Nearly every grand design or proposed killer application for online advertising has included some form of scalable, behavioral marketing. Ten years and many false starts into the life of online advertising, 2005 seems to be the year that scalable behavioral marketing is reaching critical mass.  More than simply the aggregation of remnant inventory, the brand leaders in the behavioral marketing space have added heavy optimization and multi-vehicle delivery and tracking capabilities. This week we talk to Dave Morgan, founder and CEO of Tacoda Systems, one of the leaders in the space about why behavioral marketing is enjoying a re-birth, and how this segment will impact the near and long-term future of online planning/buying and publishing.

avant|marketer: Why have the ad network model, media optimization, and behavioral marketing only now begun to really hit their stride? These ideas are almost as old as Internet Advertising itself, and all have seen well-funded plays come and go.

Dave Morgan: The market wasn’t ready the first couple of times around. Networks, and optimization, and high value targeting only make sense when you have inventory supply problems. Back in 1999 and 2000, all that the advertisers and the dot com’s cared about was quantity of pages, not quality of people. Also, there was no real focus on the back-end. No one knew or really cared how to measure and manage the results of campaigns. Because of this, there was no real care or differentiation of inventory was being bought. One page was as good as the next.

That’s all changed. Now we are dealing with real advertisers. Everyone is watching and working the back-end. Now there is an understanding of good inventory and bad inventory. Now there is real and growing demand
for the good inventory. It is being sold out. Now, to grow their businesses, advertisers and media companies need more good inventory.

That is where optimization and networks and behavioral targeting is coming into play. Networks grow the reach. Optimization gets more out of what they have, and behavioral targeting improves the likelihood that the campaigns will work.

avant|marketer: Is the industry on the whole really prepared to move to a model of buying and selling individual users rather than buying ads on, what is in-essence, a contextual or content targeted basis?

Dave Morgan:  No, nor do I think that it is necessary or that audience-targeted ads and contextually-targeted ads are mutually exclusive. Certainly, there are many online advertisers today that are prepared prefer to buy their campaigns on a per user basis. In addition, the majority of online advertising today is purchased on a performance basis, whereby the advertiser pays on a cost-per-click or cost-per-action or acquisition basis. All of those advertisers would be just as comfortable having their campaigns targeted to people rather than pages. All that they care about is results. In the end though, I don’t believe that audience-targeting and contextual-targeting are mutually exclusive. I believe that over time, they will be used together on most campaigns.

avant|marketer: Tell us about your new offering, AudienceMatch, and how it works? In the simplest of terms, what function does it perform for online marketers?

Dave Morgan: The AudienceMatch Network enables advertisers to cost-effectively acquire quality leads; to find and reach their target audiences with cost-per-click text ads. We use behavioral targeting to insure that advertisers are able to reach the exact audience that they are looking for. For example, they can reach people whose web behaviors indicate that they are travelers, or in-market car buyers, or golfers. We charge on a pay-per-click basis, because that the pay-performance model insures that advertisers get what they pay for. The model has been widely embraced in the search marketplace and we believe that it will drive much of the rest of the market as well.

avant|marketer: AudienceMatch seems to lean heavily on the media side of the equation to drive performance, which is how many of the best practices have evolved. What role does creative format play in this new world of behavioral targeting? To what extent does creative remain a factor?

Dave Morgan:  Creative formats will be very, very important in the success of the AudienceMatch Network. Up until now, virtually all online creative has been designed for contextual-based delivery only. Creative has been tied to the page or the search which they are delivered next to. Behavioral targeted in person-based. We are going to need whole new libraries of creatives to take advantage of this delivery. Just was we have seen with some of the NYTimes.com pioneering work with Surround Sessions, we have creatives that can uniquely take advantage of behavioral targeting, and put Behavioral Targeting on steroids.

The shifting dynamics between creative and media has been a front and center issue lately in the evolution throughout the entire advertising industry. It will get more and more pronounced as more audience-targeted advertising enters the marketplace. You can not fully take advantage of person-based media placements if you are not delivering person-based creative messages. Delivering a retail-focused automotive brand ad to a “bottom-of-the-funnel” in-market car buyer when they are reading a local news story is best served when the ad understands the environment. Automotive ads in automotive sections have to fight lots of other automotive messages and information; not so on the local news page. There, the creative message needs to be different. The person is not in an active and immediate automotive research state-of-mind. The person is in a more passive, news browsing mode. The creative should understand and exploit that state. This means that the creative and the media must go hand-in-hand to be successful.

avant|marketer: To what extent does behavioral marketing make online advertising more effective versus more cost-efficient? Or do you not value the distinction?

Dave Morgan:  We value the distinction enormously. In its more elementary applications, one of the primary benefits of behavioral marketing has been efficiency. Much of the low-hanging fruit that behavioral targeting hasdelivered so far has been to help eliminate waste from campaigns for advertisers and improve inventory yield for publishers. It is its promise of delivering advertising more effectively that we believe will make the biggest long-term impact.

Understanding the exact stage of purchase consideration that a particular consumer is in will enable advertisers to make much more effective use of each and every ad. So, it will be less about just getting message to, and only
to, the target audience, but more about what to do with each and every audience member targeted at that moment of ad delivery.

avant|marketer: That has some big ramifications for pubishers doesn’t it?  Might we be able to cut some of the house-ads and fluff in favor of something more like “just in-time” inventory creation? Publisher’s creating on the ad space they can demonstrably generate value with?

Dave Morgan: Yes, though I am not sure how many truly understand this idea at this point. I absolutely believe that publishers in the future will have supply chain management capabilities that let them create and sell a just-in-time audience. They will turn audience acquisition programs on or off on a real-time basis depending on the demands or bids that have been made for their own audience and the real-time performance of that audience and the demand. In the future, we will see publishers and networks operating more like Wal-Mart and Dell Computer and less like US Steel and General Motors in the 1960s and 70s.