Targeting Technology Should Boost Online Ads

By: Steve Outing Take heart, online media publishers. Your salvation may be just around the corner.

For so many years, online advertising was unsophisticated, and not terribly effective. The 468x60 pixel banner -- standard on many a Web site without regard to who might be viewing it -- was the first major Web advertising vehicle, and it's still ubiquitous on many sites. "Targeting" of Web ads has typically been limited to section content (e.g., a fitness ad placed in the sports section), and/or time of day (coffee ad placed on a site in the early morning).

But online advertising is starting to grow up and become much more sophisticated. It's now possible for advertisers at some news sites to target their messages finely -- say, serving up an ad only to women. That's not possible in any traditional media (with the possible exception of direct mail).

Add this to the resurgence of online advertising revenues after several years of really lousy economic conditions, and you have the beginnings of a bullish trend. Online advertising is morphing into the most sophisticated audience targeting system ever devised.

It Starts With Contextual Search

A key indicator of what I'm talking about comes from outside the media industry. No. 1 search engine Google (200 million searches per day) has been experiencing phenomenal success with its AdWords program (which was inspired by Overture's contextual search advertising program that delivers contextual search ads to the likes of MSN and Yahoo!).

With AdWords, businesses bid on keywords and their text ads show up alongside Google search results. So a searcher seeking Google results for "exercise equipment" would also see (in the right column of the results page) text ads for companies that sell exercise equipment and who paid for that placement. It's a great way to get an advertising message in front of a consumer who's actively looking for something.

AdWords has been a phenomenal success already; while exact figures aren't available, it's been estimated that AdWords accounts for well over half of Google's revenues now. Because the program is relatively inexpensive and effective for advertisers -- and signing up is automated and simple -- AdWords is clearly taking away local advertising dollars from newspapers (and their Web sites).

AdWords gets us closer to the "holy grail" of consumer targeting -- but it's not there yet. Google doesn't know a lot about the people who make search requests. It doesn't know, for example, the age or sex of the person searching for "exercise equipment," because users haven't told Google that information. It would be great if Google could target contextual text ads at 16- to 25-year-old males who were searching for "exercise equipment," for example. But unless Google starts requiring user registration and collects data, that's not possible.

How the News Industry Enters the Game

Now let's switch back to the online news world. Online advertising for news sites is different from that for search -- news users aren't typically searching for something specific -- so the AdWords-type contextual advertising model won't be quite as effective. If you're a news publisher, you can partner with Google (as Knight Ridder Digital and other companies have done) and have AdWords text ads delivered directly to your content pages -- for example, having automobile-related messages automatically posted next to your auto-section stories. You can even see an example of this approach on the bottom left-hand side of this Web page, below the navigation bar and E&P magazine cover. (E&P Online has partnered with Google for the program.)

You could put contextual ads on search results screens for your Web news archive, as sites such as NYTimes.com have done. But none of that is going to be anywhere near as effective as a popular search engine's contextual results-pages ads, because a news site's users are seldom in search-for-specific-information mode that makes them good buying candidates.

So, what's the online-news industry to do to match Google's AdWords success? Is there a lesson for the news industry from AdWords and Overture? There's a short answer to that: User registration combined with behavioral tracking. That may just be the holy grail of online advertising, and it just might be your news site's primary revenue stream in a few years. This strategy could be to news sites what AdWords has been to Google.

Tacoda Pushes the News Industry

Leading the charge for this concept is New York-based Tacoda Systems, headed by online news advertising pioneer Dave Morgan, who founded Real Media. Tacoda has developed a suite of software and database tools that combine user registration data, Web site user behavioral tracking, and ad-serving tools. Its solutions -- which are priced at $250,000 and up per installation -- are being deployed by a number of news companies to take online ad targeting to a new level.

Tacoda supports some interesting approaches to online advertising. Using its systems, a news site could track a specific user's behavior and match that information with user-registration data. As an example, a site might offer an advertiser the ability to target its ads exclusively to site users who have visited the autos section or auto-related content at least three times in the last month -- and are males between the ages of 36 and 55. Depending on the advertiser's willingness to spend, it could make a "wide angle" or "surround session" buy where visitors that fit those narrow criteria see the advertiser's ads on all or most pages throughout the site.

Morgan lauds Google for showing the online media business the value of contextual advertising. But he thinks that combining behavioral data (such as Google does) with user registration data is the logical next step of evolution -- where media companies can take targeted advertising further than the likes of Google can go. Google can deliver paid ads to people searching for "BMW convertibles." But a media site combining registered-user data with behavioral tracking could deliver those ads to people who've read a sports-car auto review and report incomes over $100,000. That's pretty powerful stuff.

Belo's Targeted Strategy

One media company that takes targeting seriously is Belo Interactive, the online division of the Dallas-based newspaper and television company. A Tacoda customer, Belo has tried several targeting campaigns already and plans to introduce some fairly sophisticated targeting programs for advertisers beginning in the third quarter of this year.

Vice President of Sales Wes Jackson is optimistic that targeted advertising is going to account for more than half of Belo's non-classifieds online ad sales within three years, and he says he's got a half dozen "rock-solid" case studies showing excellent advertiser benefit. (He has yet to get permission from the participating advertisers to publicly release the results.) Currently, targeted ads account for about 15% of his sites' revenue -- with the majority of that coming from targeted e-mail products.

Jackson emphasizes that run-of-site advertising will remain valuable, even as ad targeting flourishes in the next few years. For some advertisers, there's little value in segmenting the audience because they want to reach everyone. And there's presumably a branding benefit from online ads. But even with run-of-site, user registration data and behavioral tracking is useful -- for, say, going back to an advertiser with a detailed report of what types of people looked at its ads. In such a case, an advertiser might double back and use that data -- which might have shown a preponderance of young females who clicked through on an ad -- to subsequently run a campaign solely targeted at young women.

