Finding Likely Customers In Less-Likely Web Places

The upswing in the online ad market and advances in Web-tracking technologies have combined to make formerly near-worthless parts of Web sites attractive to advertisers who want to specifically target ads to likely customers.

While Yahoo!, MSN, AOL and other top Web destinations have seen demand increase for their high-profile sections, they have often been left with difficult-to-sell inventory, such as ad placements on Web e-mail pages or news sections. But now many publishers are finding eager buyers of those less desirable ad spaces in online ad brokers, which then use targeting and optimization technology to resell the ads—often to marketers that pay only when users click or sign up for a service.

Portals like Yahoo! and Microsoft’s MSN already sell to ad broker networks: Yahoo! to Advertising.com, Fastclick and other brokers; MSN displays ads from ValueClick. The explosion of blogs and other Internet content also increases the amount of real estate available to ad networks.

Network buys are increasingly popular with advertisers, thanks to improved targeting and optimization technology combined with low-risk direct-response pricing models. AQuantive’s Avenue A/Razorfish spent 12 percent of its total media spending, or $37.4 million, on ad networks in 2004. Jeff Lanctot, Avenue A/Razorfish’s director of media, expects ad network spending will rise to 15 percent in 2005 as ad networks continue to improve their targeting technology. In a January survey of media buyers conducted for Deutsche Bank and MediaPost, media buyers said they would earmark 12 percent of Internet ad spending to networks in 2005.

The demand has helped online ad network companies proliferate and grow quickly. Last June, AOL bought Advertising.com, one of the largest ad brokers, for $435 million. In the fourth quarter, Advertising.com generated $97 million in sales. Fastclick said its 2004 sales doubled to $58 million, with $5.1 million in profits. DrivePM, aQuantive’s fledgling ad network launched in April 2004, is already profitable and forecasts $21 million to $23 million in revenue this year. ValueClick, Tribal Fusion, Burst Media, BlueLithium and others all offer their own ad networks.

“There are a number of players, and I think there will be more,” said Brian McAndrews, aQuantive’s CEO.

Next in line is Claria, the Redwood City, Calif.-based adware company vilified by some publishers for serving pop-up ads to visitors of their Web sites. Shifting its business strategy, Claria said it would spend up to $100 million over a year on remnant inventory to roll out an ad network called BehaviorLink, which will help advertisers target specific demographic segments—for instance, serving auto ads to Web users who have visited auto sites or searched for cars. Claria would show ads based on the tracking of Web users through its software, which piggybacks on top of some free software applications, such as file-sharing service Kazaa.

Scott Eagle, senior vice president of marketing at Claria, estimates that up to half of the Web pages on portals like Yahoo! and MSN contain run-of-site inventory, thanks to e-mail services like Hotmail and Yahoo! Mail.

Claria hopes to use Web user behavior gleaned from the 40 million Web users who have its software installed on their computers. Eagle said 100 advertisers have signed up for the BehaviorLink network, which is set to launch in April. In tests on an unnamed portal, Claria claims its targeted ads performed 30 times better than untargeted run-of-site ads. “They’re missing the behavior because they can’t see the behavior,” he said.

Andrea Ching, group-planning director at WPP Group’s mOne Worldwide, said targeting offered by Claria would improve on early ad networks that too often blasted ads out to run on irrelevant sites that devalued brands. She recalled a campaign for a financial services company that showed up on a Russian heavy-metal band’s Web site.

“Networks are coming in with technology that guarantees you have relevancy and that you’re going to have quality inventory,” she said. Advertising.com, for example, offers an option for ads to only run on the top 100 sites. DrivePM only runs ads on the top 250 sites.

Dean Harris, CMO at Edison, N.J.-based Internet phone service provider Vonage, said his company buys from over a half dozen ad networks and plans to use BehaviorLink. “We’re trying to grow our business very quickly, so we need high-reach sites,” he said.

For publishers, ad broker networks represent an opportunity and a threat. The opportunity is to wring more value out of underpriced ad units on less popular sections of their sites. “For the inventory that’s not as valuable, it’s a waste of time and highly inefficient for publishers to try to sell that with their existing sales force,” said Rich LeFurgy, a venture partner WaldenVC, which led an $11.5 million investment round in BlueLithium, a San Jose, Calif., performance-based ad network that has clients like Delta, Verizon and Wells Fargo.

However, some Web publishers worry that broker networks hurt their core brand advertising business. “If I did offer any inventory to a liquidator, folks would know about it,” said Randy Kilgore, senior vice president of online advertising sales for Dow Jones. “All of a sudden, I’d have a tough time defending what we think is the fair value of our inventory.”

Further complicating Claria’s task is the dim view many publishers took of its pop-up business. In June 2002, a group of publishers—including Dow Jones, The New York Times Co. and The Washington Post Co.—sued Claria, then called Gator, for copyright and trademark infringement. The parties settled the case in February 2003 for undisclosed terms. Claria still faces several other suits over its pop-up advertising systems. But Eagle said this baggage would not hurt Claria’s ad network. “There’s not a publisher in the world,” he said, “who’s going to cut off his nose to spite his face.”