Behavioral ad targeting may be ineffective

Behavioral ad targeting has been widely hailed by the digital ad economy as the holy grail for advertising – the ability to serve ads based on personal actions and inclinations with precision – something simply not possible with advertising in traditional media. For publishers, this would result in a higher rate of clicks compared to non-targeted ads, and therefore, more money earned.

However, a study reported in The Wall Street Journal suggests that personalized ads based on user targeting may only result in a negligible revenue increase for publishers.

According to the findings, a publisher may only see a 4% incremental increase in revenue from ads delivered to users targeted through cookies placed in their browsers, over advertisements without the use of cookies. The study was based on tracking “millions of ad transactions at a large U.S. media company over the course of one week.”

Targeted ads also cost significantly more for advertisers, likely because of the significant premium charged by middlemen in the digital ad economy based on their perceived value. For advertisers and publishers alike, the general expectation is that a personalized ad should yield much greater ROI, on the presumption that users are far more likely to click on them. But the study suggests otherwise, and may confirm the longstanding skepticism of many. As someone quoted in the article stated:

Behavioral targeting has been completely overhyped in its value for publishers from the day it was first invented.

So, with this in mind, what are the potential implications?

  • With user privacy on the forefront, these findings, if broadly accepted, could only add more to the mounting pressure to crack down on user data collection and tracking.
  • An end to charging a premium for targeted ads could be highly disruptive to the digital ad industry, significantly impacting everyone in the food chain, from advertising salespeople to ad tech companies.
  • While the study suggests possibly good news for publishers, this would be still be far overshadowed by the disturbingly downward trend in digital ad revenues.
  • For Facebook, Google, and the other corporate giants, it’s unclear as to their dependency on behavioral ad targeting, or whether this study bears any relevance to their operations.