The Deep-Registration Debate

Belo makes for a good case study in targeting (even in these early days) because it made the decision not just to register users of its Web sites, but to ask them a lot of questions. When news sites first started asking for registration data from users, there was fear that asking too much would turn people away -- that they'd balk at spending so much time answering a bunch of questions just to get access to a Web site.

It's turned out that the conventional wisdom that you must ask only a minimal number of questions was wrong. Belo requires answers in the user-registration process of only a few basic fields -- age, gender, postal code, etc. -- but it also asks a bunch of optional questions, such as areas of interest, if the user would like to receive targeted e-mail offers, local media-usage habits, and even street address. Jackson says that most site visitors fill out the forms without complaint. Indeed, when the user registration form went from asking for five points of data to more than 20, the rate of people abandoning the registration process and leaving the site was negligible -- especially on Belo's newspaper sites -- and complaints were less than 1%.

Tacoda's Morgan says he's been wrong a couple of times over the years about user registration for news sites. First, he thought that user registration was a mistake; he changed his mind after seeing that it did not cause a major reduction in site users. Next, he thought that it was important to ask only a few simple questions during registration; he changed his mind on that after seeing Belo's experience. Now, Morgan -- determined not to be wrong a third time -- recommends that news sites follow the Belo model and seek a significant amount of data from users as they register. "If you are patient, over time every user will register." And the advantage of that deep registration will be "massive return-on-investment" over time, he says.

More extensive user registration to support better ad targeting may be a news-industry trend. At New York Times Digital (NYTD), which has registered its users of NYTimes.com for seven years and been doing targeted advertising for six, Vice President of Sales Jason Krebs says that the Times site is now asking for much more information -- whereas only a year ago it was limiting its requests to age, gender, ZIP code, and e-mail address.

How granular?

Of course, even if a news publisher decides to collect a bunch of data from each of its users, just how granular do you want to get? Does it really make sense to sell ad placements to an advertiser who wants to get its message only in front of 22-year-old men who live in the New York suburbs and who have previously accessed your site's auto classifieds database looking for 1999 Miatas?

NYTD's Krebs, who's been at targeting longer than most in the news business, cautions newcomers to the targeting game against going too granular. To be an effective marketing vehicle but still make money for your site, you can't slice your user base so thin that it's not worth your time -- or the per-user price for reaching a small-and-narrow group gets to be so high that advertisers won't bite.

How much extra to charge for ad targeting isn't simple to summarize. Most sites that engage in this sort of practice tack on at least a 25% or higher premium to the standard cost-per-thousand (CPM) rate. NYTimes.com starts at that rate and goes up depending on how the advertiser wants to slice the user base. Advertisers aren't allowed to cherry-pick extremely narrow groups from the user base, and the NYT sites employ a minimum ad buy for targeting.

Belo's Jackson says that targeting adds a base increase of at least 35% to CPM rates, but depending on the characteristics of the targeted buy, it can creep up to as much as 150% higher than the typical CPM rate for a topic-section ad placement on his sites.

Not Just for the Little Guys

Even news companies with smaller properties are starting to board the bandwagon. Augusta, Ga.-based Morris Communications Co., which owns small and medium sized newspapers and radio stations throughout the U.S., for example, is making the transition from free-access/no-registration sites to registration required, in anticipation of deploying sophisticated ad targeting.

According to Steve Yelvington, vice president of content and strategy for Morris Digital, his company is starting to work with Tacoda's system and is easing into user registration on its sites. The Augusta Chronicle and The Topeka (Kan.) Capital-Journal Web sites will be among the first to roll out registration this summer, then the Tacoda system will be deployed a bit later. He says the registration strategy will be similar to NYTimes.com's, where some sections are left open even to unregistered visitors to allow people to sample the company's sites before being required to register.

Yelvington expects to see some differences among the markets where Morris properties reside. Bigger markets will have more sophisticated advertisers -- more likely to be open-minded to non-traditional targeting opportunities. In smaller markets, the predominance of mom-and-pop businesses might be inclined to stick with content-adjacency buys online. But Yelvington thinks that in time even the small advertisers will start to see the advantage of sophisticated targeting. He cites the example of going to a mortgage company and telling its executives that they can have their ad message delivered exclusively to everyone who looked at the local news site's real estate page at least twice in the last month.

Don't discount the importance of all this. The Web is proving to be an advertising vehicle of considerable promise. Think about those TV ads for mini-vans that target "soccer moms," says Eric Koefoot, vice president of sales for Washingtonpost.Newsweek Interactive. Only the Web -- empowered by new targeting tools -- can deliver mini-van ads exclusively to women who fit the "soccer mom" demographic test, he points out. TV can't do it. Newspapers can't do it. The Web can do it -- now.

"There's a portion of the (advertising) market that will love this," Koefoot believes.

The Next Thing

And if that sounds promising, just wait till you hear what's likely to be next in this evolution of targeted advertising. Yelvington is excited about the concept -- introduced by the folks at Tacoda -- of "roadblocking." That means giving advertisers the ability to not only target specific narrow audiences on the Internet, but to expand that to an entire market -- in cyberspace and in the physical world.

If you collect enough data on your online users (including street address) and match your Web user database with other print customer databases, you can deliver targeted advertising not only online, but also via direct postal mail and print-edition inserts. But that's the future. As Tacoda's Morgan advises today, "Grab the low-hanging fruit. Walk before you run."

All of this makes for an exciting time in the online advertising business. If Google can figure out how to make a fortune with a new form of advertising, perhaps online news publishers can, too.

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