Simply put, behavorial targeting makes it possible to deliver ads to Internet users based on their recent surfing history and likely interests. According to Dave Morgan, chairman of behavorial targeting advertising network TACODA, advertising so far has been woefully limited. “The way advertising worked in traditional media or on the web was that you placed car ads in a car magazine, food ads on a cooking show and banking ads on a financial site.” Morgan sees behavorial targeting as a revolutionary tool which is changing the way ads reach consumers. “Based on the recent, anonymous navigation of a user, we can do a better job of delivering ads that are relevant to him at that moment,” says Morgan. All of a sudden, Internet surfers can see ads pertinent to their current preoccupations – buying a car or expecting a baby, say – pop up even when they are visiting irrelevant pages. Studies have shown that users are more responsive to these out-of-context ads both not only because they are relevant, but because there is a favorable element of surprise to them.

Here is how it works: with the help of a behavorial targeting specialist like TACODA, a site places a unique cookie on each visitor. The cookie reports what the user reads, what ads he clicks on and everything else about his navigation on the site. TACODA federates 4,000 sites which together represent 150 million unique visitors each month. “We have one of the 10 largest databases of anonymous consumer behavior in the US,” boasts Morgan.

Newspaper sites love behavorial targeting. While ads on their automotive pages are sold out months in advance, other pages such as the high school sports results will never attract many advertisers. But behavorial targeting now allows them to sell ads even on those long-ignored pages. In the advertising business, they call it “monetizing the low-revenue ad inventory”.

But that’s not all. Behavorial targeting is also being used as a new weapon in the customer relation management battle. As Mike Cassidy, CEO of Undertone Networks, recently told the Behavioural Insider newsletter, “By placing a pixel on the [brand’s] home page, advertisers can track how customers or would-be customers engage with the brand, segmenting customers with as much granularity as they wish in terms of what and how much, or how often, they buy; what types of content they browse; the intensity or casualness of their interest; and how short or how long their sales purchase cycle tends to be. They can then follow these customers anywhere on our network and serve them ads based on their customer profiles.”

Where is behavorial targeting headed? “Now that behavorial targeting is proven to work, we can start doing it on a large scale to reach every consumer. Our challenge is to get smarter about figuring which past behaviors predict which future behaviors,” says Morgan.

In the same interview, Mike Cassidy wondered how long behavorial targeting would work. “The unanswered question is how many times you can reach a consumer this way before you see diminishing returns. Related to that, there’s the question of just what the optimal number of exposures to behaviorally served ads are. A big goal for 2007 is to develop a far greater understanding of how frequency capping can work for behavioural ads.”