Monday, April 20, 2009

Online Advertising: We Have The Basics Ready

The idea is brilliant: If the ads start to increase revenue, advertisers will be willing to pay more. Haven't advertising agencies figured that out years ago?

Maybe they did offline, but not online, yet. The frustrating thing for advertising agencies are: The market is there and it's huge. Twenty billion dollars are ready to be spent in online advertisement as of last year and over one billion Internet users (potential buyers) are there hanging out on social networks. But the creative advertising agents are stuck. They can see the cake is there, fresh and tempting, but they just don't have the "silver bullet" to break the glass and get it. But some people said they might have figured it out. It's called Behavioral Targeting.

“We don’t guess, we figure you out and know what you want and how much you want to pay,” said Sheldon Gilbert, 33, CEO and founder of Proclivity, a data tracking system that provides the clients with their customers' shopping interests, purchasing likelihoods and level of expenditure.

Behavioral targeting not only records the purchase information, it also traces every step of someone’s online activity. “The massive change is to track micro behavior, such as the blogs you read and the community Web sites you browse. We collect the data, and based on your behavior, we analyze you and know what you want before you actually make the purchase.”

“It’s the whole new level of targeting that makes Behavioral Targeting a potentially successful online business model,” Lars Perners, professor in consumer psychology at University of Southern California, L.A., said.

Gilbert said clients of Proclivity systems have seen an average of 26 percent increase in their revenue and 100 per cent increase in click rates. Datran Media said in its internal survey that its clients’ ads click rates doubled or tripled after adopting behavioral targeting.

Let's see how it works among three players in the game: technology providers, advertisers who have the money and Web sites who have the platform.

Technology providers like Proclivity make money through subscription. Advertiser's revenue increases given the data provided by Proclivity and Datran Media are credible. The Web sites are the losers. It seems like we have sugar, flour and butter to make a cake. Now we need is a good chef, someone who could put all the ingredients together and bake it at the right temperature for a right amount of time.

Kenneth Wilber, professor in online marketing of University of Southern California, said “it might be harder to build database as big as Facebook or Yahoo than people think,” Wilber said. He agrees Behavioral Targeting has a clear proposition. But it is a very young technology and advertisers have a long way to go before using it on a regular basis. “If I were an ad network, I won’t be thinking about how to increase my revenue now. I would think how to merge with social networks,” Wilber said.

If the model is moving towards success, we should expect to see a lot of merges in the sector soon. Technology companies merge with social networks to combine their massive database; technology companies should also think of themselves more than technology providers but ads networks, who are brokers who put ads on most of the Web sites.

“I think behavioral targeting will become a successful business model but it will take three to five years to really take off, longer than most people think,” Wilber said.

The science part is done. Now it's art to make it work.

4 comments:

  1. Online advertising is receiving a lot of bad press lately about its effectiveness.

    It is not advertising that is suffering, since only the major players are exposed, the perception is that there is a decline. Coincidentally there is an economic recession which paints the doom and gloom for all industries. Online Advertising is on a major growth curve.

    The appearance of an advertising budget decline, is actually the expansion of advertising space. The number of places businesses can advertise now is growing daily. This causes the advertising to be spread thin giving the appearance of the decline.

    There are many new ad networks now experiencing rapid growth compared to the rate of growth of the existing well known networks. This is a normal occurrence during a major growth trend in any industry. Take the auto industry for example during the 1940s and 1950s. They had more brands of auto makers than we can even remember. The same growth is occurring with online advertising.

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