Digital Spotlight by Hoag Levins

THE SECOND COMING OF AN ONLINE ADVERTISING TOP GUN

Dave Morgan's Tacoda Finds Gold in Web-Based Behavioral Targeting

By Published on .

NEW YORK (AdAge.com) -- A good measure of the time Dave Morgan has spent making history at the core of the online advertising industry may well be the distance
Photo: Hoag Levins
Dave Morgan, CEO of Tacoda Systems Inc.
from his leg tattoo to the new artillery term on his business card.

Mr. Morgan, a media attorney who turned digital entrepreneur before that term existed, assembled the 1995 crew that created RealMedia Inc., the company that first offered the world of newspaper Web sites an effective online ad-serving network. The concept quickly caught on with virtually all mainstream publishers as the World Wide Web exploded into a populist news and entertainment phenomenon.

Ad network pioneer
Simple to describe but devilishly complicated to execute and run, an ad-serving network was the digital machinery that allowed advertisers to execute coordinated banner ad campaigns across regional, national or global clusters of hundreds or even thousands of Web sites.

In league with its two major competitors, DoubleClick and 24/7, RealMedia mushroomed out to become the critical back end engine room of the first phase of the Internet-based advertising business.

In the last months of 1999, with a staff that had grown from zero to 500 in four years, offices in 19 countries, and $54 million in annual revenues, Mr. Morgan was ramping up hard toward the public offering that would be his big payoff. In a moment of exuberance, he vowed that if RealMedia hit its next round of pre-IPO earnings goals, he would tattoo the corporate logo on his body. A short time later, it did and he did.

Tattoo
Today, as he pulls up his cuff to expose the crisp red and black "RealMedia" logo near his ankle, the 40-year-old smiles wryly. A few months after he was inked, the Internet boom and its horde of Wall Street backers went down in one

Photo: Hoag Levins
At the height of the Dot-com boom, Mr. Morgan had his company's name tattooed on his leg.
of the most devastating economic implosions the country has ever witnessed.

RealMedia, like DoubleClick and 24/7, suffering mightily but stayed afloat because their systems provided vital, irreplaceable infrastructure services to the players who were still running ad-supported Web operations in the post-dot-com collapse.

Financially strapped, RealMedia finally sold itself to PubliGroupe, the Swiss media conglomerate, and Mr. Morgan went with it. He bailed out in 2001 and, soon afterward, the man who created the digital structure that was the core of the old RealMedia -- tech chief Gil Beyda -- also left to join Mr. Morgan in a new venture.

Artillery term
That new company took a military artillery acronym -- TACODA -- as its name. The term, which stands for Target Coordinate Data, refers to the systems used by the military to precisely deliver weapon payloads to their targets.

In a somewhat less dramatic sense, that function exactly describes what Tacoda's software system does for marketers on Web sites. Once again envisioning and building a complicated back end operation heavy on muscle but totally devoid of glitz, Mr. Morgan and his tech geeks are back in the engine room selling behavioral targeting or "audience management" tools to the online marketing industry.

"We want to be the Norden Bombsight of online marketing," laughed Mr. Morgan in an interview in his eighth-floor Midtown Manhattan offices that is home to 20 employees. The space features bare walls and, in places, the mauve and purple colors

left by the last tenant. The conference room is furnished with plastic chairs, a no-nonsense table and a large white board covered with tangles of network drawings. Overall, the place has the air of a typical startup from the old Silicon Alley days, even though it now services mainstream media companies such as Tribune Co. and Advance Publications.

Web database marketing systems
Here, Tacoda Systems has created the digital machinery that enables large-scale print media companies to use their Web sites as enclosed database marketing systems that instantly recognize and directly interact with specific individuals.

Tacoda's software bridges together all the new online and legacy offline customer information systems maintained by a large traditional magazine or newspaper company. These print publication subscriber files, Web site registration files, e-newsletter subscriber lists, e-mail alert lists and Web behavior-tracking logs are combined into a single database. This dynamic central resource sits atop the Web site, functioning as a digital control center that detects, monitors and responds in real-time to user entry and movement.

As it combines the details of print publication circulation files -- including things such as street address and job category -- with online behavior and personal interest data, the system creates a rich demographic profile of each Web site user.

Audience segments
The integrated central database constantly updates and expands itself from all its sources, building ever-more detailed profiles of individual users. In this manner, it becomes increasingly more effective at segmenting out specific groups

of individuals into precise demographic niches. Marketers are then sold the opportunity to reach these individual people as they regularly visit the Web site.

