Behavioral Targeting Offers Branding Opportunities, But Privacy, Regulatory Concerns Abound

In its new report, "Behavioral Targeting: Enabling Online Marketers to Reach Consumers Earlier in the Purchasing Cycle," eMarketer noted that behavioral targeting provides marketers with a unique branding opportunity, but one that is overshadowed by privacy and regulatory concerns.

Behavioral targeting essentially gives marketers the ability to deliver ads to consumers based on their recent Web surfing behavior. Behavioral targeting systems track a given Web publisher's or group of Web publishers' anonymous user data, including Web pages viewed, keywords typed into a search engine, or products and services shopped for online.

Report author and eMarketer Analyst Debra Williamson noted that behavioral targeting can be perceived by some consumers and government officials as "creepy." "Is the user's privacy being invaded specifically?--no, but does it feel as though it's being invaded--yes," she said, noting that this is a function of consumers not being sufficiently educated about how online advertising works.

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"Privacy concerns are huge," Williamson stated flatly, adding that this is one of the reasons early behavioral targeting endeavors by Internet media firms like Engage and DoubleClick were squelched several years ago. She added that for the ad-supported software industry, which includes players like Claria and WhenU, lawsuits or federal legislation limiting ad-supported software "could sharply curtail that business."

Jupiter Research Analyst Gary Stein noted that privacy is one of the main reasons the major Internet service providers--America Online, Yahoo!, and MSN--have yet to adopt behavioral targeting. "Even though an ISP is in place to watch all traffic, I think they're pretty hesitant to do so [because of privacy]," Stein says. However, Stein noted that America Online has turned over "a big chunk of remnant inventory" to recent acquisition Advertising.com, a pay-for-performance ad serving network that deploys a behavioral targeting system. Stein said it is unlikely that AOL will become part of its behavioral targeting network.

According to the eMarketer report, behavioral targeting growth is difficult to assess precisely because ISP adoption remains the number one wildcard. "If any of the three major portals adopt behavioral targeting in a significant way, it could shift the entire market," Williamson wrote in the report. In 2003, the major Web portals generated a combined $2.9 billion in ad revenue, accounting for 31% of total worldwide online ad revenues.

Williamson noted that of the big three, MSN is the only one expected to enter the business soon. "Delivering targeting solutions to our customers is a top priority for MSN, and we anticipate doing so later this year," an MSN spokesperson told Williamson. Aside from this possibility, eMarketer believes that much of the growth in the market in 2004 and 2005 will come from Web sites that adopt behavioral targeting.

Despite privacy concerns, Williamson urged marketers to try behavioral targeting, precisely because targeting facilitates relevant brand messaging. She also noted that the major behavioral targeting providers such as Revenue Science, Tacoda, and Accipiter sell customizable campaigns, meaning that marketers who are wary about privacy concerns can take an active role in developing the targeting parameters.

For publishers, Williamson noted that behavioral targeting can solve a near-term problem: sold-out inventory. By segmenting traffic, a publisher is effectively selling an audience, not a given page or content area. This means that a group of people who have shown interest in a specific content area can be shown relevant ads even when they are elsewhere on a publisher's site.

As Revenue Science Senior Vice President-Product Marketing Omar Tawakol said, audience is everything to a publisher. "The reason brand names become so trusted is because they deliver an audience, and then the advertisers follow." He said that this is the reason WSJ.com has had such success with behavioral targeting--because it consistently delivers a desirable audience.

Tawakol added that behavioral targeting is a way for marketers to engage consumer's interests before they think of them. It's a way of letting them "put themselves in the bucket," he said, adding that Revenue Science is able to deliver this to its publishing partners like WSJ.com because it targets user behavior at the word level, analyzing articles consumers have read and then creating a marketing segment based on the words that appeared most often in those articles.

Both the eMarketer report and Revenue Science's Tawakol noted that industry standards and regulations will be key to long-term growth. Tawakol said that audience segmentation standards need to be created in order to establish a consistency so that marketers can measure the difference between technology firms' respective offerings. He noted that Revenue Science is actively working with the Interactive Advertising Bureau and the Online Publishers Association on developing audience segment standards.

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