Display advertising, long regarded as the ugly stepsister to search advertising, is about to get a makeover.
Technology companies like San Mateo-based Aggregate Knowledge and ChoiceStream, which has an office in Palo Alto, say they can dramatically increase the effectiveness of the colorful boxes, banners and flashy graphics that set off display advertising on Web sites.
Search ads are the ads that usually appear as words or sentences, often on the right hand side of search results. When someone types “mortgage” into Google, for example, ads for mortgage companies pop up. If the person clicks on the ad, advertisers pay Google whatever amount they pledged in an auction with the Internet company.
But with display ads, advertisers simply pay to have their banner ads appear on a Web site, sometimes shelling out $20 to $30 per thousand page views. While as many as 14 out of 100 people may click on a search advertisement, only about 1 out of 1,000 will click on a display ad.
Last year, Google rang up more than $20 billion in search-advertising sales. Yahoo, which relies on both search and display advertising, rang up $5.4 billion in search advertising and $1.8 billion in display advertising. Meanwhile, Internet revenues at the New York Times, which relies only on display ads, were $309 million.
Usama Fayyad, who is a board member of Choice- Stream and Yahoo’s former chief data officer, said the problem with display advertising is that it hasn’t been targeted to users as effectively as search has. “People didn’t think about the true economic cost of serving the wrong ad to the wrong audience, so therefore, over time they manage d to destroy the long-term value of display advertising,” Fayyad said.
What ChoiceStream and Aggregate Knowledge do is allow advertisers to “retarget” a customer who has been to their Web sites.
“In the mode of search marketing, you only get one crack at the customer and that’s the end of it,” said Fayyad. “Display multiplies the chances a publisher has to show an ad.”
If technology companies can boost the effectiveness of display ads, industry observers say they could potentially slow the downward spiral of display ad revenues for newspaper companies and brighten the prospects of Internet portals like Yahoo and AOL. Indeed, better display advertising could make any business that distributes content on the Web more valuable.
Research firm IDC says display was battered during the fourth quarter of 2008, falling 7 percent. In contrast, search advertising rose 10 percent. During the first quarter of this year, display could decline as much as 18 percent, while search is expected to grow 8 percent.
But Yahoo only saw display ad revenue decline 2 percent in the fourth quarter, thanks to its targeting technology. David Zinman, vice president for display advertising at Yahoo, said advertisers are still willing to pay Yahoo a hefty premium for display ads because they can choose which of the 500 million members of Yahoo’s audience see their ads. Today, for example, a carmaker can pay Yahoo to show an ad to all the men between the ages of 24 and 29 in the Bay Area who have shown a recent interest in buying a car.
At the end of last year, Yahoo began sharing these capabilities with newspapers around the country. The relationship between Yahoo and the Newspaper Consortium, which includes the San Jose Mercury News and 795 other newspapers, allows Yahoo to sell target ads on the newspaper Web site and for newspaper salespeople to sell ads on Yahoo.
Leon Levitt, vice president, digital media at Cox Newspapers, said his company increased its display revenue by as much as 15 percent using Yahoo’s technology. AH Belo, which owns the Dallas Morning News, posted an extra $1.2 million in revenue.
Companies like Aggregate Knowledge claim their technology can do even better than Yahoo. Pascal Bensoussan, vice president of products and marketing for Aggregate Knowledge, said his company could get even more value from online content by showing display ads that are targeted to shoppers that previously visited other Web sites. For example, someone who was browsing for an HDTV at Target could be shown an ad for a television while reading politics stories at the New York Times.
In a test by an electronics company, consumers who were exposed to personalized display ads were more than 5 times more likely to click on them and more than seven times more likely to make a purchase. Paul Martino, Aggregate Knowledge’s chief executive, says such campaigns are 80 percent as effective as search advertising.
Yahoo launched its own retargeting service this week. Other companies that are boosting the effectiveness of display include Revenue Science, Adsdaq, and Turn.
Contact Elise Ackerman at eackerman@mercurynews.com or (408) 271-3774.
