Behavioral Ads Command Twice the Price of Standard Ads

Behaviorally targeted ads are twice as expensive as regular ads, but are also nearly twice as effective, according to a new study from self-regulatory trade group The Network Advertising Initiative.

The study, “The Value of Behavioral Targeting,” found that the average CPM for behaviorally targeted ads among 12 prominent ad networks in 2009 was 2.7 times higher than standard ads: $4.12 per thousand impressions versus $1.98. Overall, behavioral advertising accounted for about 18 percent of advertising revenue last year.

And behaviorally targeted ads also enjoyed a much higher conversion rate: 6.8 percent versus 2.8 for standard ads..

Charles Curran, executive director and general counsel of the NAI, said the study is intended to show regulators, legislators and privacy advocates the important role that behaviorally targeted advertising plays at a time when the practice is under regulatory pressure.

“Our sense was that it would be useful to have actual data about what behavioral advertising does in terms of changing the economics from the perspective of advertisers and publishers,” he said. “Clearly there’s additional revenue being generated by this particular kind of advertising, and that has implications for the total ecosystem in terms of how much revenue is available for ad-supported content.”

Online ad networks have been under increasing scrutiny in recent years regarding the use of personal information to serve ads. A consortium of industry groups unveiled a set of voluntary guidelines in July of last year in response to pressure from legislators and the FTC.

Howard Beales, former director of the Bureau of Consumer Protection at the U.S. Federal Trade Commission, was author of the study for the NAI. The data was obtained through surveys of nine of ComScores 15 top-ranked ad networks and three smaller ones.

Among the study’s other findings: Total 2009 ad revenue for the 12 companies that participated in the study was $3.3 billion, and behaviorally targeted ads grew as a percentage of overall revenue throughout the year, from 16.2 percent in Q1 to 19.4 percent in Q4 2009. Respondents also said that 55 percent of their advertising revenue went toward purchasing more inventory.

The NAI, which is based in Kennebunk, ME, counts Google, Yahoo, AOL Advertising, 24/7 Real Media and Tacoda among its 40 members.

Follow Douglas Quenqua on Twitter at @DQuenqua.