New York Times had an interesting piece a few days back about the advances in ad targeting and measurement technologies that are enabling companies to use the web effectively to build a brand.

Peter and Maria Hoey (via NYT)

THE Internet search engine is an indispensable tool of modern life and an advertising gold mine for Google, the favorite first stop on the Web.

But searching accounts for only about 5 percent of the time people spend online; the other 95 percent is spent on the wider Web, where a different advertising landscape looms. Instead of the short text ads that appear on a Google results page after a search, visitors often find display ads that are the Internet’s equivalents of glossy magazine ads or television commercials. These are typically the province of brand advertisers like Cadillac and Coke.

Until recently, however, it was impossible to tell whether these ads were in fact reaching their target audiences because no one had applied the computing tools and powerful mathematical analytics that were needed to link online display ads to specific markets. But that is changing, and a number of small companies are standing at the forefront of this transformation.

Indeed, many in the industry regard display advertising that can reach specific audiences as the next big online opportunity — the postsearch wave, the Internet ad market 2.0.

The result…lousy RPM (revenue per 100 impressions for the site owners that provide great branding opportunities) and a lot of viable content and sites go under because of lack of monetization…

“The promise is to be able to measure the reach and effectiveness of brand advertising as never before,” said Rich LeFurgy, a principal at Archer Advisors, a digital-advertising consultant. “If that happens, it will really accelerate the migration of brand advertisers online.”

The big Web portals like Yahoo, AOL and Microsoft are working on it, trying to tease out which display ads should be shown and to whom. Last month, when Google paid $3.1 billion for DoubleClick, which specializes in software for display ads and has close relationships with Web publishers and advertisers, it declared that display ads would be crucial to its future strategy.

But besides the giant portals, there are scores of small, innovative companies — typically venture-backed start-ups — that are behind the revolution on Madison Avenue.

Industry analysts estimate that there are about 200 such companies. Many call themselves ad networks, while others are referred to as ad exchanges or optimization services. The roster includes Revenue Science, Tacoda, Tribal Fusion, Rapt, AdECN and x+1. In one way or another, they are all trying to bring more effectiveness to the online display ad market.

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The ideal, Mr. Gabriner said, is to advertise only to prime customers. “Imagine an environment where the company that makes dentures and denture products only advertises to people who don’t have teeth,” he said.

The most common technique for identifying an audience is called behavioral targeting, which tracks, analyzes and predicts online behavior based on where you (actually your browser software) have gone before on the Internet. The ad targeters cull vast quantities of Web-viewing behavior and other data, like the speed of your Internet connection, the time of day you visited a site, whether it was done from work or home and even associated ZIP codes.

These defined audience clusters consist of people who share characteristics based on their behavior on the Internet, not personal information like names, ages, home addresses or telephone numbers. So, for example, a person who recently visited sports and auto Web sites and read global warming articles on news sites would most likely turn out to be an 18- to 45-year-old male. An algorithm would then determine that he would be a good candidate for an ad about Toyota’s hybrid-electric Prius. Advertisers are willing to pay much higher rates to reach such screened audiences.

Most of these companies are working on using the available context to target the ads better and then measure their effectiveness…While there is a lot of work going on in the area of targeting the ads based on available information, not enough work is going on figuring out how to understand the user better…This is another area that is likely to be big and will benefit users, site owners, and the advertisers…One idea has been the user controlled attention data, that users can share with any site they go to, in order to provide their context to the sites…in return they get better ads and service…This is really an interesting and exciting area that bears watching out.