Behavioral Advertising: Wave of the Future?

If you’ve been keeping up with the trends in online marketing, you’ve probably been hearing about something called “behavioral advertising,” “behavioral targeting,” or “behavioral marketing.” What is it, and how is it different from the kind of online marketing you’re already doing? Keep reading to find out.

Behavioral marketing has actually been around for a few years. In its crudest form, pre-Internet, it may have consisted of special mailings to repeat customers. Today, behavioral marketing involves serving up ads to a particular individual based on his or her previous online behavior. It is not to be confused with contextual advertising, which serves up ads that are related to the content of the web page on which they’re appearing.

This means that two people seeing the same web page could see completely different ads. For example, let’s take two surfers, one an outdoorsman who likes to visit hiking-related websites, another a big theater buff. They’re both planning a visit to South Florida. Maybe they both end up on the same site with general information about the area, but the outdoorsman sees ads for the local parks or hiking groups, while the theater enthusiast sees ads for tickets to upcoming theater performances.

You can probably see why many online advertisers are very excited about behavioral marketing’s potential. It promises the ability to reach an even tighter audience with more relevant ads than contextual marketing can achieve. In theory, this means advertisers can show (and pay for) fewer impressions of their ads, while enjoying a higher click-through rate – and more importantly, a higher conversion rate.

With this kind of potential, you would expect to see a lot of advertisers eager to try out this new form of online marketing. The truth is a little more mixed. According to figures quoted by Search Engine Watch, only eight percent of all online advertising is behaviorally targeted. That number seems a little low, but there are reasons for this, as I’ll go into shortly. Some of them will become obvious when I explain more about how behavioral targeting actually works.

{mospagebreak title=Knowing Where They Surf}

In order to show advertising based on a web surfer’s previous online history, you need to have some way to discover that previous history. In short, you need to collect data on individual users. There are a number of ways to do this, and some of them don’t sit well with consumers.

Most of the companies that are involved in behavioral advertising have a participating network of websites which drops cookies on site visitors’ computers. Some of them reward the publishers in their network when a site visitor acts on a behaviorally targeted ad. Some of the better known names in behavioral advertising include Tacoda,, Kanoodle, Claria, Direct Revenue, Revenue Science, and others.

You might recognize some of those names, Claria in particular. Claria is known for creating adware, some of which has found its way onto the computers of thousands of web surfers against their users’ wills. It’s been claimed that Claria has had a problem with rogue distributors, who violated the company’s rules covering how its adware can be installed. Whether or not this is true, it’s the kind of thing that can give behavioral advertising a bad name among consumers.

Adware and spyware are often installed automatically on a user’s computer without his or her knowledge or consent. Once installed, they track online behavior — which is a good thing from the point of view of behavioral targeting. But these little programs can also slow down a computer’s performance to a ridiculous degree. Many antivirus programs also target adware and spyware now, and recommend its removal.

This doesn’t even address the issue of ethics. If you wouldn’t want someone to install something on your computer without your knowing about it and consenting to it, why would you want someone to do that to your customers? It certainly seems like a bad way to try to spread some good will. Indeed, privacy is one of the biggest concerns raised about behavioral advertising. Web surfers are much more suspicious these days than they used to be about anything that tracks their personal information, thanks to the number of high-profile reports of sensitive, personal data being captured by hackers and/or leaked onto the Internet.

{mospagebreak title=Benefits and Risks of Behavioral Marketing}

Studies are starting to bear out the theoretical advantages of behavioral marketing. A study conducted in October of last year by showed a much higher conversion rate than contextual advertising. This means that behaviorally targeted ads save businesses and advertisers serious money by allowing them to be less wasteful in the money they spend.

Not surprisingly, Jupiter Research showed a significant increase in the number of advertisers using behavioral marketing in 2004 over 2003. Nevertheless, the research firm predicted that behavioral targeting will “never be a dominant force in online advertising.” That’s no surprise either, since there are a number of obstacles to behavioral marketing really catching on with both advertisers and consumers.

Let’s start with consumer behavior and attitudes. I’ve already discussed that to some extent in the previous section. A little over a year ago, Jupiter Research reported that 39 percent of web surfers remove cookies from their computers at least once a month. That report sent a shock wave through the advertising industry, because many executives held the long-standing belief that users didn’t even notice cookies, or at least ignored them.

Studies conducted since then show somewhat less extreme rejection. WebTrends reported that consumers reject about 12 percent of cookies, and the Interactive Advertising Bureau (IAB) reported similar figures at the beginning of June this year. The cookies in IAB’s report were specifically third-party cookies — those set by ad servers and analytics companies to track websites that users visit and ads they view. The study the IAB commissioned examined actual consumer behavior, rather than simply asking consumers whether they accepted or rejected cookies.

Another obstacle to behavioral targeting is that it currently works to target the computer rather than the specific user. Let’s look again at our earlier example of an outdoorsman and a theater fan planning to visit South Florida. If they’re roommates or a married couple who share a computer, ads intended for the outdoorsman might be shown to the theatergoer instead — or vice versa. This kind of living situation is actually pretty common, and that kind of “misfiring” for behavioral targeting is certainly less than optimal.

{mospagebreak title=The Future of Behavioral Marketing}

Back in late 2004, Nate Elliott, an analyst with Jupiter Research, observed that “most advertisers still haven’t run behavioral ads, and those that have still aren’t spending much.” There has been a little change since then, but not very much, and the process of change has been slow. Many advertisers still aren’t quite sure what to make of this kind of marketing, and are likely to approach it gingerly.

That point was reinforced recently by a Forrester Research report, “Interactive Marketing Channels to Watch in 2006.” The study interviewed more than 250 senior marketing professionals to find out what forms of media they hope to use for advertising this year. It turns out that they’re a relatively conservative bunch; while there is interest in blogs, social networks, RSS, podcasting, and video games, these don’t figure into their advertising plans yet.

What this means is that marketing professionals are more likely to stick with what they know works. The study noted that marketers continue to emphasize the importance of effectiveness in their marketing campaigns. This should mean that they’ll turn to behavioral marketing fairly quickly, but they’ll be comparing its performance to a very high benchmark. Being as good as a typical site banner won’t be enough; behavioral advertising will have to perform as well as search and email marketing to make the grade.

Speaking of search advertising, you’d think the search engines would be trying to get into behavioral targeting of ads. None of the major ones currently offer it, but they seem to be edging closer. Microsoft’s adCenter, for example, offers extensive demographic ad targeting. It’s thought that all three of the top search engines are at least testing behavioral targeting, and may offer it in the future.

Indeed, I believe you can expect to see online advertisers run test campaigns involving behavioral marketing all this year and next. Given the relative lack of direct experience with behavioral advertising among marketing professionals, I don’t expect to see a big jump in spending on behavioral advertising until the end of 2007 at the earliest. That will change if and when one of the three major search engines starts to offer behavioral advertising in a big way. If they get behind it with an educational campaign that calms consumer worries about third-party cookies, 2008 could be the year that behavioral targeting of ads finally starts to take off.

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