever, but to provide a better option. Advertisers are looking for a way to put their money to use in the contextual desert and they will find it when they focus on the context that users bring with them -- which is more relevant, valuable and abundant than context on the page.
You may consider this hearsay, so let me call my expert witness, Rishad Tobaccowala, the chief innovation officer of Publicis Media Groupe, one of the largest media buyers in the world: "One of our biggest challenges is efficiently scaling online buys. As internet spending returns we face huge issues with pricing and fragmentation in that costs of media are surging and the operational difficulties of buying one site at a time in an increasingly fragmented world is a headache. We need better economics and easier ways to aggregate content buys."
Behavioral targeting providers have responded by creating new ways for advertisers and agencies to aggregate internet users into sizable target audiences across the internet, including aggregating users within a website, creating multi-site "custom networks" that pool the strengths of premium media brands, as well as network buys that deliver ads to a targeted audience across several websites of different types. This provides portal scale for marketers and allows non-portal publishers to offer portal scale and reap the benefits.
All of this evidence proves not only that the contextual desert is growing, but that the economics of the contextual model are breaking down. The answer for advertisers and publishers is to focus on the audience -- to leverage the personal, behavior-based context that people bring with them everywhere they go online. Sergeant Friday would be proud.
Bill Gossman is president and CEO of Revenue Science, the global standard for behavioral targeting. Please send comments to feedback@revenuescience.com.
