• by ryan.y , Nick Johnson , June 7, 2005

As online ad spending continues to skyrocket this year, many believe that 2005 is the breakout year. Analysts are looking at projections from $12.3 billion (Goldman Sachs) to nearly $15 billion (Forrester Research), and online media is projected to reach 20 percent of all media consumption (Goldman Sachs). This has been due in large part to emerging technologies that allow advertisers to get increasingly more targeted about the audience they reach.

Behavioral targeting is leading the charge. This is truly the next stage of media evolution, and now is the time for thought leaders who understand the value proposition to take ownership of the capability and show a commitment to behavioral targeting. Such a commitment--one that makes behavioral targeting a core part of campaign-level strategy--will drive new economics that will dramatically transform and grow online advertising..

There are clear precedents for the transformative power of embracing targeting. About twenty-five years ago, cable television launched, and it took some time for advertisers to embrace the medium. It was an emerging media outlet, and advertisers were slow to commit. Then there was a big breakthrough when Budweiser and ESPN got together to develop a huge multi-year deal that really helped put ESPN--and, by extension, cable--on the map.

This was the beginning to a transformational event--instead of trying to reach a narrow audience by spending a ton of money on broadcast and hoping to find them, cable was an evolution of media distribution that allowed advertisers to reach their target in fewer places with less out-of-pocket expense. Early buyers saw that "we have to start allocating some budget to this," and pretty soon 5 to 10 percent of media budgets were being allocated to cable every year. This made it a robust, viable media channel.

The evolution of cable has helped marketers get used to spending premiums to reach targeted but highly valuable segments of the audience, and the broadcast mentality began to slip away. According to Veronis Suhler Stevenson, in 2003 the communications industry spent $39,758 MM on broadcast TV (not including barter syndication) compared to $83,537 MM on cable and satellite TV. Moreover, share on broadcast TV continues to deteriorate as more money goes to cable. The targetability of audiences through cable accelerated media efficiencies by letting planners buy audiences more accurately.

Fast forward to today, and we can see how the value of being able to reach a specific audience has grown--and is the dominant force behind media and advertising today. One of the primary reasons Viacom is splitting into two companies is because the MTV brand--with incredible ownership of adults 18 to 34--and other valuable demographics in Viacom cable are among the strongest year-to-year growth in the company. MTV's value is fueled by the ever-growing elusiveness of today's youth--they're gravitating to gaming, the Internet, and mobile devices. The more elusive they become, the more valuable the ability to target them in aggregate on MTV becomes.

What that phenomenon ultimately says is "in the cable world, the demographic is king." But whatever value the demographic has, it is a proxy for something even more valuable: behavior. With cable demographics, you maybe know how old a person is, what gender they are, and some interests--obviously, they like music and like watching spring break--but you don't know much more about them than that. Online, you can get to all their interests directly, based on their real behavior.

With behavioral targeting, an advertiser can find young adults, but the interest isn't just because they are young adults. The interest is in more finely targeting them based on what they do and what their interests are. You can go to a major, young adult online community like Bolt.com and target teenage girls based on the type of content they read. And when they come back to the home page you can serve a teenage girl interested in makeup a Revlon ad; a teenage girl interested in sports a Gatorade ad and a teenage girl that is interested in gaming an XBOX ad.

Gaining Steam

That scenario is becoming more and more available to marketers because the technology is deploying at a rate that matches agencies' media planning sophistication. Deployment of behavioral targeting today is significantly broader in reach than it was six months ago, as there are more and more outlets where advertisers can invest against behavior. The old excuse of not being able to aggregate enough reach is gone. Cross-site buys can be done at a meaningful scale, and that means that behavioral targeting, and all the value it brings, can be and must be central to online advertising.

One last interesting thing to look at is the relative maturity of online advertising. 2000 was the tipping point for online spending. The online market was being fueled by IPOs and dotcom hysteria and the place to spend money was online. It unnaturally flooded the market, sold out inventory, and helped sites without any best practices get up and running; established media brands were competing with start ups like the globe.com. Then the market bottomed out and the dot coms followed. The big online-only brands struggled to survive.

Now in 2005, we have the biggest online spend ever predicted. Guess who that is being fueled by? The Fortune 500 marketers; the folks who emerged to drive cable success 25 years ago. They are fueling growth and supercharging the penetration of Internet as a marketing vehicle. Cable is bought on a targeted CPM basis, and the reason it gets a premium is the laws of supply and demand. There aren't that many adults 18-34, and MTV does a terrific job of aggregating them; therefore, they get a premium. Behavioral targeting is doing the same thing, but is creating much narrower--and even higher-value--audience segments based on behavior rather than demographics. We're now seeing the same sort of marketplace effect as buyers extend their understanding of premium pricing

Online media's ability to segment and aggregate people based on behavior, intent, and being in-market is going to continue to drive the value of audiences and the ability to reach them. We're ready for our Budweiser to kick it to the next level.

Nick Johnson is Senior Vice President of Business Development and General Manager of Account Strategy at Revenue Science. Nick focuses on creating, communicating and implementing partnership strategies to drive demand for Revenue Science behavioral targeting services through building relationships with advertising agencies, large publishers and advertisers. Revenue Science is the global standard for behavioral targeting.