NEW YORK (AdAge.com) -- Marketers have always sought that secret sauce, the data that gives them an edge over their competition. And online, where data is generated faster than anyone can make sense of it, that arms race has taken on an extreme dimension.
It's about taking what was once considered a near value-less impression, adding layers of data and turning it into something more valuable. An ad impression outside premium sites may have little to no intrinsic value until data is added into the equation. The question is: how much data, at what cost, and how far to go?
"Marketers are trying to make sense of this ecosystem that has really just emerged in the last year," said Jeff Hirsch, CEO of Audience Science.
A new generation of data providers and exchanges are competing for a slice of the display-ad dollar. They hope to bring the kind of science that has characterized search ads to the display world, and that means finding new ways to track consumers, anticipate their needs and serve them the right ad at the right time in the right context.
Data providers mine demographics, online behaviors, purchase history and, increasingly, offline data like household income and geography. Add another innovation to the mix: social connections. Venture-funded, Manhattan-based Media6Degrees is doing it. The company buys data from social networks and sites, makes the profiles themselves anonymous, and extrapolates from online connections who is connected to whom.
Media6Degrees, headed by former Spy publisher and Google exec Tom Phillips, collects data from blogging services, file-sharing apps and social sites. (He won't say which ones, but Facebook isn't one of them.) A connection is made between the browser and the URL. That data point is then crunched with 600 million others each day. What emerges is a trove of similar consumers that brands can target wherever they happen to be on the web.
Mr. Phillips argues that these connections are more powerful than demographics in determining where a brand's likely consumer will be. "Friends consume more similarly than people of the same demographic group," he said. "I don't know why it works, but it does."
Marketers working with Media6Degrees are reluctant to disclose the connection, because of the sensitivities and because, well, it's their secret sauce. But the business of applying data in the pursuit of marketing is booming on the web. The obvious risk is that someone will push the boundary too far and attract the ire of regulators, already under intense pressure from privacy groups to draw some kind of line in the sand.
A group of privacy organizations earlier this month filed a formal complaint demanding the Federal Trade Commission investigate a host of companies in the space, including eXelate, Targus Info, Google and Yahoo. "FTC inaction has encouraged the data-collection and ad-targeting industry to expand the use of consumer information for personalized advertising," wrote Center for Digital Democracy Executive Director Jeff Chester. The FTC said in a statement that it was "carefully reviewing" the complaint.
Privately some ad execs cringe at each new advance, especially the merging of offline with online data, worried that it will create a heated political issue that would end up crippling the industry just as it's climbing back on its feet. "In our view it's irresponsible given the regulatory environment to push the envelope," said Bryan Wiener, CEO of 360i, a unit of Dentsu. "Legislation to stop that kind of activity could threaten the overall internet economy by destroying targeting of all types."
But data use is core to online advertising and its use is exploding. It's not uncommon for the data to be 20% of the cost of a network online ad buy, estimated Rajeev Goel, CEO of Pubmatic. "Data comes in at every layer of the equation," he said. "The publisher may have data of their own. They may or may not make that available. The ad network will have its own data -- tracking user behavior across lots of sites." Then there are the data providers themselves, exchanges such as Blue Kai and eXelate, pure data companies such as Targus Info or Datran, or ad networks with their own data such as Collective Media or Specific Media.
It's not unheard of for markets to spend more on the data than on the media itself. How much data is too much? "If it becomes too expensive to target a user, then the value proposition goes away," said Shane Steele, CMO of video-ad network Tremor Media.
That's where the science starts to give way to the art. "If you buy the best data in the world but are serving the ad in a junky environment like Yahoo Mail, that is going to be worth less than if you buy half as much data but serve the ad on The New York Times," Mr. Wiener said.