Because the system knows who the users are and because it maintains a permanent record of their activities within the site, it can also report to marketers the exact reach and frequency of ad exposures. It knows the specific people who were exposed to each ad and how many exposures it required to get that person to click through to further engagement with the advertiser's message.

What Tacoda is doing is not just cookie-based ad targeting, although ad targeting is a component of the larger system, Mr. Morgan said. Nor is it customer relationship marketing (CRM), which is, perhaps, one of the industry's more confusing and misunderstood terms.

Not CRM
"CRM is all about customer sales, service and support; it is only about managing people who are already customers," Mr. Morgan said. "Audience management is all about turning audience into prospects. Imagine the classic consumer sales funnel: The top is full of prospects and the bottom is where the prospects are converted. CRM systems were built to manage the very bottom of that funnel. Audience management is all about the top of the funnel -- undifferentiated prospects -- and the media audiences in the clouds above the funnel, waiting to rain down into the funnel as the result of effectively executed advertising and marketing programs."

And what about the privacy issue raised by a system that gathers, analyzes and stores such detailed files on individual Web users? Mr. Morgan was asked. Didn't DoubleClick trigger a furor with its own system for collecting and storing personal information about Web user behavior? (In 2002, a 30-month online privacy practices investigation of DoubleClick by the attorney generals of 10 states ended as the company agreed to pay $450,000 to cover the cost of the investigation, according to a company spokesperson. The spokesperson said that all state claims against DoubleClick were dismissed. The company was collecting data about online consumers' travels around the entire World Wide Web.)

"Privacy is a very big issue," said Mr. Morgan who, as a practicing attorney, previously litigated privacy-related lawsuits for newspaper companies.

Data ownership
"One of the problems that DoubleClick had back then was that the people in its database didn't know they had a relationship with DoubleClick. Our Tacoda system does what it does only within a publisher's Web site," he said. "We provide platforms and databases to publishing companies that already have first-party data relationships. We do not and will not own any data. Trust plays a large part in all of this."

"For instance," he continued, "no one complained about the New York Times on the Web database and registration system when it started back in the '90s. Why? It only involved that Web site and people trusted the Times."

In fact, the original idea for a new kind of Web-based database marketing -- or audience management -- system first came to Mr. Morgan in 1996 when RealMedia was retained by The New York Times to help build the first such large-scale system for a media company.

Martin Nisenholtz
It all began, said New York Times Digital CEO Martin Nisenholtz, in 1995 when he arrived to oversee the start of The New York Times on the Web. His business model offered users free access to news content in return for registration.

"The old term for this was 'permission marketing,'" Mr. Nisenholtz said. "People provided some information about themselves so we could more precisely market to them.

"No one had done [database marketing] on the Web before," he said. "There were no off-the-shelf programs that we could simply plug into our registration system. We had to build our own. I have a background from Ogilvy [& Mather, an ad agency] and the whole notion of database marketing -- segmenting your customer base and trying to figure out which customer should receive which messages and why -- is as old as direct marketing.

Front-end segmentation
"The problem," he continued, "is that the only front-end systems that could deliver that in the old days were systems that, by and large, were analog in nature -- for instance, the very expensive medium of mail. The great thing about the Web, in my view, was that you could begin to efficiently segment on the front end.

"Once having made the decision, we needed to put the systems in place to actually deliver on the premise of targeted marketing and we worked with Dave Morgan's RealMedia for that," he said.

Since then, NYTimes.com had continuously expanded and improved its database-targeted advertising system on its own, but Mr. Nisenholtz noted the very uniqueness of the site's advertising capabilities has presented its own sort of challenge.

"We created a nonstandard approach to the marketplace. For [an advertiser] to employ this tactic, they have to work specifically with us and they can't apply what they've done to other Web sites. If a single supplier is offering a tactic like this, it diminishes that single supplier's ability to sell in in the marketplace." That is why, he said, "it is very important that more [media company Web sites] do it."

Tacoda standardization
Since launching two and a half years ago, Tacoda has focused on that exact goal -- of creating standardized database marketing or audience management systems that can be used by newspaper and magazine company Web sites across the country. And it appears to have found a fertile niche for its systems, which range in price from $350,000 to $700,000, not including annual maintenance and support fees that can run from $50,000 to $80,000 a year.

Among the media companies now using Tacoda systems to analyze and target their online audiences are USAToday.com; Tribune Interactive, which operates 11 major newspaper Web sites including that of the Los Angeles Times; Advance Internet's New Jersey Online, Cleveland.com, mLive.com and OregonLive.com; CondeNet's Epicurious.com, Concierge.com and Style.com; and Belo Corp., with 22 newspaper, TV and cable Web sites.

