NOTHING COSTS MORE THAN IT USED TO:

A Pricing Revolution Looms in Online Advertising: Demographic profiling and behavioral targeting by such companies as Google, Quantcast, and ValueClick is slashing ad costs and threatening Web publishers (Ben Kunz, 4/06/09, Business Week)

Online publishers face a big revenue squeeze as companies become more sophisticated in their ability to determine who is visiting what Web sites and when—just as marketers look to squeeze more from dwindling ad budgets.

The old online ad model is getting turned on its ear by such firms as ComScore (SCOR) and Quantcast. They specialize in so-called demographic profiling, which pinpoints the types of people visiting each Web site, and behavioral targeting, which helps advertisers reach a desired audience based on a person's past Web-surfing behavior.

Marketers can use these tools to reduce online ad costs dramatically. Say your company sells "Bidgets," a luxury product. Ordinarily you'd run banner ads on FancyOldSite.com, which reaches your target audience of men and women who earn more than $150,000 a year. The ads are expensive—say $60 per thousand impressions—but they reach your ideal audience.

You might instead embed a snippet of code in the banners that run on FancyOldSite.com. This places so-called cookies on the computers of everyone who sees the ad so you can track them when they visit other Web sites. That's where retargeting kicks in. Every time a former FancyOldSite.com reader who saw your ad visits other Web sites, your Bidget banner ads pop up again. The banner ads reappear because the cookie on that computer flags a retargeting "network" of thousands of sites, saying "This desirable reader is back." These new ads are cheap—$3 CPM—but they reach exactly the same audience.

Congratulations! You just used behavioral targeting to reduce your ad costs from $60 to $3 CPM, a 95% savings. (And yes, those cost quotes are based on real client experience.) Online targeting of individuals has been around for more than a decade, notes John Ardis, vice-president for corporate strategy at ValueClick (VCLK), another firm that specializes in online advertising. But interest has surged during the recession. "Obviously today's economy has advertisers looking to do more and more efficient things," he says. Not only are costs lower; results are often better. ValueClick, which provides retargeting, says click-through rates on such ads are 110% to 840% higher than average because they reach an audience more likely to be interested in a product or service.