And yet, individuals like Liang and Benisch are tapped to do just that, drilling down to unearth the perfect ad strategy. They are charged with figuring out what to input, monitoring the number crunching and analyzing what the computers ultimately spit out, as well as which algorithms to employ.
Liang likens his role to the robotic vacuum cleaner Roomba: When the process hits a wall, his job is to set it in the right direction. Often that means spotting irregularities in what an algorithm produces, and figuring out whether a formula might need to be tweaked for more accuracy.
Sometimes results can be counterintuitive. In one instance, a fast-food chain hired ChoiceStream to market a new coffee product. It turned out the ad scored particularly well not with caffeine addicts but with Jeep owners. Analysis determined that, indeed, owners of that nameplate were also ideal prospects for the coffee. As a result, the chain launched a campaign targeted to outdoorsy types—the very people who might own a Jeep.
Players in the space like ChoiceStream and Rocket Fuel point not only to their superior data sets but also to their highly effective algorithms. “The secret for success is the algorithm—your ability to unlock the power of the data,” says ChoiceStream COO Eric Bosco.
From coast to coast, each company promises an algorithm that will do slightly different things. ChoiceStream was founded in 2000 but only broke into audience targeting in 2011 with its product Crunch. The company boasts that Crunch uses “genetic programming,” meaning that its algorithms borrow from those used in behavioral genetics.
Rocket Fuel, meanwhile, markets itself as “advertising that learns” or “artificial intelligence,” though that is really the essence of what all data models do. EXelate, another company specializing in data modeling, sells its analysis directly to brands and ad agencies, while companies like Rocket Fuel and ChoiceStream are more involved in the overall advertising process. ChoiceStream has an in-house creative team to handle chores such as the design of ad-based polls or entire campaigns like the Zappos weather module.
Their formulas are closely guarded secrets, of course. Generally speaking, they are learning algorithms with the capability of analyzing data and recognizing patterns. (See formula in the graphic below.)
Benisch, who has been involved in computer programming since he was 10, holds a Ph.D. in computer science from Carnegie Mellon and started his own hedge fund in 2009 while still a student, points to the rise in sophistication of algorithms, which today can handle “billions of complex decision points per day, each within a few milliseconds.”
The 2012 presidential election brought the powers of the empirical into sharp focus. Statistician Nate Silver of The New York Times’ FiveThirtyEight blog toppled pundits and their predictions based on theory, history and intuition by correctly predicting the outcome of the electoral vote, including in nine swing states. It was a turning point in making the case that statistical analysis holds a better chance at determining the outcome of an election than, say, Chris Matthews. Obama emerged victorious, and so did empiricists.
Kevin Lyons, svp of analytics at eXelate, notes that Silver’s political calculus is essentially the same math used to figure out which consumers to target with an online ad. In marketing, however, the statistical and the intuitive are not at odds; rather, they have become complementary.
Eric Bosco of ChoiceStream notes that the traditional creative side of advertising sets the stage for fancy math to do its work. It narrows the field of possibilities, so algorithms can be more effective. For example, he points to one insurance company whose marketing campaign focused on younger consumers and sought to make the brand “hip” among the demo. The message of the campaign informed ChoiceStream’s analysis.
As Bosco says, “We take that initial intuition and convert it into something powerful.”
Perhaps powerful enough to remake advertising as we know it.
PHOTO: BEN SHAUL; ALGORITHM WRITER: JENNIFER O’DONNELL