The Behavioral Network Effect

When behavioral targeting made its comeback splash in early 2004, there was plenty of discussion about how different it was from its dot-com predecessors and about future growth opportunities of this audience-driven targeting tool. I remember chatting with a few industry folks last year and speculating, “Hey, what if TACODA or Revenue Science formed its own ad network?”

Well, it took less than a year before what sounded like a conspiracy theory turned into concrete reality. In recent months, both TACODA and Revenue Science have announced the formation of their own advertising networks. If you recall, it wasn’t long ago Claria announced the development of BehaviorLink, its proprietary version of a behavioral network.

These recent metamorphoses within a specific online niche raise a few interesting questions. Are technology behavioral vendors encroaching on the lucrative market of mass reach that’s been well-guarded by traditional networks, such as ValueClick and Advertising.com? Or are they simply emulating the advantage competitors such as 24/7 Real Media have enjoyed for being behavioral targeting vendors with their own networks?

Remedy for an Inherent Deficiency

The growth strategy of these technology-based vendors should be no surprise to those who follow behavioral targeting’s saga. Reach has always been a fundamental deficiency that plagues pure technology vendors, who must rely on publisher enrollment to define their online reach. In simple terms, their reach is only as wide as the number of sites they can sign up. This was a significant disadvantage compared with other types of behavioral targeting vendors who already established themselves in the network business, such as 24/7, Advertising.com, and Drive PM.

For TACODA and Revenue Science, creation of these proprietary networks was the harmonic result of logical (and patiently natural) evolution with an aggressive and strategic business expansion plan. Leveraging the size of the many publishers in the networks, behavioral targeting vendors can now gain significant reach through collaborative audience tracking across multiple sites and emulate a potential surround session so long as the audience is within the network coverage.

The New Network Standard?

If behavioral targeting truly delivers on its promises (i.e., higher advertising relevance and performance) with the mass reach gained from publisher networks, it will significantly affect traditional advertising networks.

For one thing, large networks have always touted their ability to “reach more than 50 percent of the Web audience.” Despite a lack of editorial control and attraction, the targeting capability and significant reach allow them to compete with content publishers on many media plans. With the rise of behavioral networks, it’s likely these new entities will push the network standard to a higher level that addresses trends: consumer multi-everything surfing behaviors.

It also doesn’t seem unreasonable that, in an effort to aggressively expand their businesses, these behavioral technology vendors will acquire (or be acquired by) other large networks or ad-serving systems.

What Does This Mean for Online Media?

The so-called “network effect,” according to MarketingTerms.com, is “the phenomenon whereby a service becomes more valuable as more people use it, thereby encouraging ever-increasing numbers of adopters.” Ironically enough, this term is the perfect double-entendre to describe the recent expansions of a few behavioral targeting vendors who hope to achieve the network effect by literally creating networks of their own.

In a behavioral targeting panel I moderated in Boston early this year, I asked the panelists (comprising all the major behavioral targeting players) whether behavioral targeting is better conducted via ad servers, tech vendors, or networks. Charles Smith from TACODA answered, “We are in the audience management business.”

In many respects, audience management is the new network and media standard. Price, targeting capabilities, and reach should be the result of a focus on your audience, not the other way round. Many networks seem to have missed the boat by neglecting the importance of this audience-centric view as they falsely equate a bigger site portfolio with better audience management.

Contrary to DoubleClick’s recent sale, the real ad-serving business is not so much about the actual ad serving but the ability to intelligently manage data collected via serving ads. It’s through this arduous process you can truly build a profile of your target audience to understand their behaviors and surfing habits (I know I certainly have them!).

As media cost (search and CPM) continues to climb as a natural result of the increasingly competitive landscape (due to the increased amount of advertisers who finally realize online’s value to brands and who now buy upfront, as with offline), advertisers are forced to find new solutions to improve performance. Behavioral targeting can certainly pave the way, and the creation of behavioral networks seems even more promising for elevating industry standard to a new level of media sophistication.

By the way, according to TACODA, Audience Networks will eventually reach over 85 million Internet users. How’s that for reach?

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