behavioural targeting — online ads personalised in response to consumers’ Web-surfing behaviour — holds big promise and generates a lot of controversy. But for now it remain an incredibly small niche — a mere $775 million in 2008, according to eMarketer.
That’s a tiny fraction of the $26 billion online ad market in the U.S. and even smaller than another niche, Web video advertising, expected to reap $1.4 billion in 2008.
Yet, Dave Morgan, founder of behavioural targeting pioneer Tacoda Systems, thinks dollars spent on that type of advertising will grow 85% a year for the next five years, and will hit $10 billion in 2012. Total online ad spending is expected to double in the same timeframe, according to MediaPost, to $51.2 billion. Morgan sold Tacoda to AOL last July; he’s now chairman of The Tennis Company.
You’d expect Morgan to be bullish on behavioural targeting, since he’s devoted a good part of his career to the concept (disclosure: Dave is an investor in SAI publisher Silicon Alley Media). But how can behavioural targeting grow so much faster than online advertising? Because online won’t drive the growth. TV will, once cable operators start targeting ads with IP-enabled set-tops in the next three years.
That said, Morgan says a couple things have to go right for this call to come to pass. First, penetration of digital set-tops needs to keep going up, and cable operators need to be willing to share the data they collect with advertisers. Certainly cable operators at least say they must figure out targeted ads, and they’re working on their own national platform, the Comcast-led Canoe Ventures, with the goal of offering targeted ads to individual homes.
Second, and perhaps more importantly, the pro-privacy lobbying effort on Capitol Hill needs to lose steam. A Congressional inquiry put a stop to cable operators’ attempt to spy on their broadband subscribers through NebuAd. Just wait until Congress gets wind of cable operators tracking their channel flipping…