A Pricing Revolution Looms in Online Advertising

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Quantcast is breaking some of the most interesting new ground in consumer targeting. Several services such as ComScore estimate Web audience demographics by using panels, or small, representative groups of people who agree to have their behavior tracked. Quantcast, however, makes 6 billion direct observations a day from cookies on computers that track the media habits of more than 900 million people worldwide. Quantcast then uses mathematical models to track the paths of consumers through millions of Web sites to determine, for instance, if you are a man age 35 to 44 with more than $100,000 in household income. The data is not individually identifiable—neither your name nor your address are collected—but the sheer size of the data set lets advertisers know exactly what type of people visit each Web site. This approach is relatively new. Quantcast launched its directly measured data service in 2006 and has been rapidly expanding it to new publishers.

And that's the rub. If you, an advertiser, know every Web site visited by your most desirable audience, you can find many ways to reach them other than through such marquee Web sites as WSJ.com (NWS), BusinessWeek.com (MHP), or that of The New York Times (NYT)—especially if the cost is lower. "Why would I pay $60 if I can pay $4?" asks Ardis of ValueClick. "There is really going to be a backlash. Newspapers felt it. Magazines felt it. There is a reckoning coming in online channels, too."

Publishers Can Use Data to Fight Back

But online publications don't have to go the way of newspapers—if they, too, learn to use the new customer data. "It will give them new and more innovative ways to sell the audience," says Quantcast Chief Marketing Officer Adam Gerber. Consider a site whose visitors are 80% male. In the past, that site may have attracted only advertisers who wish to reach men, leaving some inventory unsold. But with better data about readers, the site can now sell to a new set of advertisers the 20% of its space that attracts women.

Christine Peterson, president of 212, New York's Interactive Advertising Club, agrees that publishers can defend themselves. For example, they could charge an advertiser a premium if they can predict that readers are in the market for that advertiser's services. "Just because I looked at a financial page doesn't mean I'm ready to hear from Charles Schwab (SCHW)," she says. "But if I've been back and forth to multiple financial pages in recent days, could they charge Charles Schwab more? Yes."

The new, behavioral-targeted data could spur demand for online advertising. "We had a marketer who was launching a low-carb bread when Atkins and the South Beach diets were all the rage," Ardis notes. "They were targeting women—but it turned out a huge portion of those who signed up were men in their 40s who were starting to develop a little paunch." The advertiser started to spend more on advertising to reach the newly discovered male audience, he says.

So hope remains for online publishers: Find unsold segments of your readers and sell them to advertisers that previously couldn't access them. Use data on past reader "click streams" from other Web sites to help advertisers reach the consumers who are most interested in their products.

Publishers, your audience data is waiting. Advertisers want it. But you'd better hurry, because the price of your old online business model is falling fast.

Business Exchange related topics:
Online Ad Operations
Behavioral Targeting
Online Ad Exchanges
Global Outsourcing

Ben Kunz is director of strategic planning at Mediassociates, a media planning and Internet strategy firm. He is author of the advertising strategy blog ThoughtGadgets.com.