By Emily Steel
June 19, 2007
The Wall Street Journal

When Pepsi-Cola North America wanted to make a splash on the Web this spring to promote its new low-calorie vitamin-enhanced water, Aquafina Alive, the beverage company didn't run ads just anywhere on the Internet. It placed ads only on sites it knew would be visited by people interested in healthy lifestyles.

Pepsi was using an increasingly popular online advertising strategy called behavioral targeting, in which marketers analyze consumers' online activities to figure out who is most likely to be interested in its product -- and then place ads on whatever sites those consumers are visiting.

In this case, the beverage giant worked with independently owned New York-based behavioral ad network Tacoda Inc. to identify health-conscious people by looking at traffic to sites about healthy lifestyles over a month-long period. Then Pepsi arranged to place Aquafina Alive ads on some of the 4,000 Web sites affiliated with Tacoda so the ads would pop up whenever these health-conscious consumers visited.

The result? Pepsi recorded a threefold increase in the number of people clicking on its Aquafina Alive ads compared with previous campaigns. "We've never been able to get to this level of granularity," says John Vail, director of the interactive marketing group at Pepsi-Cola North America.

A growing number of big marketers are starting to use this technique in their online ad buying. The concept isn't new -- technology allowing marketers to track consumer behavior on the Internet has existed for years. Until recently, though, advertisers couldn't easily buy space on enough Web sites to make targeting truly effective. But now marketing firms, such as Tacoda, have put together networks of thousands of diverse sites that allow for insertion of behaviorally targeted ads.

This week, Tacoda will add six new sites targeting women to its network. With the new sites -- which include Atlantic Media, Connecting Moms, Real Girls Media and Active Interest Media -- it will be able to reach 28 million women, Tacoda says.

Recent multibillion-dollar acquisitions in the online advertising market are expected to make the practice even more viable. In recent months, Google Inc. has agreed to pay $3.1 billion for Internet-ad broker DoubleClick, while Microsoft Corp. agreed to acquire Seattle-based online ad concern aQuantive for $6 billion. Both DoubleClick and aQuantive are expected to put more emphasis on behavioral targeting in the future.

"The future of digital media is less about distribution and more about understanding the audience's interests and being able to project that anywhere," says Bill Gossman, president and chief executive officer of independently owned behavioral-targeting firm Revenue Science.

Similar targeting is what made search-related advertising so popular: Advertisers could buy links to key search words so their ads show up only when people search for a particular term. This technique extends that concept to display, video or other "rich media" ads -- such as animated characters dancing across a screen. Spending on behaviorally targeted ads in these categories reached $350 million in 2006, according to a recent analysis by eMarketer, which predicts the category could reach $1 billion in 2008 and then nearly quadruple to $3.8 billion by 2011.

Advertisers monitor consumers' Web travels by attaching "cookies" -- small text files -- to a computer's Web browser. Using the information yielded by these cookies, marketing firms can create a profile of that browser's activity. For instance, if someone visits a number of travel-related Web sites during the course of a month, they would fall into a category called "traveler," a target audience for companies looking to reach people interested in travel. But ads aimed at these people won't only appear on travel sites. Because the marketing firm can follow on a "real-time" basis where a person using that browser is on the Web, at any time, it can insert the ads onto any Web site within its network when the person is there.

Furthermore, the ad can be inserted to be seen only by a specific visitor. That way, two or more advertisers can insert an ad in the same spot on a Web page at the same time. If, for instance, a person profiled as a "traveler" visits the same site as a "moviegoer" at the same time, the traveler might see an airline ad while the movie buff sees ads from a movie studio.

One flaw of behavioral targeting: Advertisers have no guarantee the same person is behind the computer screen all the time. Families, for instance, often share computers -- so the same browser may travel to all sorts of different sites when being used by different people. That would throw off the entire concept of profiling.

Tacoda CEO Curt Viebranz says a very small percentage of browsers in the Tacoda network are used by multiple people. He notes that Tacoda can break down information according to the time of day that people visit certain Web sites, allowing advertisers to display their messages according to a specific time schedule. For instance, if one family member visits certain Web sites during the day, another after school and another during the evening -- and they all use the same computer -- advertisers can use that data when figuring out the best placements for their ads.

Web sites have good reason to like behavioral targeting: It makes it easy to sell space on certain parts of their sites. In the past, NBC Universal Inc.'s iVillage found it hard to sell ads next to its astrology section because few products and brands correlate directly with astrology, says Peter Naylor, senior vice president of digital media sales for NBC Universal. But by identifying a particular consumer and delivering an ad tied to their interests, that same ad space is worth a lot more. "All of a sudden, it is not about the environment, it is about the person," Mr. Naylor says.

Behavioral targeting draws criticism from privacy advocates who are concerned about the collection of private data. But the behavioral targeting firms note that they track the behavior of an anonymous browser, not a particular person, and don't connect the dots between private and identifiable information. Sites usually allow a person to opt out. "If people want content that is free and are willing to look at ads and be exposed to ads in order to see content -- we all understand the deal -- we want to serve ads that are as relevant to people as possible," says Matt Straznitskas, senior partner and group media director at Mediaedge:cia.

The Federal Trade Commission is reviewing online ad practices and is looking into behavioral targeting issues -- the nature of the information collected, how it is safeguarded, if it is personal and identifiable, if it is anonymous and whether there is any real threat to consumer privacy. "We don't want to be stepping into the marketplace to intervene because something feels creepy or icky," says Eileen Harrington, deputy director of the bureau of consumer protection at the FTC. "If the results of this tracking are that ad content is displayed on my computer, I'm not really sure there is any harm in that."