A Behavioral Targeting Meltdown?

Amid the seemingly constant and worsening reports about our national and global economic situation, a recent article about a behavioral targeting “meltdown” caught my attention. California-based Adzilla reportedly shut down its North American operations, a move that comes on the heels of NebuAd’s CEO departure, NebuAd’s decision to delay the roll out of its behavioral-targeting platform, and Front Porch’s decision to shut down its behavioral-targeting feature.

The article called it a “behavioral targeting crash.” This was the first I’d heard of any such crash that was attributed to delays in federal proceedings over potential industry regulation. I wondered if I’d missed something major overnight, or if my instincts about this market were now numbed to a potential danger.

Are companies that provide behavioral marketing technologies deciding that the risks are too great, especially in light of the current economic slump and without federal clearance to use targeting? Are we letting the economic downturn lead us to pessimistic conclusions without basis? As U.S. businesses struggle and suffer, all industries will feel the impact. Online display advertising and the behavioral targeting subsegment are no exception, but recent studies only cite a slowdown of growth for online display revenue, not a contraction. That sounds like exceedingly good news in the context of what’s happening to other media expenditures.

The current economic situation, while actually beneficial to no one, represents an environment in which behavioral targeting may even thrive in the contrarian way that thrift shops stand to gain when belt tightening occurs. Marketers still must reach audiences and try to boost revenues as best they can, but they can’t afford to be wasteful or experimental with their limited budgets. Behavioral targeting’s ability to efficiently deliver relevant, targeted advertising helps marketers make the most of their advertising spend, even when it’s limited. While most budget-challenged marketers will cling to search and increasingly may turn to social media programs, well-executed display advertising has some unique properties that support healthy customer growth objectives.

Before we sound the alarm bells for behavioral targeting, let’s watch for some key indicators.

Watch Pricing and Overall Category Spending

Are program minimums so high that marketers who don’t have a strong foothold in the space will have trouble affording the entry price, thereby lessening demand? Watch to see if those minimums come down, pricing comes down, or value-added plan components start to grow. Behavioral has shown success in a variety of verticals and has become a staple in many plans. Logical, rational marketers will continue those tactics that return cost-effective results under all but the direst circumstances. Track the category spending trends to see if the overall online spending pie is shrinking or if behavioral tracking’s slice of the pie is getting smaller.

Watch the Major Players, Not the Back-Up Team

The recent influx of new behavioral targeting vendors in the last couple of years could be creating a natural shakeout accelerated by price pressure. This shakeout would have happened in due course anyway. The smaller, less-established vendors may start shutting doors because the competition is stiff and success requires constant reinvestment in technology and selling. If you’re getting outsold or underbid by the larger providers and networks, you have a weakened chance of survival, especially now when things are tight all over. A real behavioral targeting crash would affect the power players, the Yahoos, Advertising.coms, and Revenue Sciences of the world, but we see no weakness exhibited there yet.

Watch Consumer Shifts

As a result of the financial downturn, consumers may change their searching and buying behaviors. Behavioral-targeting providers will have to be nimble to recognize and react to new patterns. This is not a business-as-usual environment and increasingly scarce sales will take smarter, more relevant advertising to convert. The bigger players are probably better equipped to adjust and support more sophisticated message testing, sequencing, and other tactics that will be needed to close the sale. Watch for new approaches to coax sales from consumers. Will they work? We’ll see.

Things are indeed tough all over, and it’s possible that the behavioral targeting industry and the online advertising industry as a whole will start to see shifts and drops in spending and overall revenue. Cuts have to be made across the board at many companies, and marketing often takes a big hit. Let’s be careful about how we view those drops and interpret them in light of the larger strain the economy is under before we call anything a meltdown.

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