Will Retargeting Destroy Hyperlocal Chain Models?

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In my other life as a marketer/product manager, part of my role has been to dig into online advertising and learn about the technology in order to sell actual products. This has included in-depth research into click-through rates, ROI on different ads, sell-throughs, and all the other metrics that you read about on the advertising sites such as AdAge. Similarly, I learned a bit about PPC, SEM, Facebook ads, Twitter ads, and other forms of pay-for-performance online advertising. Probably the most disruptive technology to the ad market which I learned about was so-called retargeting. We loved it and I can understand why publishers hate it.

Retargeting is a simple concept. Say Salkever Enterprises sells high-end fishing gear. I want to serve display ads to people that I know are fisherman. In particular, I want to serve ads to people who visited FishingNews.com. I call up the FishingNews ad rep and they say, sure, we’ll sell you inventory at $25 CPM (cost per thousand impressions).

That’s steep for a little fishing company like mine. So I go to an advertising network and say, I want to serve ads against people who have visited fishing Websites. Can you help me out? They say sure, we can identify people who have recently visited fishing sites and serve them your display adds on other sites they are visiting that happen to run our inventory. And it will only cost you $1 CPM because we are selling remnant inventory these sites have sold to ad remnant networks. Even better, you’ll be able to follow your FishingNews readers all over the Internet!

This, in a nutshell, damages the economics of hyperlocal networks hoping to make any real ad revenues selling to larger buyers. These same buyers can – and increasingly do – use retargeting to get the same Internet users at a fraction of the cost. Retargeting also lets you perform nifty tricks like varying the types of ads a user might see depending on their past behavior or the number of times they have seen a spot.

Can it get annoying? Absolutely. I get tired of Zappos ads following me all over the Internet trying to sell me shoes. This becomes more of a problem when retargeters buy space on multiple remnant networks that don’t know what the other is doing. It can result in two or even three copies of the same ads running on the same Webpage at the same time. But at its very core, retargeting completely breaks down the exclusivity of advertising on Web property. For larger hyperlocal chains hoping to sell to larger regional and national advertisers, this means that they are selling against a radically cheaper cost alternative.

For mom-and-pop hyperlocals who are selling direct to merchants that want to support the publication, this is not as much of an issue. A local auto repair shop is probably not going to buy retargeted ads broken down by demographic and place as the number of addressable viewers per day would likely be too small to justify the hassle. In my mind, this is another example of how hyperlocal actually scales down better than it scales up. For bigger hyperlocal chains, the rise of retargeting will force them to be that much more creative about their advertising offerings and probably push them over time to move away from and even abandon straight display ad units.

Alex Salkever is an executive at a cloud computing company and a former technology editor of BusinessWeek.com. The views expressed in his column are his own and not those of his employer. His Personal Fight column appears every Wednesday on Street Fight.

Image courtesy of Flickr user Rob Ellis.


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