These networks have shown that effective targeting can create a better return on investment for advertisers, and the large reach networks like AOL and Yahoo have acknowledged this fact through the allocation of dollars to acquire these networks. However, this is only the beginning of the story, and audience-targeted advertising is still in its infancy.

As the economy continues to decline, advertisers and agencies are taking note and testing these networks as efficiency in marketing spend becomes increasingly more important. This will drive a key shift in the industry: as the need to be more efficient in advertising expenditure grows, so will the demand for audience targeting – until it eventually supplants traditional network reach advertising.

This trend will be accelerated by the current economic downturn in three ways.

First, with advertisers scrambling to reduce budgets and find pockets of high return on their advertising dollars, they are going through a metamorphosis in how they think about allocating marketing spend. Shrinking budgets force each dollar to be used more effectively, and wasted impressions can no longer be tolerated as marketers and agencies are increasingly accountable for exactly where the dollars are going.

Second, as the rounds of layoffs hit the technology industry, marketing and agency teams have to do more with fewer people. This means that they no longer have the capacity to manage the dozens or even hundreds of vertically-focused sites that give the scale necessary to feed the company’s revenue goals. Finally, while marketers are reallocating dollars to be more efficient, undifferentiated ad networks that were just barely hanging on when times were good are finding themselves looking like emperors without clothes as the economy goes into decline. There have already been a few early victims , and 2009 will see a further significant contraction of these players. The survivors will be the big and the differentiated.

Enter audience targeting. With the ability to buy only impressions that are specifically suited to an advertiser’s audience of interest, a few things can be accomplished. First and most obvious, the performance of the advertising campaign improves simply because there is no waste, and no impressions delivered to someone who would never be a prospect. Second, and possibly more important for return-on-investment, the advertiser can see exactly which audience is performing and which isn’t.

This not only allows for current optimization of spend, but allows the marketer to plan new, more effective campaigns over time. Finally, ad networks that are able to aggregate and target the right audience across hundreds of sites and then optimize for success will be much easier and cheaper to manage with a reduced staff then a myriad of targeted sites.

As an example, Bizo, a B2B advertising network that uses bizographic data for targeting, has a client that is testing different industries and seniority levels, all targeting the small business audience. From a baseline CTR, there were three industries that improved the response rate by over 2-4x. The following shows a portion of the results of the industry test:

Business Services: 4.35x increase

Retail: 3.98x increase

Real Estate: 2.48x increase

Transportation and Travel: 1.87x increase

Advertising and Marketing: 1.36x increase

Consumer Services: 1.09x increase

Accounting: 1.05x increase

Insurance: 0.01x decrease

Media and Internet: 0.12x decrease

Legal: 0.32x decrease

By moving the advertiser’s budget to the performing industries at the top, Bizo was able to deliver a 3x more effective use of their dollars. This allowed the advertiser to drive an equal number of customers with roughly 1/3 of the cost.

What does all this mean if you’re a marketer? Target your audience!

This kind of re-allocation of resources and efficiency is how successful marketers will survive in a down economy. In a recent eMarketer study, 90% of advertisers said they plan to use ad networks in the coming year and the top two factors that they will use to differentiate networks were the quality of inventory and the audience targeting. Networks that have quality inventory and rich audience targeting capabilities should be some of the first places marketers and agencies look in 2009 and beyond to keep revenues flowing at lower costs and greater efficiency.

The focus on audience and efficiency will help these companies to survive the downturn and be in a great competitive position when the economic climate begins to thaw.

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