Eric Christensen, vice president and general manager of Belo Interactive, explained that all Belo Web site technology is coordinated from a server farm at the company's headquarters in Dallas. A Tacoda audience management system is now laced across all 22 sites.

VP of audience management
The impact of the daily information and insights provided by the Web audience data system over the last year is so significant that Belo's online publishing division has reorganized its sales operations around it. Even the position that used to be vice president of marketing has been changed to vice president of audience management.

"We were onto registration very early and our marketing has always been based on trying to understand and drive audiences more effectively," Mr. Christensen said. "But once Tacoda was in place, we began to see how blurry the lines were between our sales organization, which was previously responsible for the ad operation side, and the marketing folks, who were bringing the audiences onboard. It made sense to consolidate those efforts in one group and then really refocus our sales organization on selling.

"We have subscriber data both declared through registration and our other sources," he said. "On our newspaper and TV station side, we have viewership and readership information. We even ask about pass-along readership and single-copy sales on a declared basis through registration. We also have cross-referenced our online registration database with the subscriber databases of our newspapers -- No. 1, to validate our data, and No. 2, to look at what opportunities there are to target subscription offers. We are also using a lot of this comparison data to study whether a newspaper subscriber uses a Web site in ways different from how a non-subscriber uses the same Web site.

"In all honesty, this is a fairly new initiative for us," Mr. Christensen said. "We have consciously been focused more on generating revenue with the product than spending too much time running reports -- because there is such a depth of data there. We've really been trying to drive this thing from an actionable audience, revenue side perspective."

And, he said, the results have been "phenomenal." The conservative, soft-spoken executive went on to explain that he was not usually given to overstatement but that there "are very few new things that come along in the ad sales business that are 'phenomenal.' This really was."

Belo case study
One of the campaigns that convinced Mr. Christensen and his staff of that was a regional advertising experiment conducted by a local Dallas-area Mitsubishi dealer. The dealer launched comparison ad campaigns for an automotive finance offer in eight different regional media. The Web site of Belo's Dallas Morning News received the Internet portion of the buy, which used the same creative concept in all media executions.

Using Tacoda's system, DallasNews.com targeted the ads at people who had visited its online automotive content in the last 30 days. But the ads weren't targeted at those users while they were in the automotive content areas. Instead, the visitors were targeted as they browsed the local news, sports, weather, food and lifestyle sections.

The logic of this was to target people whose Web behavior indicated they were seriously looking at automotive news content and classified advertising -- clearly prospects who were at least thinking about a new car. The day-to-day targeting was done on a "roll" -- with prospects over 30 days being dropped while the latest ones who had browsed automotive content were added.

The ad configuration included a unique 800-number that could be identified and logged as calls came into the dealership.

After one month, the clickthroughs for untargeted, run-of-site ads was .33%; run of untargeted automotive section ads was .7%.

Inbound calls up 50%
During the same period, ads precisely targeted at people who were known to have browsed onsite automotive information in the past 30 days logged a 7.7% clickthrough rate. Credit applications were up 50% from inbound calls to the dealership from the targeted ads' Web site phone number. In fact, 44% of all the 800-number calls coming in from all different media executions came from the targeted Web site campaign, Mr. Christensen said.

"The targeted Web campaign just blew the doors off," he said. "The result helped us prove that marketers using targeted ads with Belo Interactive did get a significant lift by delivering the right message to the right audience at the right time.

"In the larger picture," he said, "this also showed me that we are now beginning to achieve the technological capability to deliver on the promise of the Internet that everyone has been talking about for so many years but which have previously been so elusive for ads sales departments."

The next tattoo?
Back in Manhattan, eight stories above 7th Avenue, Mr. Morgan was smiling at having learned earlier that day that Tocoda had finalized a deal to install its system for iVillage.com. IVillage, which is 30% owned by the Hearst Corporation, is one of the Web's largest mainstream consumer sites aimed at women. Before the afternoon was out, he also learned that the E.W. Scripps Co. was about to sign an agreement to put Tacoda's audience management systems in 15 newspaper Web sites.

The only real question left to be answered that day seemed obvious: How long did Mr. Morgan think it would be before he had "Tacoda" tattooed on his other leg?

The query brought an elfin grin from the man who admitted, with the gleam of IPO in his eyes, that "given the right target and right objectives" to motivate him, there may indeed be more ink ahead in this life.

~ ~ ~
Hoag Levins is the editor and executive producer of AdAge.com.

In this article:
Most Popular