AOL/Tacoda Deal Advances Brand Advertisers' Move to Behavioral Targeting

By The Myers Report Archives
Cover image for  article: AOL/Tacoda Deal Advances Brand Advertisers' Move to Behavioral Targeting

The recent coverage of AOL's planned acquisition of behavioral ad targeting company Tacoda missed some important context that helps explain what's new about Behavioral Targeting, why AOL would pay $275 million for Tacoda and how BT is, and isn't, a threat to existing models.

Behavioral targeting has historically been used as a way to increase the value of ad inventory that was otherwise commoditized (such as on unbranded, national news pages) or considered remnant and un-sellable except to bottom feeders or performance-based advertisers who pay for click-through or acquisitions.

Companies like Tacoda and competitor Revenue Science collect data, via computer cookies, on how users surf the Web and build profiles that stick with them as they move from higher to lower value pages. Someone who visits personal investing pages may get ads from brokerage houses while searching sports scores, for example. Tacoda founder and CEO Dave Morgan told Jack Myers Media Business Report in an exclusive interview shortly after announcing the AOL deal that his company has increased ad rates for such inventory fivefold on average from about $.60 to about $3.00. eMarketer predicts behaviorally targeted display advertising will nearly double from $575 million this year to about $1 billion next, about 11 percent of the display ad market. By 2011, they predict a $3.8 billion market for BT.

What's gone largely unnoticed, though, is a shift to big consumer brand advertisers using behavioral targeting "The advertisers that we're working with now are not the direct response advertisers that have historically used networks," Morgan says. "It's not Lower My Bills or Netflix or Vonage. It's Coca Cola and General Motors and P&G." As quality inventory in choice verticals like automotive, finance and high tech categories has increasingly sold out, behavioral targeting has given brand advertisers a means to reach the same audiences at effective prices. At the same time, behavioral targeters have reached enough scale "to deliver that oxymoron of targeted reach," Morgan says. He says Tacoda touches 80 percent of the U.S. Internet population about 50 times per month. "That's an amount of reach and frequency that no portal has the ability to deliver in its own right now," he says. Not that the portals aren't trying. Yahoo's Todd Teresi, SVP of Display Marketplaces, told Jack Myers Media Business Report that their proprietary behavioral targeting technology has allowed them to raise CPMs.

Yahoo! this spring completed a purchase of RightMedia, an ad auction house that combines display advertising with targeting technologies. For AOL, Tacoda is a push to stay in the top advertising tier, competing with Yahoo! as well as Google's planned buy of DoubleClick and Microsoft's purchase of aQuantive. Assuming regulatory approval of the AOL deal (Jack Myers Media Business Report has confirmed the $275 million price tag), Tacoda will fit as a synergistic play, in concert with the network AOL bought in 2004 (Jack Myers Media Business Report, August 17, 2004). has been a performance-based ad company paying pennies to aggregate the most remnant of remnant inventory. Tacoda gives them a step up the food chain toward brand advertising.

Morgan believes Tacoda is taking brand dollars away from television. "The early Internet advertising was led very much with a magazine model. It was all about editorial adjacency. A car ad on a car site," he says. "The next generation of advertising we believe on the Web is going to be on a television model, which is audience centric. And that's where behavioral targeting will play a really big factor." Yet, a $3.00 CPM is not a rate that will make a TV executive's heart race. The recent success of the Upfronts, in which networks were able to raise rates as much as 12 percent despite marketers' threats to walk away, makes it clear that dollars are not yet deserting TV.

BT could also face a challenge from privacy advocates. Tacoda goes beyond government requirements in protecting privacy: its cookies are anonymous, it doesn't use IP address identification (as some other networks do in order to add a further layer of targeting) it has a vigorous "opt-out" policy, and its systems are built to withstand any hacking attempt. But AOL could at some point face regulations that will require that BT cookies be "opt-in" or even face new cookie-blocking or corrupting technologies.

Regardless of the challenges, BT's effects will be felt. It has, after 12 years, reached a network scale that matters to the likes of the top brand advertisers. The new capabilities of digital media - whether on the Web, IPTV or broadcast digital signals due in 2009 - mean advertisers will demand more performance data and targeting along with their typical measures. Inventory that's high-priced today will likely come down if marketers feel they can reach a similar audience more cost-effectively. And low-priced inventory is already starting to inch up. It won't happen all at once, but the models are improving, accuracy is increasing, and the Web portals are consolidating and buying networks that give them reach to match their technological capabilities. The TV networks and ad executives are successful doing business as usual for now, but they cannot afford to be complacent.

Dave Morgan at Tacoda can be reached at

Dorian Benkoil, a regular contributor to Jack Myers Media Business Reportis a senior consultant for Teeming Media, a digital media business consultancy. He can be reached at




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