Behaviorally Targeted Ads Yield Twice The Revenue and Twice the Converts
Economist Howard Beales, who conducted the study, notes that "... behaviorally targeted advertising is a critical component of ad network, publisher, and advertiser success... significantly enhancing the advertising revenue engine driving the growth of the Internet."
Charles Curran, Executive Director of the NAI, says "... This study demonstrates the increasing significance of behavioral advertising to the economic model supporting free online content and services for consumers... we will continue to work closely with policymakers... to give consumers better information, tools and choices, while making online advertising even more relevant to their needs."
Key findings of the study include the following: ยท
- The average relative cost of behaviorally-targeted ads in 2009 was 2.68 greater than that of standard run-of-network advertising
- The weighted average cost per thousand ad impressions (CPM) for behaviorally targeted ads was $4.12, as opposed to $1.98 for run-of-network advertising
- Behaviorally-targeted ads accounted for 17.9% of respondents' advertising revenue, with revenue increasing from 16.2% in Q1 to 19.4% in Q4 2009
- 54.6% of the respondents' advertising revenue went towards the purchase of inventory and was therefore shared with publishers and content producers to support their businesses
- Data from a smaller subset of the survey respondents suggested that users who clicked on a behaviorally-targeted ad were more than twice as likely to complete a transaction or sale with that site than those who clicked a standard run-of-service ad (6.8% vs. 2.8%)
- Total online ad revenue for the twelve companies who participated in the study was $3.323 billion in 2009.
The study was conducted from January to March 2010 with the participation of twelve online advertising networks and marketing analytics companies that belong to the NAI. Study participants provided proprietary data on the revenue, composition and effectiveness of different types of online advertising on their networks.
The report includes a comprehensive chart that presents the weighted average CPM among participants for each of the three ad types, as well as conversion rates and revenues. The results show that BT provides significantly higher rates on an industry wide basis. For the full year 2009, BT CPMs were about double RON CPMs, while Retargeting rates were about 1.5 times as large as RON CPMs.
Key Survey Metrics | |||||
Q1 2009 | Q2 2009 | Q3 2009 | Q4 2009 | FULL YEAR 2009 | |
Average CPM (Weighted By Behavioral Targeting Revenue) | |||||
Run of Network | $1.94 | $1.98 | $1.89 | $2.06 | $1.98 |
BT | $4.09 | $4.22 | $4.07 | $4.11 | $4.12 |
Retargeting | $3.00 | $3.12 | $3.13 | $3.02 | $3.07 |
BT Avg. Relative Price Over RON Ads (X Greater) | 2.77 | 2.71 | 2.79 | 2.46 | 2.68 |
Retargeting Avg. Relative Price Over RON Ads (X Greater) | 1.98 | 1.84 | 2.11 | 1.59 | 1.88 |
Average Conversion Rate | |||||
Run of Network | 2.1% | 3.6% | 2.2% | 3.1% | 2.8% |
BT | 5.5% | 8.8% | 6.4% | 6.6% | 6.8% |
Revenues | |||||
Total Ad Revenue ($ Millions) | $708 | $780 | $795 | $1,040 | $3,323 |
Percentage Attributable to BT (Aggregated Across Firms) | 16.2% | 17.2% | 18.3% | 19.4% | 17.9% |
Avg. % of Display Ad Revenue Used for Inventory Costs | 54.7% | 56.9% | 53.0% | 53.6% | 54.6% |
Avg. % of Display Ad Revenue Used for Data Costs | 8.5% | 8.8% | 9.1% | 9.4% | 8.9% |
Source: NAI, The Value of Behavioral Targeting, March 2010 | |||||
The results lead to 3 major conclusions, says the report:
- Advertising rates are significantly higher for behaviorally targeted (BT) ads. The average CPM for BT advertising is just over twice the average CPM for run of network (RON) advertising. On average across participating networks, the price of BT advertising in 2009 was 2.68 times the price of run of network advertising
- Advertising using BT is more successful than standard run of network advertising, creating greater utility for consumers and clear appeal for advertisers. Conversion rates for BT advertising are more than twice the rate for RON advertising
- A majority of network advertising revenue is spent acquiring advertising inventory from Web content and services providers, making BT an important source of revenue for publishers as well as ad networks
