• by Lynn Russo Whylly , August 2, 2007

Relevance is critical, but reach is still an issue

In some ways, behavioral targeting - the ability to serve online ads to visitors based on their viewing habits - is seen as the ultimate in efficiency. After all, marketers want to target their messages to the audience who will find the ads most relevant. At the same time, targeting ads to specific audiences means they won't be seen by as many people - a drawback for those marketers who think of advertising as a numbers game whose goal is to reach as many people as possible.

While the benefits of behavioral targeting are likely to spur growth in the next few years, the perceived drawbacks mean the growth will come from a small base. The result: Behavioral targeting won't be anywhere near achieving critical mass by the end of the decade.

In fact, according to the eMarketer report "Behavioral Targeting: Advertising Gets Personal," just 33.8 percent of Web sites offer behavioral targeting. That's not much of a jump from 2005's 24.4 percent in a market where relevance is key to improving customer lifetime value.

"Brand marketers are looking at behavioral targeting to establish awareness of a new brand, so reach is critical," explains eMarketer senior analyst David Hallerman. "It's going to need to take off more in order for additional publishers to offer it as a capability and to be included in different networks."

The other sticky issue, Hallerman says, is that publishers don't want their ad inventory to be limited to a certain category. "If the ads are being sold to a company targeting [a specific group] and a site does a good job of delivering them, they'll wind up getting an imbalance of ads from companies wanting to target that group, even though they may reach other groups equally as well."

Adding insult to injury, Hallerman says, advertisers are being asked to pay a premium for behavioral targeting when in effect they're buying remnant space. "It seems to some that those pages aren't necessarily in context, and the idea that ads need a proper context to be effective is a mindset that, for many advertisers, is hard to overcome."

Still, advertiser adoption is moving faster than publisher adoption. Behaviorally targeted ad spending will grow at exponential percentage rates until at least 2011, according to eMarketer, with 64.3 percent growth in 2007 and 73.9 percent projected for 2008.

Thirty-eight percent of respondents to a Forrester Research report are using behavioral targeting, while 36 percent said they were piloting or expected to pilot behavioral targeting within the next 12 months. Fifty-two percent of respondents to an American Advertising Foundation survey ranked behavioral targeting as "most effective," compared with 32.9 percent for demographic and 30.5 percent for contextual.

Not everyone agrees. A MarketingSherpa survey conducted at Ad:Tech revealed that behavioral targeting ranked among "best" performing online tactics for 36 percent of respondents in 2005 and 34 percent in 2006, while it ranked "worst" for 23 and 21 percent, respectively. Just 21 percent said it was "very effective;" 63 percent said it was "somewhat effective."

And while 31 percent of respondents to a Dynamic Logic/MediaPost survey plan to heavily invest in behavioral targeting this year, it ranked fifth behind investing in search, e-mail, online video and social networks.