There is no let-up in online advertising deal activity this week, with AOL acquiring Tacoda for a rumoured $275m. This follows hot on the heels of a series of ever larger acquisitions in this market, as I wrote about here and here. The Tacoda deal is particularly interesting because it represents the mainstreaming of behavioural targeting, technology which allows advertisers to target consumers based on their Internet behaviour.
Both Tacoda and its competitor in the US, Revenue Science, began by developing technology and trying to licence it to websites and network owners. This proved difficult and so each eventually set up an independent advertising network, both to prove the technology and to generate revenues. In Europe, many of the existing ad networks use behavioural targeting techniques to some extent.
The key to effective targeting is having enough data about user behaviour. This can only be collected from within a network as the user travels across sites. The more specific the network sites are the more they reveal about a user. AOL should be able to get a very rapid boost in its ad conversion rates by applying Tacoda throughout its Web properties.
In Europe, Adviva Media [disclosure: Kennet portfolio company] combines behavioural and demographic targeting to deliver very narrowly targeted user groups for advertisers. This reflects a broader trend in the market: advertisers' increasing search for highly specific traffic.
In this week's VentureBeat, Jeremy Lieuw demonstrates how the value of some types of ad networks is increasing, at the expense of generic web traffic. Underlying his analysis is a review of some lesser-known recent M&A deals, like Hachette Filipacchi buying automotive network Jumpstart, and BSkyB's purchase of Aura Sports. This is the critical weakness in the business models of the large, volume-driven networks like Ad.com, whose CPM rates are destined to decline further and further unless they can effectively segment their users. For content-driven networks -- like AOL and Yahoo -- and specialised networks like Adviva, it represents an opportunity to drive higher CPM rates and to deliver more effective campaigns.
My prediction is that the next wave of deals in this market will be all about acquiring specialised, targetable traffic.