Targeted Advertising

Targeted advertising is a type of advertising whereby advertisements are placed so as to reach consumers based on various traits such as demographics, purchase history, or observed behavior. Technology has been developed that allows advertisers to target advertising to individual web users. This is seen as an advantage for advertisers, because, rather than aiming their ads at groups of people who visit a particular site, their ads are aimed at the individual user. This maximizes the odds that the user who sees the ad will be interested in the product or service it touts.

Targeting advertising to individuals involves gathering information about that individual’s web surfing habits. The collection of this information has raised concerns among some over the privacy of web activity, particularly if the data collected are personally identifiable. Some have alleged that online advertisers are violating privacy laws by collecting these data.

The going rate for some targeted advertising products can be several times the rate for a generic one because consumers can be six times more likely to “click through” a targeted banner advertisement than a non-targeted one. This differential will likely increase as targeting becomes more refined and more capable of predicting preferences, intentions and behaviors.

While online advertising rates are highly variable, this calculation is based on “generic” ad “cost per thousand impressions” (CPMs) being roughly $1–3, while targeted advertisements are estimated to command above $10 CPMs. Even more specialized types of advertising, such as targeted “cost-per-click” and search-based advertising, have been estimated at even higher rates.