This is part 1 of the summary of a behavioral targeting article by Anthony Smith-Grieco. You can get the pdf of the behavioral targeting article here: Internet as a Recommendation Engine: Implications for Online Behavioral Targeting.
People from the digital marketing world predict that the Internet of the future will be a recommendation engine. This means that in the future, technological architectures will be used to implement highly customized categories for online users, and each user will be categorized depending on his interests as measured through data mining and the analysis of his browsing behaviors and habits. This categorizing will then help advertisers improve the quality of their ads, and users will see more relevant ads.
The motivation for online targeting is that, despite the fact that more and more people use the Internet while fewer people spend less time reading newspapers and other similar media, the revenue for radio, print and TV ads are still much higher than the revenue of online ads. Targeting may be able to resolve this problem. Aggregators, such as advertising networks and agencies, collect data from websites and users as they negotiate business with publishers of these websites, and these data will be used for targeting.
The study investigates new measurement architectures and whether aggregators will benefit from them. Maybe these data stores will someday have the power to decide what ads users will see. In the future where data becomes very valuable, small publishers will be at a disadvantage because the competition will focus on acquiring and using the data.
Most research is focused on the privacy issues of behavioral advertising, and rightfully so. While marketing is a good excuse for collecting personal data, these data could potentially be pressured out of companies by the government for policing and surveillance purposes. This study will not be about these privacy issues, but on the economic consequences of behavioral advertising. Furthermore, it is not a quantitative study, but more like a stakeholder analysis, using concepts and economic reasoning; a “thought experiment”.
What will happen if user profiles get highly valued in the market at the same time that other assets such as media channels and advertisers are also important. The study assumes that personal data is important economically, and investigates the implications.
Internet Advertising Ecosystem
Here are the key players found in an online advertising ecosystem. First, ad agencies and advertisers. These players buy ad space and design the ads; e.g. media plunning, media buying, creative development, etc. Most of these agencies are controlled by a few huge agencies, including Omnicom and WPP. The trend for paying agencies nowadays goes towards a fee-for-service model, a time based model which gives incentives if ad clicks, online purchases and site registrations turn out good for the ads.
Publishers are the ones responsible for creating websites, and they survive through the revenue obtained from advertising. They are concerned about getting consumers that are not only there for the content, but also find the ads in their website interesting. Publishers should also not show too much ads, because that might irritate the users.
Advertising Networks act as intermediaries between advertisers and websites. Advertisers create an ad campaign, specifying how many ads should appear on which websites for what kind of user demographics during which time of the year. The ad network then decides the price the advertiser needs to pay for their ads, and then finds sites where these ads can be placed. The publisher gets paid by the ad network at a lesser rate compared to what the advertisers are paying the ad network.
Ad Exchanges serve as places where advertisers, publishers and networks can participate in an auction, as a way of making the overall market, including the prices of ads more efficient. Furthermore, Internet Service Providers (ISPs) also play a role in this advertising ecosystem, in the sense that they can replace the ads on a website with their own ads.
